<PAGE> 1
As filed with the Securities and Exchange Commission on April __, 2000
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM S-8
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
SUN MICROSYSTEMS, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 94-28905249
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification Number)
901 San Antonio Road
Palo Alto, CA 94303
(650) 960-1300
(Address, including zip code, of
Registrant's principal executive offices)
INNOSOFT INTERNATIONAL, INC. 1992 STOCK INCENTIVE PLAN
INNOSOFT INTERNATIONAL, INC. 1999 EQUITY INCENTIVE PLAN
(Full Title of the Plans)
Scott G. McNealy
Chief Executive Officer
SUN MICROSYSTEMS, INC.
901 San Antonio Road
Palo Alto, CA 94303
(650) 960-1300
(Name, address, including zip code and telephone number,
including area code, of agent for service)
COPY TO:
Daniel R. Mitz, Esq.
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
650 Page Mill Road
Palo Alto, CA 94304
(650) 493-9300
================================================================================
1
<PAGE> 2
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------
Proposed
Maximum Proposed
Amount Offering Maximum Amount of
to be Price Aggregate Registration
Title of Securities to be Registered Registered Per Share Offering Price Fee
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock of the Company to be issued
upon exercise of options granted under the
Innosoft International, Inc. 1992 Stock 46,967 $85.1875(1) $4,001,001 $1,056.26
Incentive Plan and the
Innosoft International, Inc. 1999 Equity 5,053 $85.1875(1) $ 430,452 $ 113.64
Incentive Plan
------ ---------- ---------
Total 52,020 $4,431,453 $1,169.90
- ------------------------------------------------------------------------------------------------------
</TABLE>
(1) Computed in accordance with Rule 457(h)(1) under the Securities Act of
1933 as amended, solely for the purpose of calculating the registration
fee. Computation is based on the average of the high and low prices
reported on the NASDAQ Stock Market for the five business days prior to
April 27, 2000.
<PAGE> 3
PART II:
INFORMATION REQUIRED IN REGISTRATION STATEMENT
ITEM 3. INFORMATION INCORPORATED BY REFERENCE.
There are hereby incorporated by reference in this Registration Statement
the following documents and information heretofore filed with the Securities
and Exchange Commission (the "Commission") by Sun Microsystems, Inc. (the
"Registrant"):
1. The Registrant's Annual Report on Form 10-K for the year ended June
30, 1999, filed pursuant to Section 13(a) of the Securities Exchange Act of
1934, as amended (the "Exchange Act").
2. The Registrant's Quarterly Reports on Form 10-Q for the quarters
ended September 26, 1999 and December 26, 1999, respectively, filed pursuant to
Section 13(a) of the Exchange Act.
3. The Registrant's Registration Statement on Form 8-A relating to the
Registrant's Common Stock, filed pursuant to Section 12(b) of the Exchange Act
on October 24, 1986, as amended.
4. The Registrant's Registration Statement on Form 8-A/A Amendment No. 8
relating to the Registrant's Common Share Purchase Rights filed pursuant to
Section 12(b) of the Exchange Act on April 27, 2000.
All documents filed by the Registrant pursuant to Sections 13(a), 13(c),
14 and 15(d) of the Exchange Act after the date of this Registration Statement
and prior to the filing of a post-effective amendment which indicates that all
securities offered have been sold or which deregisters all securities then
remaining unsold, shall be deemed to be incorporated by reference in this
Registration Statement and to be part hereof from the date of filing of such
documents.
ITEM 4. DESCRIPTION OF SECURITIES.
Not applicable.
ITEM 5. INTERESTS OF NAMED EXPERTS AND COUNSEL.
Not applicable.
ITEM 6. INDEMNIFICATION OF DIRECTIONS AND OFFICERS.
Section 145 of the General Corporation Law of the State of Delaware, as
amended, provides that under certain circumstances a corporation may indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding whether civil,
criminal, administrative or investigative, by reason of the fact that he or she
is or was a director, officer, employee or agent of the Company or is or was
serving
3
<PAGE> 4
at its request in such capacity in another corporation or business association,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him or her in connection with
such action, suit or proceeding if he or she acted in good faith and in a manner
he or she reasonably believed to be in or not opposed to the best interests of
the Company and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful.
Section 11 of the Restated Certificate of Incorporation of the Registrant
provides in effect that, subject to certain limited exceptions, the Registrant
shall indemnify its directors and officers to the extent authorized or permitted
by the General Corporation Law of the State of Delaware. The directors and
officers of the Registrant are insured under policies of insurance maintained by
the Company, subject to the limits of the policies, against certain losses
arising from any claims made against them by reason of being or having been such
directors or officers. Like indemnification and insurance is also provided to
those employees of the Registrant who serve as administrators of the Plan. In
addition, the Company has entered into contracts with certain of its directors
providing for indemnification of such persons by the Registrant to the full
extent authorized or permitted by law, subject to certain limited exceptions.
ITEM 7. EXEMPTION FROM REGISTRATION CLAIMED.
Not applicable.
ITEM 8. EXHIBITS.
<TABLE>
<CAPTION>
Number Document
<S> <C>
4.1 Innosoft International, Inc. 1992 Stock Incentive Plan.
4.2 Innosoft International, Inc. 1999 Equity Incentive Plan.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation,
with respect to the legality of the securities being registered.
23.1 Consent of Counsel (Contained in Exhibit 5.1).
23.2 Consent of Ernst & Young LLP, Independent Auditors.
24.1 Power of Attorney (See page 7).
</TABLE>
ITEM 9. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement to include any
material information with respect to the plan of distribution not previously
disclosed in the Registration Statement or any material change to such
information in the Registration Statement.
(2) That, for the purposes of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
4
<PAGE> 5
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in this Registration Statement shall be deemed to be
a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the 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 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.
5
<PAGE> 6
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant, Sun Microsystems, Inc., a corporation organized and existing under
the laws of the State of Delaware, certifies that it has reasonable grounds to
believe that it meets all of the requirements for filing on Form S-8 and has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Palo Alto, State of
California, on April 26, 2000.
SUN MICROSYSTEMS, INC.
By: /s/ Michael E. Lehman
-----------------------------------
Michael E. Lehman
Vice President, Corporate Resources
and Chief Financial Officer
6
<PAGE> 7
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Scott G. McNealy and Michael E. Lehman,
jointly and severally, his or her attorneys-in-fact, each with the power of
substitution, for him or her in any and all capacities, to sign any amendments
to this Registration Statement on Form S-8 and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact, or his or her substitute or substitutes, may do or cause to
be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Scott G. McNealy Chairman of the Board of Directors, April 26, 2000
- ------------------------- and Chief Executive Officer
Scott G. McNealy (Principal Executive Officer)
/s/ Michael E. Lehman Vice President, Corporate Resources April 26, 2000
- ------------------------- and Chief Financial Officer
Michael E. Lehman (Principal Financial Officer)
/s/ Michael L. Popov Vice President, Corporate Controller April 26, 2000
- ------------------------- (Principal Accounting Officer)
Michael L. Popov
/s/ James L. Barksdale Director April 26, 2000
- -------------------------
James L. Barksdale
Director April 26, 2000
- -------------------------
L. John Doerr
Director April 26, 2000
- -------------------------
Judith L. Estrin
/s/ Robert J. Fisher Director April 26, 2000
- -------------------------
Robert J. Fisher
/s/ Robert L. Long Director April 26, 2000
- -------------------------
Robert L. Long
/s/ M. Kenneth Oshman Director April 26, 2000
- -------------------------
M. Kenneth Oshman
/s/ Naomi O. Seligman Director April 26, 2000
- -------------------------
Naomi O. Seligman
</TABLE>
7
<PAGE> 8
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
4.1 Innosoft International, Inc. 1992 Stock Incentive Plan.
4.2 Innosoft International, Inc. 1999 Equity Incentive Plan.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation, with respect to the legality of the securities being
registered.
23.1 Consent of Counsel (Contained in Exhibit 5.1).
23.2 Consent of Ernst & Young LLP, Independent Auditors.
24.1 Power of Attorney (See page 7).
</TABLE>
8
<PAGE> 1
EXHIBIT 4.1
INNOSOFT INTERNATIONAL, INC.
1992 STOCK INCENTIVE PLAN
SECTION 1. PURPOSE OF PLAN.
The purpose of this 1992 Stock Incentive Plan ("Plan") of Innosoft
International, Inc. a California corporation (the "Company"), is to enable the
Company and its subsidiaries to attract, retain and motivate its employees,
directors and consultants by providing for or increasing the proprietary
interests of such persons in the Company.
SECTION 2. PERSONS ELIGIBLE UNDER PLAN.
Any person who is an employee of the Company or any of its subsidiaries,
any member of the Board of Directors of the Company or any person retained by
the Company or any of its subsidiaries in a consulting capacity (each, a
"Participant") shall be eligible to be considered for the grant of Awards (as
hereinafter defined) hereunder; provided, however, that only persons who are
employees of the Company or any of its subsidiaries shall be eligible for the
grant of Incentive Stock Options (as hereinafter defined).
SECTION 3. AWARDS.
(a) The Committee (as hereinafter defined), on behalf of the Company, is
authorized under this Plan to enter into any type of arrangement with a
Participant that is not inconsistent with the provisions of this Plan and that
by its terms, involves or might involve the issuance of (i) shares of common
stock of the Company ("Common Shares"), (ii) an option, warrant, convertible
security, stock appreciation right or similar right with an exercise or
conversion privilege at a price related to the Common Shares, or (iii) any other
security or benefit with a value derived from the value of the Common Shares.
The entering into of any such arrangement is referred to herein as the "grant"
of an "Award."
(b) Awards are not restricted to any specified form or structure and may
include, without limitation, sales or bonuses of stock, restricted stock, stock
options, reload stock options, stock purchase warrants, other rights to acquire
stock, securities convertible into or redeemable for stock, stock appreciation
rights, limited stock appreciation rights, phantom stock, dividend equivalents,
performance units or performance shares, and an Award may consist of one such
security or benefit, or two or more of them in tandem or in the alternative.
(c) Common Shares may be issued pursuant to an Award for any lawful
consideration as determined by the Committee, including without limitation,
services rendered by the recipient of such Award.
(d) Subject to the provisions of this Plan, the Committee, in its sole
and absolute
1
<PAGE> 2
discretion, shall determine all of the terms and conditions of each Award
granted under this Plan, which terms and conditions may include, among other
things:
(i) provisions permitting the recipient of such Award, including any
recipient who is a director or officer of the Company, to pay the
purchase price of the Common Shares or other property issuable
pursuant to such Award, or such recipient's tax withholding
obligation with respect to such issuance, in whole or in part, by
any one or more of the following:
(A) the delivery of previously owned shares of capital stock of
the Company (including "pyramiding") or other property,
(B) a reduction in the amount of Common Shares or other property
otherwise issuable pursuant to such Award, or
(C) the delivery of a promissory note, the terms and conditions
of which shall be determined by the Committee;
(ii) provisions accelerating the receipt of benefits pursuant to such
Award upon the occurrence of specified events, including, without
limitation, a change of control of the Company, an acquisition of
a specified percentage of the voting power of the Company, the
dissolution or liquidation of the Company, a sale of
substantially all of the property and assets of the Company or an
event of the type described in Section 7 hereof; or
(iii) provisions required in order for such Award to qualify as an
incentive stock option under Section 422 of the Internal Revenue
Code (an "Incentive Stock Option").
SECTION 4. STOCK SUBJECT TO PLAN.
(a) The maximum number of Common Shares that may be issued pursuant to
all Awards (including Incentive Stock Options) granted under this Plan, other
than Common Shares that are issued pursuant to Awards and subsequently
reacquired by the Company pursuant to the terms and conditions of such Awards,
is 1,250,000, subject to adjustment as provided in Section 7 hereof (such
maximum number, as so adjusted, shall be referred to herein as the "Share
Limitation").
(b) No Award may be granted under this Plan unless, on the date of
grant, the sum of (i) the maximum number of Common Shares issuable at any time
pursuant to such Award, plus (ii) the number of Common Shares that have
previously been issued pursuant to Awards granted under this Plan, other than
Common Shares that have been issued pursuant to Awards and subsequently
reacquired by the Company pursuant to the terms and conditions of such Awards,
plus (iii) the maximum number of Common Shares that may be issued at any time
2
<PAGE> 3
thereafter pursuant to Awards granted under this Plan that are outstanding on
such date does not exceed the Share Limitation.
SECTION 5. DURATION OF PLAN.
No Awards shall be granted under this Plan after March 27, 2002.
Although Common Shares may be issued after such date pursuant to Awards granted
prior to such date, no Common Shares shall be issued under this Plan after March
27, 2012.
SECTION 6. ADMINISTRATION OF PLAN.
(a) This Plan shall be administered by a committee of the Board of
Directors of the Company (the "Board") consisting of two or more directors or by
the Board itself. (As used herein, the term "Committee" shall mean such
committee or, if no such committee has been appointed, the Board.)
