<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 4, 1996
REGISTRATION NO. 33-
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM S-8
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------
SIERRA ON-LINE, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 77-0164293
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
</TABLE>
3380 - 146TH PLACE S.E., SUITE 300
BELLEVUE, WASHINGTON 98007
(Address of principal executive offices, including zip code)
SIERRA ON-LINE, INC. 1987 STOCK OPTION PLAN
PAPYRUS DESIGN GROUP INC. 1992 STOCK OPTION PLAN
SIERRA ON-LINE, INC. 1993 STOCK OPTION GRANT AGREEMENT
SIERRA ON-LINE, INC. 1994 STOCK OPTION GRANT AGREEMENT
(Full titles of the plans)
RICHARD K. THUMANN
GENERAL COUNSEL
3380 - 146TH PLACE S.E., SUITE 300
BELLEVUE, WASHINGTON 98007
(206) 649-9800
(Name, address and telephone number, including area code, of agent for service)
----------------------
COPY TO:
STEPHEN A. MCKEON
DAVID C. CLARKE
PERKINS COIE
1201 THIRD AVENUE, 40TH FLOOR
SEATTLE, WASHINGTON 98101-3099
----------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
==================================================================================================================================
TITLE OF SECURITIES AMOUNT TO BE PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TO BE REGISTERED REGISTERED(1) OFFERING PRICE PER SHARE(2) AGGREGATE OFFERING PRICE(2) REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value per share:
Sierra On-Line, Inc.
1987 Stock Option Plan 800,000 $36.4375 $40,102,894 $13,829
Papyrus Design Group
Inc. 1992 Stock 230,594
Option Plan
Sierra On-Line, Inc.
1993 Stock Option 40,000
Grant Agreement
Sierra On-Line, Inc.
1994 Stock Option 30,000
Grant Agreement
---------
TOTAL 1,100,594
==================================================================================================================================
</TABLE>
(1) Together with an indeterminate number of additional shares that may be
necessary to adjust the number of shares reserved for issuance under
the Sierra On-Line, Inc. 1987 Stock Option Plan, the Papyrus Design
Group Inc. 1992 Stock Option Plan, the Sierra On-Line, Inc. 1993 Stock
Option Grant Agreement and the Sierra On-Line, Inc. 1994 Stock Option
Grant Agreement as the result of any future stock split, stock dividend
or similar adjustment of the outstanding Common Stock of the
Registrant.
(2) Estimated pursuant to Rule 457(h) under the Securities Act of 1933, as
amended, solely for the purpose of calculating the registration fee.
<PAGE> 2
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
ITEM 3. INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents are hereby incorporated by reference in this
Registration Statement:
(a) The Registrant's Annual Report on Form 10-K for the fiscal
year ended March 31, 1995 filed with the Securities and Exchange Commission (the
"Commission") (as amended by the Registrant's Quarterly Report on Form 10-Q for
the quarter ended December 31, 1995);
(b) All other reports filed by the Registrant pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), since the end of the fiscal year covered by the Form 10-K
referred to in (a) above; and
(c) The description of the Registrant's Common Stock contained
in the Registration Statement on Form 8-A filed with the Commission under
Section 12(g) of the Exchange Act, including any amendment or reports filed for
the purpose of updating such description.
All documents filed by the Registrant pursuant to Sections 13(a),
13(c), 14 and 15(d) of the Exchange Act after the date hereof and prior to the
filing of a post-effective amendment, which indicates that the securities
offered hereby have been sold or which deregisters the securities covered hereby
then remaining unsold, shall also be deemed to be incorporated by reference into
this Registration Statement and to be a part hereof commencing on the respective
dates on which such documents are filed.
ITEM 6. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify its directors and officers as well as other employees
and individuals against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement in connection with specified actions, suits or
proceedings, whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation--a "derivative action"), if
they acted in good faith and in a manner they reasonably believed to be in or
not opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe their conduct
was unlawful. A similar standard is applicable in the case of derivative
actions, except that indemnification only extends to expenses (including
attorneys' fees) incurred in connection with the defense or settlement of such
actions, and the statute requires court approval before there can be any
indemnification where the person seeking indemnification has been found liable
to the corporation. The statute provides that it is not exclusive of other
indemnification that may be granted by a corporation's charter, by-laws,
disinterested director vote, stockholder vote, agreement or otherwise.
Article VI of the Registrant's By-Laws requires indemnification to the
full extent permitted under Delaware law as from time to time in effect. Subject
to any restrictions imposed by Delaware law, the By-Laws provide an
unconditional right to indemnification for all expenses, liability and loss
(including attorneys' fees, judgments, fines, ERISA excise taxes or penalties
and amounts paid in settlement) actually and reasonably incurred or suffered by
any person in connection with any actual or threatened action, suit or
proceeding, whether civil, criminal, administrative or investigative (including,
to the extent permitted by law, any derivative action) by reason of the fact
that such person is or was serving as a director or officer of the Registrant or
that, being or having been a director or officer or an employee of the
Registrant, such person is or was serving at the request of the Registrant as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, including an employee benefit plan. The
By-Laws also provide that the Registrant may, by action of its Board of
Directors, provide indemnification to its employees and agents with the same
scope and effect as the foregoing indemnification of directors and officers.