(b) Subject to the provisions of this Plan, the Committee shall be
authorized and empowered to do all things necessary or desirable in connection
with the administration of this Plan, including, without limitation, the
following:
(i) adopt, amend and rescind rules and regulations relating to
this Plan;
(ii) determine which persons meet the requirements of Section 2
hereof for eligibility under this Plan and to which of such
eligible persons, if any, Awards shall be granted hereunder;
(iii) grant Awards to eligible persons and determine the terms and
conditions thereof, including the number of Common Shares
issuable pursuant thereto;
(iv) determine whether, and the extent to which, adjustments are
required pursuant to Section 7 hereof; and
(v) interpret and construe this Plan and the terms and conditions
of any Award granted hereunder.
SECTION 7. ADJUSTMENTS.
If the outstanding securities of the class then subject to this Plan are
exchanged for or converted into cash, property or a different number or kind of
securities, or if cash, property or securities are distributed in respect of
such outstanding securities, in either case as a result of a reorganization,
merger, consolidation, recapitalization, restructuring, reclassification,
dividend (other than a regular, periodic cash dividend) or other distribution,
stock split, reverse stock split or the like, or if substantially all of the
property and assets of the Company
3
<PAGE> 4
are sold, then, unless the terms of such transaction shall provide otherwise,
the Committee shall make appropriate and proportionate adjustments in (a) the
number and type of shares or other securities or cash or other property that may
be acquired pursuant to Incentive Stock Options and other Awards theretofore
granted under this Plan and (b) the maximum number and type of shares or other
securities that may be issued pursuant to Incentive Stock Options and other
Awards thereafter granted under this Plan.
SECTION 8. AMENDMENT AND TERMINATION OF PLAN.
The Board may amend or terminate this Plan at any time and in any
manner; provided, however, that no such amendment or termination shall deprive
the recipient of any Award theretofore granted under this Plan, without the
consent of such recipient, of any of his or her rights thereunder or with
respect thereto; and, provided further, that the approval of the holders of a
majority of the outstanding shares of the Company shall be required for the
adoption of any amendments to this Plan which would alter the class of persons
eligible under Section 2 hereof to receive Awards or which would increase the
number of shares subject to this Plan other than an increase pursuant to Section
7 hereof.
SECTION 9. EFFECTIVE DATE OF PLAN.
This Plan shall be effective as of March 27, 1992, the date upon which
it was approved by the Board; provided, however, that no Common Shares may be
issued under this Plan until it has been approved, directly or indirectly, by
the affirmative votes of the holders of a majority of the securities of the
Company present, or represented, and entitled to vote at a meeting duly held in
accordance with the laws of the State of California.
4
<PAGE> 5
Option Number __
INCENTIVE
STOCK OPTION AGREEMENT
UNDER THE
1992 STOCK INCENTIVE PLAN
OF
INNOSOFT INTERNATIONAL, INC.
This Incentive Stock Option Agreement (the "Agreement") is effective as
of, _______, between Innosoft International, Inc. a California corporation (the
"Company"), and __________________ ("Optionee").
R E C I T A L S
A. The Company has adopted the 1992 Stock Incentive Plan (the "Plan"),
which Plan is incorporated herein by reference and made a part of this
Agreement; and
B. Optionee is an employee of the Company, or a Parent or a Subsidiary
(as defined in the Internal Revenue Code of 1986, as amended (the "Code")) of
the Company whose efforts have contributed, or are reasonably expected to
contribute, to the success of the Company, and the Company has determined that
it would be to the advantage and interest of the Company and its shareholders to
grant the option provided for herein to Optionee under the Plan as an inducement
to remain in the service of the Company and as an incentive for increased
efforts while in such service.
A G R E E M E N T
In consideration of the foregoing recitals, and the terms, conditions,
and covenants contained herein, the parties hereto hereby agree as follows:
l. Grant of Option. The Company hereby grants to Optionee the right and
option to purchase (the "Option"), on the terms and conditions hereinafter set
forth, an aggregate of ________ shares (the "Shares") of the Common Stock of the
Company (the "Stock") in installments as set forth in Section 2. The purchase
price of the Shares shall be $____ per share (the "Option Price"), which price
is not less than 100% of the per share fair market value of the stock as of the
date hereof. The number of the Shares and the Option Price are subject to
adjustment under certain circumstances, as provided herein and in the Plan.
2. Term and Exercisability of Option. This Option shall become
exercisable in installments on or before the tenth anniversary date of this
Agreement (the "Termination Date"), unless sooner terminated in accordance with
the provisions of Section 3, 5 or 6 hereof, as follows: ____ shares hall vest
per month on the first day of each month commencing ______, with the final
vesting to be ____ shares on ______, but in no event later than the Termination
Date.
In no event shall the Company be required to issue fractional shares.
Exercises for less than all of the Shares available for exercise shall be at the
expense of Optionee, as described in Section 4 hereof.
1
<PAGE> 6
3. Expiration of Option. The period for exercising this Option (the
"Option Period") will end on the Termination Date; provided, however,
(a) if Optionee ceases to be a bona fide employee of the Company, a
Parent or a Subsidiary of the Company (other than for Misconduct, as defined in
Section 16 hereof, or by death) during the Option Period, this Option shall
thereafter be exercisable (1) provided Optionee has not become permanently and
totally disabled (within the meaning of Section 22(e)(3) of the Code) while
employed by the Company, or a Parent or Subsidiary of the Company, on or before
the Termination Date or for 30 days after termination of Optionee's employment,
whichever shall first occur, and (2) if Optionee has become permanently and
totally disabled while employed by the Company, or a Parent or Subsidiary of the
Company, on or before the Termination Date or for one year after termination of
Optionee's employment, whichever shall first occur, and, in either case, this
Option shall then be exercisable only to the extent that it was exercisable
under the provisions of Section 2 hereof at the time of such cessation of
employment. Notwithstanding the foregoing, in no event shall this Option be
exercisable later than the Termination Date. If Optionee is absent from work
because of his or her disability or for such other purpose or reason as the
Board of Directors of the Company (the "Board") or the Committee administering
the Plan (the "Committee") may approve, Optionee shall not be deemed, during the
period of any such absence, by virtue of such absence alone, to have terminated
his or her employment with the Company or such Parent or Subsidiary, except as
the Board or the Committee may otherwise expressly provide;
(b) if the employment of Optionee is terminated as a result of
Misconduct, as defined in Section 16 hereof, this Option shall terminate on the
date of the cessation of such requisite relationship and shall thereupon not be
exercisable to any extent whatsoever; or
(c) if Optionee should die while in the employ of the Company or a
Parent or Subsidiary of the Company, or within any of the applicable periods
referred to in Section 3(a) hereof, this Option may, within a period of one year
from the date of Optionee's death, be exercised by Optionee's legal
representative, or by the person or persons to whom Optionee's rights under this
Option shall pass by will or by the applicable laws of descent and distribution,
but only if, and to the extent, this Option was exercisable by Optionee at the
time of his or her death and only prior to the Termination Date.
4. Manner of Exercise. Optionee may exercise this Option with respect to
all or any part of the Shares then subject to such exercise as follows:
(a) By giving the Company written notice of such exercise,
specifying the number of the Shares as to which this Option is so exercised and
accompanied by an amount equal to the aggregate Option Price of such shares, in
the form of any one or combination of (1) cash or a cashier's check, bank draft,
or postal or express money order payable to the order of the Company in lawful
money of the United States, (2) shares of Stock previously acquired by Optionee,
or (3) with the approval of the Company, which may be withheld in its sole
discretion, a promissory note with such terms and conditions as shall be
acceptable to the Company, the obligations under which promissory note are
secured by such shares pursuant to a pledge agreement with such terms and
conditions as shall be acceptable to the Company. Any Stock so delivered shall
be valued at its fair market value (as determined in the manner set forth in
Section 8 herein) on the date of exercise;
2
<PAGE> 7
(b) If required by the Company, by giving satisfactory assurance in
writing, signed by Optionee or his or her legal representative, as the case may
be, that such shares are being purchased for investment only and not with a view
to the distribution thereof; provided, however, that such assurance shall be
deemed inapplicable to (1) any sale of such shares by the Optionee subject to a
registration statement covering such sale, which has heretofore been (or may
hereafter be) filed and becomes effective under the Securities Act of 1933, as
amended (the "1933 Act"), and is current and with respect to which no stop order
suspending the effectiveness thereof has been issued, and (2) any other sale of
such shares with respect to which, in the opinion of counsel for the Company,
such assurance is not required to be given in order to comply with the
provisions of the 1933 Act; and
(c) If required by the Company, by paying to the Company the
reasonable expenses incurred by the Company in issuing a certificate for such
shares, if such exercise is for less than all of the Shares as to which this
Option has become exercisable. As soon as practicable after receipt of such
written notice of exercise from Optionee, the Company shall, without transfer or
issue tax or any other incidental expenses charged to Optionee or his or her
legal representative (except those specified in paragraph (c) above and in
Section 29 hereof), deliver to Optionee at the office of the Company, or such
other place as may be mutually acceptable to the Company and Optionee, a
certificate for such shares, which certificate may bear such legend or legends
with respect to restrictions on transfer thereof as counsel for the Company
deems to be required by applicable provisions of law and this Agreement;
provided, however, that nothing herein shall be deemed to impose upon the
Company any obligation to deliver any of the Shares to the Optionee if, in the
opinion of counsel for the Company, doing so would violate any provision of: (1)
the 1933 Act; (2) the Securities Exchange Act of 1934, as amended; (3) any
applicable listing requirements of any national securities exchange; (4) any
state securities, or "Blue Sky," laws or regulations; or (5) any other law or
regulation applicable to the issuance or transfer of such shares. In no event
shall the Company be required to take any affirmative action to comply with any
of such laws or regulations, nor shall the Company be liable for any failure to
deliver any of the Shares because such shares have not been registered or
because a registration statement with respect thereto is not current or because
such delivery would otherwise be in violation of any applicable law or
regulation.
The term "current", when used herein to refer to a registration
statement, shall mean a registration statement that, in the opinion of counsel
for the Company, does not include any untrue statement of a material fact and
that includes all material facts required to be stated therein or that are
necessary to make the statements therein not misleading.
5. Adjustments. If the outstanding shares of the Company's stock are
hereafter increased, decreased, changed into or exchanged for a different number
or kind of shares or other securities of the Company by reason of a
reorganization, recapitalization, reincorporation, stock split, reverse stock
split, or stock dividend, an appropriate and proportionate adjustment shall be
made by the Company in the maximum number and/or kind of securities subject to
this Option, and in the Option Price, in order to preserve, but not increase,
the benefit of this Option to Optionee. Anything herein contained to the
contrary notwithstanding, (a) upon dissolution or liquidation of the Company,
other than in connection with a reorganization, merger or consolidation of the
Company or a sale of all or substantially all of its assets, or in one
transaction or a series of transactions, 80% or more of its then outstanding
voting securities, to another corporation (an "Asset Sale" and a "Stock Sale",
respectively), or (b) upon dissolution or liquidation of the Company in
connection with a reorganization, merger (other than a merger solely for the
purposes of incorporating the Company), consolidation, or an Asset Sale or Stock
3
<PAGE> 8
Sale, with respect to which the surviving corporation, as defined in the Plan,
or acquiring corporation, or an affiliate thereof, does not, prior to or
concurrent with the succession to the business of the Company or acquisition of
its stock, assume this Option (subject to any applicable provisions of the Code)
or replace this Option with a new option of comparable value, this Option, in
either case, shall terminate and thereupon become null and void; provided,
however, that, if the surviving or acquiring corporation does not assume this
Option or replace this Option with a new option of comparable value, then
Optionee shall have the right, during the period following adoption of the plan
of dissolution, liquidation, reorganization, merger or consolidation by the
Board, or approval of any agreement with respect to an Asset Sale or Stock Sale
by the Board, and prior to or concurrently with consummation of such plan or
agreement (which period shall be no less than 20 days), to exercise this Option
to the full extent then exercisable pursuant to Section 2 hereof and not
theretofore exercised, and the Company shall give the Optionee written notice of
such right prior to the commencement of such period.
6. Assignment or Transfer. This Option shall, during Optionee's
lifetime, be exercisable only by Optionee, and neither this Option nor any right
hereunder shall be transferable by Optionee by operation of law or otherwise
other than by will or the laws of descent and distribution. In the event of any
attempt by Optionee to alienate, assign, pledge, hypothecate, or otherwise
dispose of this Option or of any right hereunder, except as provided for herein,
or in the event of the levy of any attachment, execution, or similar process
upon the rights or interest hereby conferred, this Option shall thereupon become
null and void ab initio and of no effect.
7. No Rights as a Shareholder. Neither Optionee nor any person entitled
to exercise Optionee's rights with respect to this Option in the event of his or
her death shall have any of the rights of a shareholder with respect to any of
the Shares except to the extent of the exercise of this Option.
8. Right of Repurchase.
(a) In the event that any of the events specified in Section 8(b)
below occur, then, with respect to any of the Shares acquired upon exercise of
this Option prior to the occurrence of such event, within 90 days following the
occurrence of such event, and, with respect to any of the Shares acquired upon
exercise of this Option pursuant to Section 3 hereof after occurrence of such
event, within 90 days following the date of such exercise, (in either case, the
"Repurchase Period"), the Company shall have the option, but not the obligation,
to repurchase all, but not a portion of, such Shares (the "Option Shares") from
Optionee, or his or her legal representative, as the case may be, at the then
present fair market value of such shares (the "Repurchase Option"). The
Repurchase Option shall be exercised by the Company giving Optionee, or his or
her legal representative, written notice of its intention to exercise the
Repurchase Option on or before the last day of the Repurchase Period. The
Company may, in exercising the Repurchase Option, designate one or more nominees
to purchase the Option Shares, either with or without the participation of the
Company.
(b) The Company shall have the Repurchase Option in the event that
any of the following occur:
(1) The termination of Optionee's employment with the Company or
a Parent or Subsidiary of the Company. The Repurchase Period with respect to
Option Shares acquired prior to the cessation of employment shall commence on
the date on which the Optionee ceases to be an employee of the Company or a
Parent or Subsidiary of the Company. The Repurchase Period with
4
<PAGE> 9
respect to Option Shares acquired subsequent to such date shall commence on the
date the Optionee acquires such shares. The fair market value of the Option
Shares shall be determined as of the last day of the month preceding the month
in which the Optionee ceases to be employed.
(2) The receivership, bankruptcy or other creditors proceeding
regarding Optionee or the taking of any of the Option Shares by legal process,
such as a levy of execution, whether or not Optionee then is employed by the
Company or a Parent or Subsidiary of the Company. The Repurchase Period shall
commence on the date the Company receives actual notice of the commencement of
pendency of the receivership, bankruptcy or other creditor's proceeding, or the
date of such taking, as the case may be. The fair market value of the Option
Shares shall be determined as of the last day of the month preceding the month
in which the proceeding involved commenced or the taking occurred.
(3) Distribution of any of the Option Shares by Optionee to his
or her spouse as such spouse's joint or community interest pursuant to a decree
of dissolution, property settlement agreement or for any other reason, except as
may be otherwise permitted by the Company, whether or not Optionee then is
employed by the Company or a Parent or Subsidiary of the Company. The Repurchase
Period shall be deemed to commence on the day the Company receives actual notice
of such distribution. The fair market value of the Option Shares shall be
determined as of the last day of the month preceding the month in which the
decree, agreement or, if there is no decree or agreement, the distribution
occurs.
(c) Fair market value of the Option Shares, as used in this Section
8, shall be an amount per share determined on the basis of the price at which
shares of the Stock could reasonably be expected to be sold in an arms-length
transaction, for cash, other than on an installment basis, to a person not
employed by, controlled by, in control of or under common control with the
Company, as follows:
(1) the fair market value shall initially be determined by the
Board of Directors of the Company, giving due consideration to recent
transactions involving shares of the stock, if any, earnings of the Company to
the date of such determination, the absence of a public market for the Stock,
and such other matters as the Board deems pertinent (the "Board Valuation");
(2) Optionee shall have the right to review the assumptions,
calculations and information used by the Board of Directors in determining the
Board Valuation and shall have 20 days after Optionee's receipt of the Board
Valuation to give written notice to the Company of any disagreement with the
Board Valuation, indicating the fair market value Optionee attributes to the
Option Shares (the "Optionee Valuation") and specifying in reasonable detail,
insofar as feasible, the nature and extent of Optionee's disagreement with the
Board Valuation;
(3) the Company and Optionee shall then attempt to agree upon a
mutually acceptable fair market value for the Option Shares; if the Company and
Optionee are unable to reach agreement as to fair market value within 10 days
after Optionee gives the Company notice of the Optionee Valuation, the
disagreement shall be referred for final determination to the Los Angeles office
of Deloitte & Touche, or if Deloitte & Touche is unwilling to serve, such other
independent accounting firm of national recognition that the Board of Directors
selects in good faith (the "Independent Accounting Firm"), which shall make a
final determination regarding such disagreement within 30 days after referral
thereof;
5
<PAGE> 10
(4) any determination with respect to the fair market value of
the Option Shares made by the Independent Accounting Firm shall be made on the
basis of the application of the standards set forth in this Section 8(c), and
the decision of the Independent Accounting Firm (the "Accountant Valuation")
shall be final and binding and shall not be subject to review or challenge of
any kind; provided, however, that if the Accountant Valuation is less than the
Board Valuation, the Board Valuation shall be binding on the parties and if the
Accountant Valuation is greater than the Optionee Valuation, the Optionee
Valuation shall be binding on the parties, and in either case, such binding
amount shall be final and shall not be subject to review or challenge of any
kind; and
(5) the Company and Optionee shall each pay one-half of the fees
and disbursements of the Independent Accounting Firm, if any.
9. Right of First Refusal.
(a) If at any time, whether during the continuance of Optionee's
employment by the Company, or a Parent or Subsidiary of the Company, or
thereafter, Optionee, or his or her legal representative, as the case may be (a
"Seller") desires to sell, transfer (by gift or otherwise), assign, hypothecate,
pledge, grant as a security interest, or in any other way dispose of or alienate
any of the Option Shares or any interest therein (other than by gift to the
spouse, parents or children of Optionee or to the parents or children of the
spouse of Optionee or to a trust established solely for the benefit of any one
or more of such persons (a "permitted transfer"), if such transferee agrees,
prior to the transfer, in a writing acceptable to the Company to hold such
shares subject to the terms of this Section 8 hereof and this Section 9),
(hereinafter referred to as a "Disposition"), the Seller shall give written
notice to the Company of Seller's intent to make a Disposition of such shares
(the "First Refusal Offer"). The First Refusal Offer shall contain a statement
signed by the Seller notifying the Company that the Seller desires to make a
Disposition of a specified number of the Option Shares or an interest therein
and shall be accompanied by a copy of the bona fide offer to purchase such
shares, in case of a sale, or a description of the proposed transaction with
respect to any other Disposition, and shall set forth the following:
(1) The full name and address of the intended transferee (the
"Transferee");
(2) The number of the Option Shares to be purchased by, or
transferred to, the Transferee;
(3) The price, in case of a sale, and other terms under which
the purchase is intended to be made;
(4) A statement, in case of a sale, signed by the Transferee,
that the price and other terms specified are a bona fide offer to purchase; and
(5) A representation, in case of a sale, by the Transferee that
he or she or it has the financial capability necessary to consummate the
purchase.
(b) The Company shall have 30 days from the date of receipt of the
First Refusal Offer within which to exercise an option to purchase the Option
Shares covered by a First Refusal Offer (the "First Refusal shares"), at the
same price and upon the same terms as set forth in such First
6
<PAGE> 11
Refusal Offer (the "First Refusal Option"), by giving the Seller written notice
of its intention to exercise such right. The Company may, in exercising the
First Refusal Option, designate one or more nominees to purchase the First
Refusal Shares, either with or without the participation of the Company. The
First Refusal Option shall apply to all, but not less than all, of the First
Refusal Shares. Notwithstanding the generality of the foregoing, however, the
purchase price for the First Refusal Shares may, at the option of the Company,
be paid (1) in the same manner provided in the First Refusal Offer, (2) in cash
in an amount equal to the present value of any payments to be made over a period
of time according to the terms of the First Refusal Offer, (3) by use of a
promissory note, as contemplated by Section 11 hereof, or (4) if the terms
specified in the First Refusal Offer state that payment is to be made in
property, in an amount equal to the fair market value of such property as of the
date the Company receives the First Refusal Offer, as determined in good faith
and on any reasonable basis, by the Board. For purposes of any computation made
pursuant to this paragraph, the present value of any amount to be paid in the
future shall be determined by the Board by discounting such amount using an
interest rate of 10%.
(c) If the Seller desires to make a Disposition of any of the Option
Shares other than by sale, including, without limitation, by gift, pledge,
hypothecation or the grant of a security interest, other than a permitted
transfer, the Seller shall obtain the prior written approval of the Company to
the proposed transfer, which approval the Company may give or withhold in its
sole discretion.
(d) If the First Refusal Shares are not purchased pursuant to the
related First Refusal Offer by the Company in accordance with this Section 9, in
the case of a proposed sale, or if the Company approves a Disposition other than
by sale, the Seller may make a bona fide transfer of the First Refusal Shares to
the respective transferee or transferees named in the related First Refusal
Offer; provided, however, that (1) such transfer shall only be made in strict
accordance with the terms stated in such First Refusal Offer, and immediately
following such transfer, the transferor shall so certify in writing to the
Company, and (2) before any such transfer shall become effective or be recorded
in the books of the Company, each transferee of the First Refusal Shares shall
agree in writing to hold such shares subject to the terms of this Agreement,
except for Section 8 hereof in the event the transferee is not an employee of
the Company or a Parent or Subsidiary of the Company. In the event the Optionee
does not make such transfer for a period of 60 days following the date on which
the Company receives the First Refusal Offer, no transfer of the First Refusal
Shares covered by the First Refusal Offer shall be made without a new First
Refusal Offer from the Seller to the Company in accordance with this Section 9
and in full compliance with all provisions hereof.
10. Closing. The closing with respect to a purchase of Shares by the
Company pursuant to Section 8 or 9 hereof (the "Closing") shall occur at the
principal executive office of the Company on the date and time agreed to by the
parties, but if no such agreement is reached, the Closing shall occur at 10:00
a.m., local time, on the last business day (as defined in Section 22 hereof) of
the 30-day period beginning with the last day of the Repurchase Period or the
First Refusal Period, as the case may be.
11. Deliveries at Closing. At the Closing, (a) Optionee or his or her
legal representative, as the case may be, shall deliver to the Company or its
designee, as the case may be, (1) share certificate(s), duly endorsed for
transfer, representing the Option Shares or the First Refusal Shares, as the
case may be, to be purchased at such Closing, and (2) a written statement from
Optionee or his or her legal representative, as the case may be, that such
shares are owned by such person, free and clear
7
<PAGE> 12
of any liens, claims, pledges, security interests or other encumbrances, and (b)
the Company or its designee, as the case may be, shall deliver to Optionee or
his or her legal representative, as the case may be, (1) the purchase price for
such shares, as determined in accordance with Section 8 or 9 hereof, as the case
may be, in the form of a check or a promissory note, a copy of which is attached
hereto as Exhibit A, and (2) if applicable, a share certificate for the number
of shares, if any, represented by the share certificate(s) transferred to the
Company that are not First Refusal Shares.
12. Effect of Tender of Purchase Price. Notwithstanding the failure of
the holder of any certificate evidencing all or any part of the Option Shares or
the First Refusal Shares, as the case may be, to deliver the same to the Company
for cancellation, and upon tender by the Company of the purchase price for any
of such shares in accordance with the terms of this Agreement, such shares and
the certificates representing same shall forthwith and without further action be
deemed to be canceled and forfeited.
13. Restrictions on Transfer. Except as otherwise may be permitted by
this Agreement, neither Optionee nor his or her legal representative shall sell,
transfer (by giftor otherwise), assign, hypothecate, pledge, grant as security
interest, or in any other way dispose of or alienate any of the Shares, which at
any time would be subject to repurchase or a right of first refusal by the
Company, or the gift, pledge, or hypothecation of which, or grant of a security
interest in which, is subject to the approval of the Company, and the attempt to
affect any such transaction shall be null and void ab initio and of no force and
effect.
14. Legends and Termination of Rights. All share certificates
representing the Shares shall bear a legend or legends revealing the existence
of the restrictions imposed by this Agreement. The provisions of this Section 14
shall cease to be applicable to the Shares at such time as the Stock is listed
on a national or regional stock exchange, or there is an established market
therefor in the over the counter market and the Stock is listed in the pink or
white sheets of the National Association of securities Dealers Automated
Quotation Service (NASDAQ) or comparable service.
15. Definitions. In the event that (a) any of the Shares are exchanged
for or changed into any different class or series of securities issued by the
Company or any other corporation as the result of any merger, consolidation, or
sale of assets followed by liquidation, reclassification or reorganization, or
(b) any additional shares of Stock or any other securities shall be distributed
with respect to the Shares as a stock dividend, stock split, partial
liquidation, or dividend, then, in each such case, all such securities shall be
subject to the terms and provisions of this Agreement and shall be deemed to be
included in the term the "Shares" as used herein. As used herein, the term
"Company" shall include any other corporation which assumes this Option in
connection with its succession to substantially all of the business and assets
of the Company as the result of any merger, consolidation, reorganization, Asset
Sale or Stock Sale.
16. Definition of Misconduct. Misconduct, for purposes of this
Agreement, shall mean conduct, as determined by the Board, involving one or more
of the following: (a) the commission of any act of embezzlement, fraud or
dishonesty; (b) any deliberate disregard of any policy promulgated by the Board
or the Chief Executive Officer of the Company, or any Parent or Subsidiary of
the Company with which Optionee is employed, which results in any loss, damage
or injury to the Company or any Parent or Subsidiary of the Company; (c) any
unauthorized disclosure of any trade secret or confidential information of the
Company or any Parent or Subsidiary of the Company; (d) any commission of an act
which constitutes unfair competition with the Company or any Parent or
8
<PAGE> 13
Subsidiary of the Company or induces any customer or vendor of the Company or
any Parent or Subsidiary of the Company to terminate any agreement with such
corporation; or (e) any breach by the Optionee of any agreement or covenant,
including, without limitation, in any employment agreement, consulting
agreement, purchase agreement, purchase order or confidentiality agreement, it
has made with the Company or any Parent or Subsidiary of the Company.
17. Optionee's Obligations. Optionee shall, during the period of his or
her employment, faithfully and to the best of his or her ability devote his or
her time, energy and skill to the service of the Company or such Parent or
Subsidiary, as the case may be, and to the promotion of its interests, subject
to vacations, military service leave, sick leave and other bona fide absences in
accordance with the regular policies and practices of, or any written agreement
between Optionee and, the Company or any such Parent or Subsidiary. Subject to
any contrary terms of any employment contract, the Company, or the Parent or the
Subsidiary of the Company which employs Optionee, shall have the right to
terminate or change the terms of employment of Optionee at any time and for any
reason whatsoever. Nothing herein shall limit Optionee's right to terminate his
or her employment.
18. Severability. Should any portion or provision of this Agreement be
declared invalid or unenforceable in any jurisdiction, then such portion or
provision shall be deemed to be severable from this Agreement as to such
jurisdiction (but, to the extent permitted by law, not elsewhere) and shall not
affect the remainder hereof.
19. Waiver. No waiver of any right or obligation of either party hereto
under this Agreement shall be effective unless in a writing, specifying such
waiver, executed by the party against which such waiver is being enforced. A
waiver by either party hereto of any of its rights under this Agreement on any
occasion shall not be a bar to the exercise of the same right on any subsequent
occasion or of any other right at any time.
20. Amendment or Modification. This Agreement may be amended, altered,
or modified only by a writing, specifying such amendment, alteration or
modification, executed by both parties.
21. Entire Agreement. This Agreement constitutes the entire agreement
between the parties regarding the subject matter hereof, and supersedes all
prior or contemporaneous negotiations, understandings or agreements of the
parties, whether written or oral, with respect to such subject matter.
22. Notice. All notices, requests, waivers and other communications made
to a party hereto pursuant to this Agreement shall be in writing and
hand-delivered, mailed postage prepaid, certified or registered, return-receipt
requested, or sent by prepaid air freight, overnight delivery of which is
guaranteed and acknowledgment of receipt of which is required, to the address of
such party set forth below or such other address for such party as such party
may, from time to time, specify in writing to the other party hereto. Each such
communication which is (a) hand delivered shall be effective when so delivered,
(b) sent by mail shall be deemed to be effective five business days (i.e. any
weekday not a California or federal holiday) after it is posted, and (c) sent by
air-freight shall be deemed to be effective two business days after it is
delivered to the air-freight company. The addresses to which notices, requests,
waivers and other communications are to be sent are as follows:
9
<PAGE> 14
If to the Company: Innosoft International, Inc.
1050 Lakes Drive
Suite 250
West Covina, California 91790
If to Optionee, the address of Optionee set forth below his or her
signature to this Agreement.
23. Finality of Decisions. All decisions of the Board or the Committee
with respect to any question arising under the Plan or under this Agreement
shall be final and binding on both parties hereto.
24. Participation in Other Plans. Nothing herein contained shall affect
Optionee's right to participate in, and receive benefits from and in accordance
with, the then current provisions of any pension, insurance, or other employment
welfare plan or program of the Company.
25. Binding Effect of Agreement. Except as otherwise specifically set
forth herein, this Agreement shall be binding upon and inure to the benefit of
any successor or successors of the Company.
26. Agreement Subject to Plan. This Agreement is entered into pursuant
to, and is subject to, the provisions of the Plan. Terms not otherwise defined
herein shall have the meanings given them in the Plan.
27. Governing Law. The interpretation, performance, and enforcement of
this Agreement shall be governed by the laws of the State of California with
respect to agreements entered into, and to be performed within, such state.
28. Qualification and Approval. This Agreement shall be effective as of
the date of its making as set forth above, subject to (a) the qualification of
the grant of this Option, and the issuance of the Shares, by the California
Department of Corporations, and (b) approval of the Plan by shareholders of the
Company holding a majority of the voting bower of its outstanding voting
securities within 12 months before or after the effective date of the Plan. In
no event may this Option be exercised in whole or in part prior to such
qualification and approvals.
29. Tax Information and Notice of Disqualifying Disposition. This Option
is intended to be eligible for treatment as an Incentive Stock Option under
Section 422 of the Code. Whether this Option will receive such tax treatment
will depend, in part, on actions by Optionee after exercise of this Option. If
an Optionee disposes of any of the Shares within two years after the date of
grant of this Option or within one year of the date of exercise of this Option
with respect to such shares, the Optionee may lose the benefits of Section 422.
Other factors not discussed herein may also affect the tax consequences of this
transaction. Accordingly, the Company makes no representation, by way of the
Plan, this Agreement, or otherwise, with respect to the actual tax effect of the
grant or exercise of this Option or the subsequent disposition, including,
without limitation, repurchase by the Company or its designee pursuant to
Sections 8 or 9 hereof, of any of the Shares.
If the Optionee sells or makes a disposition (within the meaning of
Section 422 of the Code) of any of the Shares acquired pursuant to exercise of
this Option prior to the later of (a) one year from the date such shares were
acquired, or (b) two years from the date of grant of this Option, then
10
<PAGE> 15
Optionee agrees to give written notice to the Company of such disposition. The
notice shall include Optionee's name, the number, exercise price, and exercise
date of the Shares disposed of, and the date of disposition.
30. Withholding Taxes. By accepting this Option, Optionee, for Optionee
and his or her transferees by will or the laws of descent and distribution,
agrees that, whenever Shares are to be issued by reason of the exercise of this
Option, the Optionee or such other person who is to receive such shares will
remit to the Company, prior to the delivery of any certificate for such shares,
in cash, the amount which is sufficient, as determined by the Company in its
discretion, to satisfy any applicable Federal, state and local withholding tax
requirements with respect to such exercise.
The Company has caused this Agreement to be executed on its behalf, and
Optionee has hereunto set his or her hand, effective the day and year first
above written, which is the effective date of grant of this Option.
OPTIONEE INNOSOFT INTERNATIONAL, INC.
By:_________________________________
Its:________________________________
(Signature)
(Print Name)
(Address)
11
<PAGE> 16
EXHIBIT A
NON-NEGOTIABLE PROMISSORY NOTE
$___________ _________________, California, ______________, _____
FOR VALUE RECEIVED, ___________________________ ("Payor") hereby
promises to pay to (Name of Shareholder) ("Payee") the principal sum of
____________________ ($________), plus all interest accrued hereon, in legal
tender of the United States of America, on the date one year from the date
hereof (the "Maturity Date"), at the address of Payee as determined by reference
to that certain Stock Option Agreement, dated as of _________________, by and
among Innosoft International, Inc. and Payee (the "Stock Option Agreement").
Interest shall accrue on the principal balance of this Note at the annual rate
of 10%, non-compounded.
At its election, Payor may prepay the outstanding principal hereof at
any time, without premium or penalty. This Note shall be non-negotiable.
If Payor files a petition in bankruptcy or has a petition in bankruptcy
filed against it, or any proceedings in bankruptcy or under any similar law
relating to the relief of debtors is commenced by or against Payor, then the
entire indebtedness evidenced hereby shall immediately become due and payable
without demand or notice.
If payment of this Note is not made in accordance with its terms, Payor
shall pay all costs and expenses, including any reasonable attorneys' fees,
incurred in the collection of this Note, including, without limitation, in any
suit or action to collect this Note or in any appeal thereof.
Payor hereby waives presentment for payment, demand, notice of demand,
notices of non-payment or dishonor, protest and notice of protest.
___________________________________
12
<PAGE> 1
EXHIBIT 4.2
INNOSOFT INTERNATIONAL, INC.
1999 EQUITY INCENTIVE PLAN
ARTICLE I
PURPOSE OF PLAN
The Company has adopted this Plan to promote the interests of the
Company and its shareholders by using investment interests in the Company to
attract, retain and motivate its management and other persons, to encourage and
reward their contributions to the performance of the Company, and to align their
interests with the interests of the Company's shareholders. Capitalized terms
not otherwise defined herein have the meanings ascribed to them in Article VIII.
ARTICLE II
EFFECTIVE DATE AND TERM OF PLAN
2.1 TERM OF PLAN. This Plan became effective as of the Effective Date
and will continue in effect until the Expiration Date, at which time this Plan
will automatically terminate.
2.2 EFFECT ON AWARDS. Awards may be granted only during the Plan Term,
but each Award granted during the Plan Term will remain in effect after the
Expiration Date until such Award has been exercised, terminated or expired in
accordance with its terms and the terms of this Plan; provided, however, no
Common Stock shall be issued under this Plan after the Expiration Date.
2.3 SHAREHOLDER APPROVAL. This Plan must be approved by the Company's
shareholders within 12 months before or after the Effective Date. The
effectiveness of any Awards granted prior to such shareholder approval will be
subject to such shareholder approval and rescinded if shareholder approval is
not obtained.
ARTICLE III
SHARES SUBJECT TO PLAN
3.1 NUMBER OF SHARES. The maximum number of shares of Common Stock that
may be issued pursuant to Awards under this Plan (including previous versions
hereof or other plans that are replaced or restated by this Plan including the
1992 Stock Incentive Plan) is 1,500,000, subject to adjustment as set forth in
Section 3.4; provided, however, that at no time shall the total number of shares
issuable upon exercise of all outstanding Stock Options and the total number of
shares provided for under any stock bonus or similar plan of the Company exceed
30% of the then outstanding shares of the Company (including convertible
preferred or convertible senior common shares on an as if converted basis).
3.2 SOURCE OF SHARES. The Common Stock to be issued under this Plan will
be made available, at the discretion of the Administrator, either from
authorized but unissued shares of Common Stock or from previously issued shares
of Common Stock reacquired by the Company.
3.3 AVAILABILITY OF UNUSED SHARES. Shares of Common Stock subject to
unexercised portions of any Award that expire, terminate or are canceled, and
shares of Common Stock issued pursuant to an Award that are reacquired by the
Company pursuant to the terms of the Award
1
<PAGE> 2
under which such shares were issued, will again become available for the grant
of further Awards under this Plan as part of the shares available under Section
3.1. In addition, shares of Common Stock subject to an Award that are delivered
to or retained by the Company upon exercise to cover cashless exercise or tax
withholding, and any shares of Common Stock underlying an Award that are not
issued because the Award is settled in cash, will be available for grant of
further Awards under this Plan as part of the shares available under Section
3.1.
3.4 ADJUSTMENT PROVISIONS.
(a) Adjustments. If the Company consummates any Reorganization in
which holders of shares of Common Stock are entitled to receive in respect of
such shares any additional shares or new or different shares or securities, cash
or other consideration (including, without limitation, a different number of
shares of Common Stock), or if the outstanding shares of Common Stock are
increased, decreased or exchanged for a different number or kind of shares or
other securities through merger, consolidation, sale or exchange of assets of
the Company, reorganization, reincorporation, recapitalization,
reclassification, combination, stock dividend, stock split, reverse stock split,
spin-off, or similar transaction then, an appropriate and proportionate
adjustment shall be made by the Administrator in its discretion in: (1) the
maximum number and kind of shares subject to this Plan as provided in Section
3.1; (2) the number and kind of shares or other securities subject to then
outstanding Awards; and/or (3) the price for each share or other unit of any
other securities subject to, or measurement criteria applicable to, then
outstanding Awards. Anything herein contained to the contrary notwithstanding,
(a) upon dissolution or liquidation of the Company, other than in connection
with a Reorganization of the Company, or a sale of all or substantially all of
its assets, or in one transaction or a series of transactions, 80% or more of
its then outstanding voting securities, to another corporation (an "ASSET SALE"
and a "STOCK SALE," respectively), or (b) upon dissolution or liquidation of the
Company in connection with a reorganization, merger (other than a merger solely
for the purposes of re-incorporating the Company in another jurisdiction),
consolidation, or an Asset Sale or Stock Sale, with respect to which the
surviving corporation or acquiring corporation, or an affiliate thereof, does
not, prior to or concurrent with the succession to the business of the Company
or acquisition of its stock, assume the outstanding Awards (subject to any
applicable provisions of the IRC) or replace the outstanding Awards with new
awards of comparable value, the outstanding Awards, in either case, shall
terminate and thereupon become null and void; provided, however, that, if the
surviving or acquiring corporation does not assume the outstanding Awards or
replace the outstanding Awards with new awards of comparable value, then the
Recipients of such outstanding Awards shall have the right, during the period
following adoption of the plan of dissolution, liquidation or Reorganization by
the Board, or approval of any agreement with respect to an Asset Sale or Stock
Sale by the Board, and prior to or concurrently with consummation of such plan
or agreement (which period shall be no less than 20 days), to exercise their
outstanding Awards to the full extent then exercisable and not theretofore
exercised, and the Company shall give the Recipients of such outstanding Awards
written notice of such right prior to the commencement of such period. With
respect to Restricted Stock previously issued under this Plan, the surviving
corporation or acquiring corporation may elect to replace the outstanding
Restricted Stock with new restricted stock of comparable value; provided,
however, that, if the surviving or acquiring corporation does not replace the
outstanding Restricted Stock with new restricted stock of comparable value, then
all
2
<PAGE> 3
restrictions on such outstanding Restricted Stock shall terminate and lapse as
of the date of the consummation of such plan of dissolution, liquidation or
Reorganization by the Board, or approval of any agreement with respect to an
Asset Sale or Stock Sale by the Board.
(b) No Fractional Interests. No fractional interests will be issued
under the Plan resulting from any adjustments.
(c) Adjustments Related to Company Stock. To the extent any
adjustments relate to stock or securities of the Company, such adjustments will
be made by the Administrator, whose determination in that respect will be final,
binding and conclusive.
(d) Right to Make Adjustment. The grant of an Award will not affect
in any way the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure or to merge or to consolidate or to dissolve, liquidate or sell, or
transfer all or any part of its business or assets.
(e) Limitations. No adjustment to the terms of an Incentive Stock
Option may be made unless such adjustment either: (i) would not cause the Option
to lose its status as an Incentive Stock Option; or (ii) is agreed to in writing
by the Administrator and the Recipient.
3.5 RESERVATION OF SHARES. The Company will at all times reserve and
keep available shares of Common Stock equaling at least the total number of
shares of Common Stock issuable pursuant to all outstanding Awards.
ARTICLE IV
ADMINISTRATION OF PLAN
4.1 ADMINISTRATOR.
(a) Plan Administration. This Plan will be administered by the Board
and may also be administered by a Committee of the Board appointed pursuant to
Section 4.1(b).
(b) Administration by Committee. The Board in its sole discretion
may from time to time appoint a Committee of not less than two (2) Board members
with authority to administer this Plan in whole or part and, subject to
applicable law, to exercise any or all of the powers, authority and discretion
of the Board under this Plan. The Board may from time to time increase or
decrease (but not below two (2)) the number of members of the Committee, remove
from membership on the Committee all or any portion of its members, and/or
appoint such person or persons as it desires to fill any vacancy existing on the
Committee, whether caused by removal, resignation or otherwise. The Board may
disband the Committee at any time.
4.2 AUTHORITY OF ADMINISTRATOR.
(a) Authority to Interpret Plan. Subject to the express provisions
of this Plan, the Administrator will have the power to implement, interpret and
construe this Plan and any Awards and Award Documents or other documents
defining the rights and obligations of the Company and Recipients hereunder and
thereunder, to determine all questions arising hereunder and thereunder, and to
adopt and amend such rules and regulations for the administration hereof and
thereof as it may deem desirable. The interpretation and construction by the
Administrator of any provisions of this Plan or of any Award or Award Document,
and any action taken by, or inaction of, the Administrator relating to this Plan
or any Award or Award Document, will be within the discretion of the
Administrator and will
3
<PAGE> 4
be conclusive and binding upon all persons. Subject only to compliance with the
express provisions hereof, the Administrator may act in its discretion in
matters related to this Plan and any and all Awards and Award Documents.
(b) Authority to Grant Awards. Subject to the express provisions of
this Plan, the Administrator may from time to time in its discretion select the
Eligible Persons to whom, and the time or times at which, Awards will be granted
or sold, the nature of each Award, the number of shares of Common Stock or the
number of rights that make up or underlie each Award, the exercise price and
period (if applicable) for the exercise of each Award, and such other terms and
conditions applicable to each individual Award as the Administrator may
determine. Any and all terms and conditions of Awards may be established by the
Administrator without regard to existing Awards or other grants and without
incurring any obligation of the Company in respect of subsequent Awards. The
Administrator may grant at any time new Awards to an Eligible Person who has
previously received Awards or other grants (including other stock options)
regardless of the status of such other Awards or grants. The Administrator may
grant Awards singly or in combination or in tandem with other Awards as it
determines in its discretion.
(c) Procedures. Subject to the Company's charter or bylaws or any
Board resolution conferring authority on the Committee, any action of the
Administrator with respect to the administration of this Plan must be taken
pursuant to a majority vote of the authorized number of members of the
Administrator or by the unanimous written consent of its members; provided,
however, that (i) if the Administrator is the Committee and consists of two (2)
members, then actions of the Administrator must be unanimous, and (ii) actions
taken by the Board will be valid if approved in accordance with applicable law.
4.3 NO LIABILITY. No member of the Board or the Committee or any
designee thereof will be liable for any action or inaction with respect to this
Plan or any Award or any transaction arising under this Plan or any Award except
in circumstances constituting bad faith of such member.
4.4 AMENDMENTS.
(a) Plan Amendments. The Administrator may at any time and from time
to time in its discretion, insofar as permitted by applicable law, rule or
regulation and subject to Section 4.4(c), suspend or discontinue this Plan or
revise or amend it in any respect whatsoever, and this Plan as so revised or
amended will govern all Awards; provided, however, that no such suspension,
discontinuation, revision or amendment shall deprive the Recipient of any Award
theretofore granted under this Plan, without the consent of such Recipient, of
any of his or her rights thereunder or with respect thereto; and, provided
further, that the approval of the holders of a majority of the outstanding
shares of the Company shall be required for the adoption of any amendments to
this Plan which would alter the class of Eligible Persons or which would
increase the number of shares subject to this Plan other than an increase
pursuant to Section 3.4(a) hereof. Without limiting the generality of the
foregoing, the Administrator is authorized to amend this Plan to comply with or
take advantage of amendments to applicable laws, rules or regulations, including
the Securities Act, the Exchange Act, the IRC, or the rules of any exchange or
market system upon which the Common Stock is listed or trades, or any rules or
regulations promulgated thereunder. Except as otherwise provided in this Section
4.4(a), no shareholder approval of any amendment or revision will be required
unless such approval is required by applicable law,
4
<PAGE> 5
rule or regulation.
(b) Award Amendments. The Administrator may at any time and from
time to time in its discretion, subject to Section 4.4(c) and compliance with
applicable statutory or administrative requirements, accelerate the vesting or
exercise period of any Award as a whole or in part, and make such other
modifications in the terms and conditions of an Award as it deems advisable.
(c) Limitation. Except as otherwise provided in this Plan or in the
applicable Award Document, no amendment, revision, suspension or termination of
this Plan or an outstanding Award that would cause an Incentive Stock Option to
cease to qualify as such or that would alter, impair or diminish in any material
respect any rights or obligations under any Award theretofore granted under this
Plan may be effected without the written consent of the Recipient to whom such
Award was granted.
4.5 OTHER COMPENSATION PLANS. The adoption of this Plan will not affect
any other stock option, incentive or other compensation plans in effect from
time to time for the Company, and this Plan will not preclude the Company from
establishing any other forms of incentive or other compensation for employees,
directors, advisors or consultants of the Company, whether or not approved by
shareholders.
4.6 PLAN BINDING ON SUCCESSORS. This Plan will be binding upon the
successors and assigns of the Company.
4.7 REFERENCES TO SUCCESSOR STATUTES, REGULATIONS AND RULES. Any
reference in this Plan to a particular statute, regulation or rule will also
refer to any successor provision of such statute, regulation or rule.
4.8 INVALID PROVISIONS. In the event that any provision of this Plan is
found to be invalid or otherwise unenforceable under any applicable law, such
invalidity or unenforceability is not to be construed as rendering any other
provisions contained herein invalid or unenforceable, and all such other
provisions are to be given full force and effect to the same extent as though
the invalid and unenforceable provision were not contained herein.
4.9 GOVERNING LAW. This Agreement will be governed by and interpreted in
accordance with the internal laws of the State of California, without giving
effect to the principles of the conflicts of laws thereof, provided that this
will not be construed to apply the California Securities Law or the California
Securities Rules to securities or holders thereof to which the California
Securities Law or the California Securities Rules would not otherwise apply.
4.10 INTERPRETATION. Headings herein are for convenience of reference
only, do not constitute a part of this Plan, and will not affect the meaning or
interpretation of this Plan. References herein to Sections or Articles are
references to the referenced Section or Article hereof, unless otherwise
specified.
ARTICLE V
GENERAL AWARD PROVISIONS
5.1 PARTICIPATION IN PLAN.
(a) Eligibility to Receive Awards. A person is eligible to receive
grants of Awards if, at the time of the grant of the Award, such person is an
Eligible Person or has received an offer of employment from the Company or any
Affiliated Entity, provided that
5
<PAGE> 6
Awards granted to a person who has received an offer of employment will
terminate and be forfeited without consideration if the employment offer is not
accepted within such time as may be specified by the Company. Status as an
Eligible Person will not be construed as a commitment that any Award will be
granted under this Plan to an Eligible Person or to Eligible Persons generally.
(b) Eligibility to Receive Incentive Stock Options. Incentive Stock
Options may be granted only to Eligible Persons meeting the employment
requirements of Section 422 of the IRC.
(c) Awards to Foreign Nationals. Notwithstanding anything to the
contrary herein, the Administrator may, in order to fulfill the purposes of this
Plan, modify grants of Awards to Recipients who are foreign nationals or
employed outside of the United States to recognize differences in applicable
law, tax policy or local custom.
5.2 AWARD DOCUMENTS. Each Award must be evidenced by an agreement duly
executed on behalf of the Company and by the Recipient setting forth such terms
and conditions applicable to the Award as the Administrator may in its
discretion determine. Awards will not be deemed made or binding upon the
Company, and Recipients will have no rights thereto, until such an agreement is
entered into between the Company and the Recipient but an Award may have an
effective date prior to the date of such an agreement. Award Documents may be
(but need not be) identical and must comply with and be subject to the terms and
conditions of this Plan, a copy of which will be provided to each Recipient and
incorporated by reference into each Award Document. Any Award Document may
contain such other terms, provisions and conditions not inconsistent with this
Plan as may be determined by the Administrator. In case of any conflict between
this Plan and any Award Document, this Plan shall control.
5.3 PAYMENT FOR AWARDS.
(a) Payment of Exercise Price. The exercise price or other payment
for an Award is payable upon the exercise of a Stock Option or upon other
purchase of shares pursuant to an Award granted hereunder by delivery of legal
tender of the United States or payment of such other consideration as the
Administrator may from time to time deem acceptable in any particular instance;
provided, however, that the Administrator may, in the exercise of its
discretion, allow exercise of an Award in a broker-assisted or similar
transaction in which the exercise price is not received by the Company until
promptly after exercise.
(b) Company Assistance. The Company may assist any person to whom an
Award is granted (including, without limitation, any officer or director of the
Company) in the payment of the purchase price or other amounts payable in
connection with the receipt or exercise of that Award, by lending such amounts
to such person on such terms and at such rates of interest and upon such
security (if any) as may be consistent with applicable law and approved by the
Administrator. In case of such a loan, the Administrator may require that the
exercise be followed by a prompt sale of some or all of the underlying shares
and that a portion of the sale proceeds be dedicated to full payment of the
exercise price and amounts required pursuant to Section 5.9.
(c) Cashless Exercise. If permitted in any case by the Administrator
in its discretion, the exercise price for Awards may be paid by capital stock of
the Company delivered in transfer to the Company by or on behalf of the person
exercising the Award and
6
<PAGE> 7
duly endorsed in blank or accompanied by stock powers duly endorsed in blank,
with signatures guaranteed in accordance with the Exchange Act if required by
the Administrator; or retained by the Company from the stock otherwise issuable
upon exercise or surrender of vested and/or exercisable Awards or other equity
awards previously granted to the Recipient and being exercised (if applicable)
(in either case valued at Fair Market Value as of the exercise date); or such
other consideration as the Administrator may from time to time in the exercise
of its discretion deem acceptable in any particular instance.
(d) No Precedent. Recipients will have no rights to the assistance
described in Section 5.3(b) or the exercise techniques described in Section
5.3(c), and the Company may offer or permit such assistance or techniques on an
ad hoc basis to any Recipient without incurring any obligation to offer or
permit such assistance or techniques on other occasions or to other Recipients.
5.4 NO EMPLOYMENT RIGHTS. Nothing contained in this Plan (or in Award
Documents or in any other documents related to this Plan or to Awards) will
confer upon any Eligible Person or Recipient any right to continue in the employ
of or engagement by the Company or any Affiliated Entity or constitute any
contract or agreement of employment or engagement, or interfere in any way with
the right of the Company or any Affiliated Entity to reduce such person's
compensation or other benefits or to terminate the employment or engagement of
such Eligible Person or Recipient, with or without cause. Except as expressly
provided in this Plan or in any statement evidencing the grant of an Award, the
Company has the right to deal with each Recipient in the same manner as if this
Plan and any such statement evidencing the grant of an Award did not exist,
including, without limitation, with respect to all matters related to the
hiring, discharge, compensation and conditions of the employment or engagement
of the Recipient. Unless otherwise set forth in a written agreement binding upon
the Company or an Affiliated Entity, all employees of the Company or an
Affiliated Entity are "at will" employees whose employment may be terminated by
the Company or the Affiliated Entity at any time for any reason or no reason,
without payment or penalty of any kind. Any question(s) as to whether and when
there has been a termination of a Recipient's employment or engagement, the
reason (if any) for such termination, and/or the consequences thereof under the
terms of this Plan or any statement evidencing the grant of an Award pursuant to
this Plan will be determined by the Administrator, and the Administrator's
determination thereof will be final and binding.
5.5 RESTRICTIONS UNDER APPLICABLE LAWS AND REGULATIONS.
(a) Government Approvals. All Awards will be subject to the
requirement that, if at any time the Company determines, in its discretion, that
the listing, registration or qualification of the securities subject to Awards
granted under this Plan upon any securities exchange or interdealer quotation
system or under any federal, state or foreign law, or the consent or approval of
any government or regulatory body, is necessary or desirable as a condition of,
or in connection with, the granting of such an Award or the issuance, if any, or
purchase of shares in connection therewith, such Award may not be exercised as a
whole or in part unless and until such listing, registration, qualification,
consent or approval has been effected or obtained free of any conditions not
acceptable to the Company. During the term of this Plan, the Company will use
its reasonable efforts to seek to obtain from the appropriate governmental and
regulatory agencies any requisite qualifications, consents, approvals or
authorizations in order to issue and sell such number of shares of its Common
7
<PAGE> 8
Stock as is sufficient to satisfy the requirements of this Plan. The inability
of the Company to obtain any such qualifications, consents, approvals or
authorizations will relieve the Company of any liability in respect of the
nonissuance or sale of such stock as to which such qualifications, consents,
approvals or authorizations pertain.
(b) No Registration Obligation; Recipient Representations. The
Company will be under no obligation to register or qualify the issuance of
Awards or underlying securities under the Securities Act or applicable state
securities laws. Unless the issuance of Awards and underlying securities have
been registered under the Securities Act and qualified or registered under
applicable state securities laws, the Company shall be under no obligation to
issue any Awards or underlying securities unless the Awards and underlying
securities may be issued pursuant to applicable exemptions from such
registration or qualification requirements. In connection with any such exempt
issuance, the Administrator may require the Recipient to provide a written
representation and undertaking to the Company, satisfactory in form and scope to
the Company, that such Recipient is acquiring such Awards and underlying
securities for such Recipient's own account as an investment and not with a view
to, or for sale in connection with, the distribution of any such securities, and
that such person will make no transfer of the same except in compliance with any
rules and regulations in force at the time of such transfer under the Securities
Act and other applicable law, and that if securities are issued without
registration, a legend to this effect (together with any other legends deemed
appropriate by the Administrator) may be endorsed upon the securities so issued,
and to the effect of any additional representations that are appropriate in
light of applicable securities laws and rules. The Company may also order its
transfer agent to stop transfers of such shares. The Administrator may also
require the Recipient to provide the Company such information and other
documents as the Administrator may request in order to satisfy the Administrator
as to the investment sophistication and experience of the Recipient and as to
any other conditions for compliance with any such exemptions from registration
or qualification.
5.6 NO PRIVILEGES RE: STOCK OWNERSHIP OR SPECIFIC ASSETS. Except as
otherwise set forth herein, a Recipient or a permitted transferee of an Award
will have no rights as a shareholder with respect to any shares issuable or
issued in connection with the Award until the Recipient has delivered to the
Company all amounts payable and performed all obligations required to be
performed in connection with exercise of the Award and the Company has issued
such shares. No person will have any right, title or interest in any fund or in
any specific asset (including shares of capital stock) of the Company by reason
of any Award granted hereunder. Neither this Plan (or any documents related
hereto) nor any action taken pursuant hereto is to be construed to create a
trust of any kind or a fiduciary relationship between the Company and any
person. To the extent that any person acquires a right to receive an Award
hereunder, such right shall be no greater than the right of any unsecured
general creditor of the Company.
5.7 NONASSIGNABILITY. No Award is assignable or transferable except: (a)
by will or by the laws of descent and distribution; or (b) subject to the final
sentence of this Section 5.7, upon dissolution of marriage pursuant to a
qualified domestic relations order or, in the discretion of the Administrator
and under circumstances that would not adversely affect the interests of the
Company, transfers for estate planning purposes or pursuant to a nominal
transfer that does not result in a change in beneficial ownership. During the
lifetime of a
8
<PAGE> 9
Recipient, an Award granted to such person will be exercisable only by the
Recipient (or the Recipient's permitted transferee) or such person's guardian or
legal representative. Notwithstanding the foregoing, Stock Options and stock
purchase rights that are California Regulated Securities may not be transferred
other than by will or the laws of descent and distribution at any time that this
Plan is a California Regulated Plan, and Stock Options intended to be treated as
Incentive Stock Options (or other Awards subject to transfer restrictions under
the IRC) may not be assigned or transferred in violation of Section 422(b)(5) of
the IRC or the regulations thereunder, and nothing herein is intended to allow
such assignment or transfer.
5.8 INFORMATION TO RECIPIENTS.
(a) Provision of Information. The Administrator in its sole
discretion may determine what, if any, financial and other information is to be
provided to Recipients and when such financial and other information is to be
provided after giving consideration to applicable federal and state laws, rules
and regulations, including, without limitation, applicable federal and state
securities laws, rules and regulations, provided that during such times as this
Plan is a California Regulated Plan, holders of California Regulated Securities
will receive financial statements of the Company to the extent required by the
California Securities Rules.
(b) Confidentiality. The furnishing of financial and other
information that is confidential to the Company is subject to the Recipient's
agreement to maintain the confidentiality of such financial and other
information, and not to use the information for any purpose other than
evaluating the Recipient's position under this Plan. The Administrator may
impose other restrictions on the access to and use of such confidential
information and may require a Recipient to acknowledge the Recipient's
obligations under this Section 5.8(b) (which acknowledgment is not to be a
condition to Recipient's obligations under this Section 5.8(b)).
5.9 WITHHOLDING TAXES. Whenever the granting, vesting or exercise of any
Award, or the issuance of any securities upon exercise of any Award or transfer
thereof, gives rise to tax or tax withholding liabilities or obligations, the
Administrator will have the right as a condition thereto to require the
Recipient to remit to the Company an amount sufficient to satisfy any federal,
state and local withholding tax requirements arising in connection therewith.
The Administrator may, in the exercise of its discretion, allow satisfaction of
tax withholding requirements by accepting delivery of stock of the Company or by
withholding a portion of the stock otherwise issuable in connection with an
Award, in each case valued at Fair Market Value as of the date of such delivery
or withholding, as the case may be, is determined.
5.10 LEGENDS ON AWARDS AND STOCK CERTIFICATES. Each Award Document and
each certificate representing securities acquired upon vesting or exercise of an
Award must be endorsed with all legends, if any, required by applicable federal
and state securities and other laws to be placed on the Award Document and/or
the certificate. The determination of which legends, if any, will be placed upon
Award Documents or the certificates will be made by the Administrator in its
discretion and such decision will be final and binding.
5.11 EFFECT OF TERMINATION OF EMPLOYMENT ON AWARDS.
(a) Termination of Vesting. Notwithstanding anything to the contrary
herein, but subject to Section 5.11(b), Awards will be exercisable by a
Recipient (or the
9
<PAGE> 10
Recipient's successor in interest) following such Recipient's termination of
employment only to the extent that installments thereof had become exercisable
on or prior to the date of such termination. (b) Alteration of Vesting and
Exercise Periods. Notwithstanding anything to the contrary herein, the
Administrator may in its discretion (i) designate shorter or longer periods
following a Recipient's termination of employment during which Awards may vest
or be exercised; provided, however, that any shorter periods determined by the
Administrator will be effective only if provided for in this Plan or the
instrument that evidences the grant to the Recipient of the affected Award or if
such shorter period is agreed to in writing by the Recipient, and (ii)
accelerate the vesting of all or any portion of any Awards by increasing the
number of shares purchasable at any time.
(c) Leave of Absence. In the case of any employee on an approved
leave of absence, the Administrator may make such provision respecting
continuance of Awards granted to such employee as the Administrator in its
discretion deems appropriate, except that in no event will an Award be
exercisable after the date such Award would expire in accordance with its terms
had the Recipient remained continuously employed.
(d) General Cessation. Except as otherwise set forth in this Plan or
an Award Document or as determined by the Administrator in its discretion, all
Awards granted to a Recipient, and all of such Recipient's rights thereunder,
will terminate upon termination for any reason of such Recipient's employment
with the Company or any Affiliated Entity (or cessation of any other service
relationship between the Recipient and the Company or any Affiliated Entity in
place as of the date the Award was granted).
5.12 RESTRICTIONS ON COMMON STOCK AND OTHER SECURITIES. Common Stock or
other securities of the Company issued or issuable in connection with any Award
will be subject to all of the restrictions imposed under this Plan upon Common
Stock issuable or issued upon exercise of Stock Options, except as otherwise
determined by the Administrator.
ARTICLE VI
AWARDS
6.1 STOCK OPTIONS.
(a) Nature of Stock Options. Stock Options may be Incentive Stock
Options or Nonqualified Stock Options.
(b) Option Exercise Price. The exercise price for each Stock Option
will be determined by the Administrator as of the date such Stock Option is
granted. Subject to Section 4.4(b), the exercise price may be greater than or
less than the Fair Market Value of the Common Stock subject to the Stock Option
as of the date of grant, provided that in no event may the exercise price per
share be less than the par value, if any, per share of the Common Stock subject
to the Stock Option, and provided further that the exercise price of Stock
Options that are California Regulated Securities granted while this Plan is a
California Regulated Plan may not be less than 85% of the Fair Market Value of
the Common Stock as of the date of grant, or 110% of the Fair Market Value of
the Common Stock as of the date of grant in the case of Stock Options granted to
Recipients owning stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company or its parent or subsidiary
corporations.
(c) Option Period and Vesting. Stock Options granted hereunder will
vest
10
<PAGE> 11
and may be exercised as determined by the Administrator, except that (i) Stock
Options that are California Regulated Securities granted while this Plan is a
California Regulated Plan will vest and become exercisable at the rate of at
least 20% per year over five years from the date of grant, and (ii) exercise of
Stock Options after termination of the Recipient's employment shall be subject
to Section 5.11. Each Stock Option granted hereunder and all rights or
obligations thereunder shall expire on such date as may be determined by the
Administrator, but not later than ten (10) years after the date the Stock Option
is granted and may be subject to earlier termination as provided herein or in
the Award Document. Except as otherwise provided herein, a Stock Option will
become exercisable, as a whole or in part, on the date or dates specified by the
Administrator and thereafter will remain exercisable until the exercise,
expiration or earlier termination of the Stock Option.
(d) Exercise of Stock Options. The exercise price for Stock Options
will be paid as set forth in Section 5.3. No Stock Option will be exercisable
except in respect of whole shares, and fractional share interests shall be
disregarded. Not fewer than 100 shares of Common Stock may be purchased at one
time and Stock Options must be exercised in multiples of 100 unless the number
purchased is the total number of shares for which the Stock Option is
exercisable at the time of exercise. A Stock Option will be deemed to be
exercised when the Secretary or other designated official of the Company
receives written notice of such exercise from the Recipient in the form of
Exhibit A hereto or such other form as the Company may specify from time to
time, together with payment of the exercise price in accordance with Section 5.3
and any amounts required under Section 5.9 or, with permission of the
Administrator, arrangement for such payment. Notwithstanding any other provision
of this Plan, the Administrator may impose, by rule and/or in Award Documents,
such conditions upon the exercise of Stock Options (including, without
limitation, conditions limiting the time of exercise to specified periods) as
may be required to satisfy applicable regulatory requirements, including,
without limitation, Rule 16b-3 and Rule 10b-5 under the Exchange Act, and any
amounts required under Section 5.9, or any applicable section of or regulation
under the IRC. If required by the Administrator, the Recipient shall pay to the
Company the reasonable expenses incurred by the Company in issuing a certificate
for any shares of Common Stock issued pursuant to the exercise of a Stock
Option, if such exercise is for less than all of the shares as to which the
Stock Option has become exercisable.
(e) Termination of Employment.
(i) Termination for Just Cause. Subject to Section 5.11 and
except as otherwise provided in a written agreement between the Company or an
Affiliated Entity and the Recipient, which may be entered into at any time
before or after termination of employment, or, with respect to California
Regulated Securities, as required by the California Securities Rules while this
Plan is a California Regulated Plan, in the event of a Just Cause Dismissal of a
Recipient all of the Recipient's unexercised Stock Options, whether or not
vested, will expire and become unexercisable as of the date of such Just Cause
Dismissal.
(ii) Termination Other Than for Just Cause. Subject to Section
5.11 and except as otherwise provided in a written agreement between the Company
or an Affiliated Entity and the Recipient, which may be entered into at any time
before or after termination of employment, if a Recipient's employment with the
Company or any Affiliated Entity terminates for:
(A) any reason other than for Just Cause Dismissal, death,
11
<PAGE> 12
Permanent Disability or Retirement, the Recipient's Awards, whether or not
vested, will expire and become unexercisable as of the earlier of: (A) the date
such Stock Options would expire in accordance with their terms had the Recipient
remained employed; and (B) 90 days after the date of employment termination in
the case of Stock Options intended to be treated as Incentive Stock Options, or
30 days after the date of employment termination in the case of Nonqualified
Stock Options.
(B) death or Permanent Disability or Retirement, the
Recipient's unexercised Awards will, whether or not vested, expire and become
unexercisable as of the earlier of: (A) the date such Awards would expire in
accordance with their terms had the Recipient remained employed; and (B) 365
days after the date of employment termination.
(f) Special Provisions Regarding Incentive Stock Options.
Notwithstanding anything herein to the contrary,
(i) The exercise price and vesting period of any Stock Option
intended to be treated as an Incentive Stock Option must comply with the
provisions of Section 422 of the IRC and the regulations thereunder. As of the
Effective Date, such provisions require, among other matters, that: (A) the
exercise price must not be less than the Fair Market Value of the underlying
stock as of the date the Incentive Stock Option is granted, and not less than
110% of the Fair Market Value as of such date in the case of a grant to a
Significant Shareholder; and (B) that the Incentive Stock Option not be
exercisable after the expiration of ten (10) years from the date of grant or the
expiration of five (5) years from the date of grant in the case of an Incentive
Stock Option granted to a Significant Shareholder.
(ii) The aggregate Fair Market Value (determined as of the
respective date or dates of grant) of the Common Stock for which one or more
Stock Options granted to any Recipient under this Plan (or any other option plan
of the Company or any of its subsidiaries or affiliates) may for the first time
become exercisable as Incentive Stock Options under the federal tax laws during
any one calendar year may not exceed $100,000.
(iii) Any Stock Options granted as Incentive Stock Options
pursuant to this Plan that for any reason fail or cease to qualify as such will
be treated as Nonqualified Stock Options. If the limit described in Section
6.1(f)(ii) is exceeded, the earliest granted Stock Options will be treated as
Incentive Stock Options, up to such limit.
ARTICLE VII
RIGHTS OF REPURCHASE AND FIRST REFUSAL
7.1 RIGHT OF REPURCHASE.
(a) In the event that any of the events specified in Section 7.1(b)
below occur, then, with respect to any of the shares previously acquired upon
exercise of or in connection with any Award prior to the occurrence of such
event, within 90 days following the occurrence of such event, and, with respect
to any of the shares acquired upon exercise of or in connection with any Award
after occurrence of such event, within 90 days following the date of such
exercise or acquisition (in either case, the "REPURCHASE PERIOD"), the Company
shall have the option, but not the obligation, to repurchase all, but not a
portion of, such shares (the "AWARD SHARES") from the Recipient, or his or her
legal representative, as the
12
<PAGE> 13
case may be, at the Repurchase Price (as defined hereinafter) of such shares
(the "REPURCHASE OPTION"). The Repurchase Option shall be exercised by the
Company giving Recipient, or his or her legal representative, written notice of
its intention to exercise the Repurchase Option on or before the last day of the
Repurchase Period. The Company may, in exercising the Repurchase Option,
designate one or more nominees to purchase the Award Shares, either with or
without the participation of the Company.
(b) The Company shall have the Repurchase Option in the event that any
of the following occur:
(1) The termination of Recipient's employment with the Company or an
Affiliated Entity voluntarily or involuntarily for any reason whatsoever. The
Repurchase Period with respect to Award Shares acquired prior to the cessation
of employment shall commence on the date on which the Recipient ceases to be an
employee of the Company or an Affiliated Entity. The Repurchase Period with
respect to Award Shares acquired subsequent to such date shall commence on the
date the Recipient acquires such shares. The Repurchase Price of the Award
Shares shall be determined as of the last day of the month preceding the month
in which the Recipient ceases to be employed.
(2) The receivership, bankruptcy or other creditors proceeding regarding
Recipient or the taking of any of the Award Shares by legal process, such as a
levy of execution, whether or not Recipient then is employed by the Company or
an Affiliated Entity. The Repurchase Period shall commence on the date the
Company receives actual notice of the commencement of pendency of the
receivership, bankruptcy or other creditor's proceeding, or the date of such
taking, as the case may be. The Repurchase Price of the Award Shares shall be
determined as of the last day of the month preceding the month in which the
proceeding involved commenced or the taking occurred.
(3) Distribution of any of the Award Shares by Recipient to his or her
spouse as such spouse's joint or community interest pursuant to a decree of
dissolution, property settlement agreement or for any other reason, except as
may be otherwise permitted by the Company, whether or not Recipient then is
employed by the Company or an Affiliated Entity. The Repurchase Period shall be
deemed to commence on the day the Company receives actual notice of such
distribution. The Repurchase Price of the Award Shares shall be determined as of
the last day of the month preceding the month in which the decree, agreement or,
if there is no decree or agreement, the distribution occurs.
(c) the Repurchase Price of the Award Shares, as used in this Section
7.1, shall be an amount per share determined on the basis of the price at which
shares of the Common Stock could reasonably be expected to be sold in an
arms-length transaction, for cash, other than on an installment basis, to a
person not employed by, controlled by, in control of or under common control
with the Company, as follows:
(1) the Repurchase Price shall initially be determined by the Board,
giving due consideration to recent transactions involving shares of the Common
Stock, if any, earnings of the Company to the date of such determination, the
absence of a public market for the Common Stock, and such other matters as the
Board deems pertinent (the "BOARD VALUATION"), and the Repurchase Price need not
necessarily be equal to the Fair Market Value as determined in accordance with
this Agreement;
(2) Recipient shall have the right, exercisable by written request to
the Company, to review the assumptions, calculations and information used by the
Board in determining the
13
<PAGE> 14
Board Valuation and shall have 20 days after Recipient's receipt of the Board
Valuation to give written notice to the Company of any disagreement with the
Board Valuation, indicating the Repurchase Price Recipient attributes to the
Award Shares (the "RECIPIENT VALUATION") and specifying in reasonable detail,
insofar as feasible, the nature and extent of Recipient's disagreement with the
Board Valuation; provided, however, if the Recipient fails to provide any notice
of disagreement within such 20 day period, the Repurchase Price shall be the
Board Valuation and such Repurchase Price shall be binding on the parties, and
such binding amount shall be final and shall not be subject to review or
challenge of any kind;
(3) if the Recipient gives timely written notice under Section 7.1(c)(2)
above, the Company and Recipient shall then attempt to agree upon a mutually
acceptable Repurchase Price for the Award Shares; if the Company and Recipient
are unable to reach agreement as to Repurchase Price within 10 days after
Recipient gives the Company notice of the Recipient Valuation, the disagreement
shall be referred for final determination to the Los Angeles office of Deloitte
& Touche LLP, or if Deloitte & Touche LLP is unwilling to serve, such other
independent accounting firm of national recognition that the Board selects in
good faith (the "INDEPENDENT ACCOUNTING FIRM"), which shall make a final
determination regarding such disagreement within 30 days after referral thereof;
(4) any determination with respect to the Repurchase Price of the Award
Shares made by the Independent Accounting Firm shall be made on the basis of the
application of the standards set forth in this Section 7.1(c), and the decision
of the Independent Accounting Firm (the "ACCOUNTANT VALUATION") shall be final
and binding and shall not be subject to review or challenge of any kind;
provided, however, that if the Accountant Valuation is less than the Board
Valuation, the Board Valuation shall be binding on the parties and if the
Accountant Valuation is greater than the Recipient Valuation, the Recipient
Valuation shall be binding on the parties, and in either case, such binding
amount shall be final and shall not be subject to review or challenge of any
kind; and
(5) the Company and Recipient shall each pay one-half of the fees and
disbursements of the Independent Accounting Firm, if any.
7.2 RIGHT OF FIRST REFUSAL.
(a) If at any time, whether during the continuance of Recipient's
employment by the Company or an Affiliated Entity, or thereafter, Recipient, or
his or her legal representative, as the case may be (a "SELLER"), desires to
sell, transfer (by gift or otherwise), assign, hypothecate, pledge, grant as a
security interest, or in any other way dispose of or alienate any of the Award
Shares or any interest therein (other than by gift to the spouse, parents or
children of Recipient or to the parents or children of the spouse of Recipient
or to a trust established solely for the benefit of any one or more of such
persons (a "PERMITTED TRANSFER"), then prior to such transfer, (i) Seller shall
obtain a written agreement satisfactory to the Company that such intended
transferee (the "Transferee") agrees, prior to the transfer, in a writing
acceptable to the Company to hold such shares subject to the terms of Section
7.1 hereof and this Section 7.2), (hereinafter referred to as a "DISPOSITION")
and (ii) the Seller shall give written notice to the Company of Seller's intent
to make a Disposition of such shares (the "FIRST REFUSAL OFFER"). The First
Refusal Offer shall contain a statement signed by the Seller notifying the
Company that the Seller desires to make a Disposition of a specified number of
the Award Shares or an interest therein and shall be accompanied by a copy of
the bona fide offer to purchase such shares, in case of a sale, or a description
of the
14
<PAGE> 15
proposed transaction with respect to any other Disposition, and shall set forth
the following:
(1) The full name and address of the Transferee;
(2) The number of the Award Shares to be purchased by, or transferred
to, the Transferee;
(3) The price, in case of a sale, and other terms under which the
purchase is intended to be made;
(4) A statement, in case of a sale, signed by the Transferee, that the
price and other terms specified are a bona fide offer to purchase; and
(5) A representation, in case of a sale, by the Transferee that he or
she or it has the financial capability necessary to consummate the purchase.
(b) The Company shall have 30 days from the date of receipt of the First
Refusal Offer within which to exercise an option to purchase the Award Shares
covered by a First Refusal Offer (the "FIRST REFUSAL SHARES"), at the same price
and upon the same terms as set forth in such First Refusal Offer (the "FIRST
REFUSAL OPTION"), by giving the Seller written notice of its intention to
exercise such right. The Company may, in exercising the First Refusal Option,
designate one or more nominees to purchase the First Refusal Shares, either with
or without the participation of the Company. The First Refusal Option shall
apply to all, but not less than all, of the First Refusal Shares.
Notwithstanding the generality of the foregoing, however, the purchase price for
the First Refusal Shares may, at the option of the Company, be paid (1) in the
same manner provided in the First Refusal Offer, (2) in cash in an amount equal
to the present value of any payments to be made over a period of time according
to the terms of the First Refusal Offer, (3) by use of a promissory note, or (4)
if the terms specified in the First Refusal Offer state that payment is to be
made in property, in an amount equal to the Fair Market Value of such property
as of the date the Company receives the First Refusal Offer, as determined in
good faith and on any reasonable basis, by the Board. For purposes of any
computation made pursuant to this paragraph, the present value of any amount to
be paid in the future shall be determined by the Board by discounting such
amount using an interest rate of 10%.
(c) If the Seller desires to make a Disposition of any of the Award
Shares other than by sale, including, without limitation, by gift, pledge,
hypothecation or the grant of a security interest, other than a permitted
transfer, the Seller shall obtain the prior written approval of the Company to
the proposed transfer, which approval the Company may give or withhold in its
sole discretion.
(d) If the First Refusal Shares are not purchased pursuant to the
related First Refusal Offer by the Company in accordance with this Section 7.2,
in the case of a proposed sale, or if the Company approves a Disposition other
than by sale, the Seller may make a bona fide transfer of the First Refusal
Shares to the respective transferee or transferees named in the related First
Refusal Offer; provided, however, that (1) such transfer shall only be made in
strict accordance with the terms stated in such First Refusal Offer, and
immediately following such transfer, the transferor shall so certify in writing
to the Company, and (2) before any such transfer shall become effective or be
recorded in the books of the Company, each transferee of the First Refusal
Shares shall agree in writing to hold such shares subject to the terms of this
Agreement. In the event the Recipient does not make such transfer for a period
of 60 days following the date on which the Company receives the First Refusal
Offer, no transfer of the First Refusal Shares covered by the First Refusal
Offer shall be made
15
<PAGE> 16
without a new First Refusal Offer from the Seller to the Company in accordance
with this Section 7.2 and in full compliance with all provisions hereof.
7.3 CLOSING. The closing with respect to a purchase of shares by the
Company pursuant to Section 7.1 or 7.2 hereof (the "CLOSING") shall occur at the
principal executive office of the Company on the date and time agreed to by the
parties, but if no such agreement is reached, the Closing shall occur at 10:00
a.m., local time, on the last business day of the 30-day period beginning with
the last day of the Repurchase Period or the First Refusal Period, as the case
may be.
7.4 DELIVERIES AT CLOSING. At the Closing, (a) Recipient or his or her
legal representative, as the case may be, shall deliver to the Company or its
designee, as the case may be, (1) share certificate(s), duly endorsed for
transfer, representing the Award Shares or the First Refusal Shares, as the case
may be, to be purchased at such Closing, and (2) a written statement from
Recipient or his or her legal representative, as the case may be, that such
shares are owned by such person, free and clear of any liens, claims, pledges,
security interests or other encumbrances (other than those expressly created by
the Company), and (b) the Company or its designee, as the case may be, shall
deliver to Recipient or his or her legal representative, as the case may be, (1)
the purchase price for such shares, as determined in accordance with Section 7.1
or 7.2 hereof, as the case may be, in the form of a check, and (2) if
applicable, a share certificate for the number of shares, if any, represented by
the share certificate(s) transferred to the Company that are not First Refusal
Shares.
7.5 EFFECT OF TENDER OF PURCHASE PRICE. Notwithstanding the failure of
the holder of any certificate evidencing all or any part of the Award Shares or
the First Refusal Shares, as the case may be, to deliver the same to the Company
for cancellation, and upon tender by the Company of the purchase price for any
of such shares in accordance with the terms of this Agreement, such shares and
the certificates representing same shall forthwith and without further action be
deemed to be canceled and forfeited.
7.6 LEGENDS AND TERMINATION OF RIGHTS. All share certificates
representing the shares issued upon exercise of any Award shall bear a legend or
legends noting the existence of the restrictions imposed by this Plan.
16
<PAGE> 17
ARTICLE VIII
DEFINITIONS
Capitalized terms used in this Plan and not otherwise defined have the
meanings set forth below:
"ACCOUNTANT VALUATION" shall have the meaning set forth in Section
7.1(c).
"ADMINISTRATOR" means the Board as long as no Committee has been
appointed and is in effect and also means the Committee to the extent that the
Board has delegated authority thereto.
"AFFILIATED ENTITY" means any Parent Corporation of the Company or
Subsidiary Corporation of the Company or any other entity controlling,
controlled by, or under common stock with the Company.
"AWARD" means any Stock Option granted or sold to an Eligible Person
under this Plan, or any similar award granted by the Company prior to the
Effective Date and outstanding as of the Effective Date that is governed by this
Plan.
"AWARD DOCUMENT" means the agreement or confirming memorandum setting
forth the terms and conditions of an Award.
"AWARD SHARES" shall have the meaning set forth in Section 7.1(a).
"BOARD" means the Board of Directors of the Company.
"BOARD VALUATION" shall have the meaning set forth in Section 7.1(c).
"CALIFORNIA COMMISSIONER" means the Commissioner of Corporations of the
State of California.
"CALIFORNIA REGULATED PLAN" means this Plan at any time that Awards and
securities underlying Awards are California Regulated Securities and the Company
relies upon the exemption provided by Section 25102(o) of the California
Securities Law (or another exemption imposing comparable requirements) to exempt
the issuance of securities under this Plan from qualification under the
California Securities Law.
"CALIFORNIA REGULATED SECURITIES" means Awards and securities underlying
Awards that are subject to the California Securities Law or the California
Securities Rules.
"CALIFORNIA SECURITIES LAW" means the California Corporate Securities
Law of 1968, as amended.
"CALIFORNIA SECURITIES RULES" means the Rules of the California
Commissioner adopted under the California Securities Law.
17
<PAGE> 18
"CLOSING" shall have the meaning set forth in Section 7.3.
"COMMITTEE" means any committee appointed by the Board to administer
this Plan pursuant to Section 4.1.
"COMMON STOCK" means the common stock of the Company, as constituted on
the Effective Date, and as thereafter adjusted under Section 3.4.
"COMPANY" means Innosoft International, Inc., a California corporation.
"DISPOSITION" shall have the meaning set forth in Section 7.2(a).
"EFFECTIVE DATE" means February 12, 1999, which is the date this Plan
was adopted by the Board whether or not shareholder approval had yet been
obtained as of such date.
"ELIGIBLE PERSON" includes directors, officers, employees, consultants
and advisors of the Company or of any Affiliated Entity.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXCHANGE ACT REGISTERED COMPANY" means that the Company has any class
of any equity security registered pursuant to Section 12 of the Exchange Act.
"EXPIRATION DATE" means February 11, 2009.
"FAIR MARKET VALUE" of a share of the Company's capital stock as of a
particular date means (i) if the stock is listed on an established stock
exchange or exchanges (including for this purpose, the Nasdaq National Market),
the arithmetic mean of the highest and lowest sale prices of the stock for the
trading day immediately preceding such date on the primary exchange upon which
the stock trades, as measured by volume, as published in The Wall Street
Journal, or, if no sale price was quoted for such date, then as of the next
preceding date on which such a sale price was quoted; or (ii) if the stock is
not then listed on an exchange or the Nasdaq National Market, the average of the
closing bid and asked prices per share for the stock in the over-the-counter
market on such date (in the case of (i) or (ii), subject to adjustment as and if
necessary and appropriate to set an exercise price not less than 100% of the
fair market value of the stock on the date an Award is granted); or (iii) if the
stock is not then listed on an exchange or quoted in the over-the-counter
market, an amount determined in good faith by the Administrator; provided,
however, that (A) when appropriate, the Administrator in determining Fair Market
Value of capital stock of the Company shall consider such factors as may be
required by the California Securities Law and the California Securities Rules
while this Plan is a California Regulated Plan, and may take into account such
other factors as it may deem appropriate under the circumstances including the
absence of a public trading market for the Company's securities, and (B) if the
stock is traded on the Nasdaq SmallCap Market and both sales prices and bid and
asked prices are quoted or available, the Administrator may elect to determine
Fair Market Value under either clause (i) or (ii) above. Notwithstanding the
foregoing, the Fair Market Value of capital stock for
18
<PAGE> 19
purposes of grants of Incentive Stock Options must be determined in compliance
with applicable provisions of the IRC. The Fair Market Value of rights or
property other than capital stock of the Company means the fair market value
thereof as determined by the Administrator on the basis of such factors as it
may deem appropriate.
"FIRST REFUSAL OFFER" shall have the meaning set forth in Section
7.2(a).
"FIRST REFUSAL OPTION" shall have the meaning set forth in Section
7.2(b).
"FIRST REFUSAL SHARES" shall have the meaning set forth in Section
7.2(b).
"INCENTIVE STOCK OPTION" means a Stock Option that qualifies as an
incentive stock option under Section 422 of the IRC.
"INDEPENDENT ACCOUNTING FIRM" shall have the meaning set forth in
Section 7.1(c).
"IRC" means the Internal Revenue Code of 1986, as amended.
"JUST CAUSE DISMISSAL" means a termination of a Recipient's employment
for any of the following reasons: (a) the commission by the Recipient of any act
of embezzlement, fraud or dishonesty; (b) any deliberate disregard by the
Recipient of any policy promulgated by the Board or the Chief Executive Officer
of the Company, or any Affiliated Entity with which Recipient is employed, which
results in any loss, damage or injury to the Company or any Affiliated Entity;
(c) any unauthorized disclosure by the Recipient of any trade secret or
confidential information of the Company or any Affiliated Entity; (d) any
commission of an act by the Recipient which constitutes unfair competition with
the Company or any Affiliated Entity or induces any customer or vendor of the
Company or any Affiliated Entity to terminate any agreement with such
corporation; or (e) any breach by the Recipient of any agreement or covenant,
including, without limitation, in any employment agreement, consulting
agreement, purchase agreement, purchase order or confidentiality agreement, he
or she has made with the Company or any Affiliated Entity; provided, however,
that if a Recipient is party to an employment agreement with the Company or any
Affiliated Entity providing for just cause dismissal (or some comparable
concept) of Recipient from Recipient's employment with the Company or any
Affiliated Entity, "Just Cause Dismissal" for purposes of this Plan will have
the same meaning as ascribed thereto or to such comparable concept in such
employment agreement.
"NONQUALIFIED STOCK OPTION" means a Stock Option that is not an
Incentive Stock Option.
"PARENT CORPORATION" means any Parent Corporation as defined in Section
424(e) of the IRC.
"PERMANENT DISABILITY" means that the Recipient becomes physically or
mentally incapacitated or disabled so that the Recipient is unable to perform
substantially the same services as the Recipient performed prior to incurring
such incapacity or disability (the Company, at its option and expense, being
entitled to retain a physician to confirm the
19
<PAGE> 20
existence of such incapacity or disability, and the determination of such
physician to be binding upon the Company and the Recipient), and such incapacity
or disability continues for a period of three (3) consecutive months or six (6)
months in any 12-month period or such other period(s) as may be determined by
the Administrator with respect to any Award, provided that for purposes of
determining the period during which an Incentive Stock Option may be exercised
pursuant to Section 6.1(e), Permanent Disability shall mean "permanent and total
disability" as defined in Section 22(e) of the IRC.
"PERMITTED TRANSFER" shall have the meaning set forth in Section 7.2(a).
"PERSON" means any person, entity or group, within the meaning of
Section 13(d) or 14(d) of the Exchange Act, but excluding (i) the Company and
its subsidiaries, (ii) any employee stock ownership or other employee benefit
plan maintained by the Company and (iii) an underwriter or underwriting
syndicate that has acquired the Company's securities solely in connection with a
public offering thereof.
"PLAN" means this 1999 Equity Incentive Plan of the Company.
"PLAN TERM" means the period during which this Plan remains in effect
(commencing the Effective Date and ending on the Expiration Date).
"RECIPIENT" means a person who has received an Award.
"RECIPIENT VALUATION" shall have the meaning set forth in Section
7.1(c).
"REORGANIZATION" means any merger, consolidation or other
reorganization.
"REPURCHASE OPTION" shall have the meaning set forth in Section 7.1(a).
"REPURCHASE PERIOD" means the period set forth in Section 7.1(a).
"RETIREMENT" of a Recipient means the Recipient's resignation from the
Company or any Affiliated Entity after reaching age [60] and at least five years
of full-time employment by the Company or any Affiliated Entity without any
circumstances that would justify a Just Cause Dismissal of the Recipient.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SELLER" shall have the meaning set forth in Section 7.2(a).
"SIGNIFICANT SHAREHOLDER" is an individual who, at the time a Stock
Option is granted to such individual under this Plan, owns more than ten percent
(10%) of the combined voting power of all classes of stock of the Company or of
any Parent Corporation or Subsidiary Corporation (after application of the
attribution rules set forth in Section 424(d) of the IRC).
"STOCK OPTION" means a right to purchase stock of the Company granted
under Section 6.1 of this Plan.
20
<PAGE> 21
"SUBSIDIARY CORPORATION" means any Subsidiary Corporation as defined in
Section 424(f) of the IRC.
"TRANSFEREE" shall have the meaning set forth in Section 7.2(a).
21
<PAGE> 22
EXHIBIT A
TO
INNOSOFT INTERNATIONAL, INC.
1999 EQUITY INCENTIVE PLAN
Innosoft International, Inc.
1050 Lakes Drive
West Covina, CA 91790
RE: NOTICE OF EXERCISE OF STOCK OPTION
Notice is hereby given that I elect to purchase the number of shares (the
"Shares") set forth below pursuant to the stock option referenced below at the
exercise price applicable thereto:
Option Grant Date:
---------------
Total Number of Shares
Underlying Original Option:
---------------
Number of Shares for
which Option has been
Previously Exercised:
---------------
Exercise Price Per Share:
---------------
Number of Shares Being
Acquired With This Exercise:
---------------
A check in the amount of the aggregate price of the shares being purchased is
attached.
I hereby confirm that such shares are being acquired by me for my own account
for investment purposes, and not with a view to, or for resale in connection
with, any distribution thereof. I will not sell or dispose of my Shares in
violation of the Securities Act of 1933, as amended, or any applicable federal
or state securities laws. Further, I understand that the exemption from taxable
income at the time of exercise is dependent upon my holding such stock for a
period of at least one year from the date of exercise and two years from the
date of grant of the Option.
22
<PAGE> 23
I understand that the certificate representing the Shares will bear a
restrictive legend within the contemplation of the Securities Act and as
required by such other state or federal law or regulation applicable to the
issuance or delivery of the Shares.
I agree to provide to the Company such additional documents or information as
may be required pursuant to the Company's 1999 Equity Incentive Plan.
- --------------------------------
(signature)
- --------------------------------
(name of Optionee)
23
<PAGE> 1
EXHIBIT 5.1
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304
(650) 493-9300
April 25, 2000
Sun Microsystems, Inc.
901 San Antonio Road
Palo Alto, CA 94303
Re: Registration Statement on Form S-8
Ladies and Gentlemen:
We have acted as counsel to Sun Microsystems, Inc., a Delaware
corporation (the "Company" or "you") and have examined the Registration
Statement on Form S-8 (the "Registration Statement") to be filed by the Company
with the Securities and Exchange Commission on or about April 26, 2000 in
connection with the registration under the Securities Act of 1933, as amended,
of an aggregate of 52,020 shares of the Company's Common Stock, par value
$0.00067 per share (the "Shares"), reserved for issuance under the Innosoft
International, Inc. 1992 Stock Incentive Plan and 1999 Equity Incentive Plan
(the "Plans").
As your legal counsel, we have examined the Restated Certificate of
Incorporation and Bylaws of the Company, the Plans and such other documents of
the Company as we have deemed necessary or appropriate for the purposes of the
opinion expressed herein, and are familiar with the proceedings proposed to be
taken by you in connection with the operation and administration of the Plans
and the sale and issuance of the Shares pursuant to the Plans.
In our opinion, the Shares, when issued and sold in the manner referred
to in the Plans and pursuant to the agreements which accompany the Plans, will
be legally and validly issued, fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to the use of our name wherever appearing in the
Registration Statement and any subsequent amendment thereto.
Very truly yours,
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
/s/ WILSON SONSINI GOODRICH & ROSATI
11
<PAGE> 1
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
of Sun Microsystems, Inc. (Form S-8) pertaining to the Innosoft International,
Inc. 1992 Stock Incentive Plan and the Innosoft International, Inc. 1999 Equity
Incentive Plan of our reports dated July 21, 1999 and September 23, 1999, with
respect to the consolidated financial statements of Sun Microsystems, Inc.,
incorporated by reference in its Annual Report (Form 10-K) for the year ended
June 30, 1999 and the related financial statement schedule included therein,
filed with the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
Palo Alto, California
April 25, 2000