II-1
<PAGE> 3
Section 102(b)(7) of the Delaware General Corporation Law permits a
corporation to provide in its certificate of incorporation that a director of
the corporation shall not be personally liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability for (i) any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) acts or omissions not in good faith or
that involve intentional misconduct or a knowing violation of law, (iii)
payments of unlawful dividends or unlawful stock repurchases or redemptions, or
(iv) any transaction from which the director derived an improper personal
benefit.
Article VII of the Registrant's Certificate of Incorporation provides
that, subject to certain limitations, a director of the Registrant shall not be
liable to the Registrant or its stockholders for monetary damages for breach of
fiduciary duty as a director. Any amendment to or repeal of such Article VII
shall not adversely affect any right or protection of a director of the
Registrant for or with respect to any acts or omissions of such director
occurring prior to such amendment or repeal.
ITEM 8. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
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<S> <C>
5.1 Opinion of Perkins Coie regarding legality of the Common Stock being registered
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Perkins Coie (included in the opinion filed as Exhibit 5.1)
24.1 Power of Attorney (see signature page)
99.1 Sierra On-Line, Inc. 1987 Stock Option Plan (1)
99.2 Papyrus Design Group Inc. 1992 Stock Option Plan
99.3 Sierra On-Line, Inc. 1993 Stock Option Grant Agreement
99.4 Sierra On-Line, Inc. 1994 Stock Option Grant Agreement
</TABLE>
- ----------
(1) Incorporated by reference to exhibit filed with the Registrant's Annual
Report on Form 10-K (File No. 0-17154) filed for the year ended March 31,
1994.
ITEM 9. UNDERTAKINGS
A. The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933, as amended (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising
after the effective date of this Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this Registration
Statement; and
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in this Registration Statement or
any material change to such information in this Registration Statement;
II-2
<PAGE> 4
provided, however, that paragraphs (1)(i) and (1)(ii) above do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Registrant pursuant to
Section 13 or Section 15(d) of the Exchange Act that are incorporated by
reference in this Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered 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 benefits 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.
II-3
<PAGE> 5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-8 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Bellevue, State of Washington, on February 29,
1996.
SIERRA ON-LINE, INC.
By: /s/ Michael A. Brochu
-------------------------------------
Michael A. Brochu
President and Chief Operating Officer
POWER OF ATTORNEY
EACH PERSON WHOSE INDIVIDUAL SIGNATURE APPEARS BELOW HEREBY AUTHORIZES
KENNETH A. WILLIAMS AND MICHAEL A. BROCHU AND EACH OF THEM AS ATTORNEYS-IN-FACT,
WITH FULL POWER OF SUBSTITUTION, TO EXECUTE IN THE NAME AND ON BEHALF OF SUCH
PERSON, INDIVIDUALLY AND IN EACH CAPACITY STATED BELOW, AND TO FILE, ANY AND ALL
AMENDMENTS TO THIS REGISTRATION STATEMENT, INCLUDING ANY AND ALL POST-EFFECTIVE
AMENDMENTS WITH THE SECURITIES AND EXCHANGE COMMISSION OR ANY REGULATORY
AUTHORITY.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities indicated on February 29, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ Kenneth A. Williams Chairman of the Board and Chief Executive Officer (Principal
- --------------------------- Executive Officer)
Kenneth A. Williams
/s/ Michael A. Brochu President and Chief Operating Officer
- --------------------------- (Principal Financial Officer)
Michael A. Brochu
/s/ Fred Schapelhouman Chief Accounting Officer
- ---------------------------
Fred Schapelhouman
/s/ Thomas L. Beckman Director
- ---------------------------
Thomas L. Beckman
/s/ Michael G. Berolzheimer Director
- ---------------------------
Michael G. Berolzheimer
Director
- ---------------------------
Walter A. Forbes
/s/ Marvin H. Green, Jr. Director
- ---------------------------
Marvin H. Green, Jr.
/s/ David C. Hodgson Director
- ---------------------------
David C. Hodgson
/s/ Roberta L. Williams Director
- ---------------------------
Roberta L. Williams
</TABLE>
II-4
<PAGE> 6
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------------------------------------------------------------
<S> <C>
5.1 Opinion of Perkins Coie regarding legality of the Common Stock
being registered
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Perkins Coie (included in the opinion filed as Exhibit
5.1)
24.1 Power of Attorney (see signature page)
99.1 Sierra On-Line, Inc. 1987 Stock Option Plan (1)
99.2 Papyrus Design Group Inc. 1992 Stock Option Plan
99.3 Sierra On-Line, Inc. 1993 Stock Option Grant Agreement
99.4 Sierra On-Line, Inc. 1994 Stock Option Grant Agreement
</TABLE>
- -----------
(1) Incorporated by reference to exhibit filed with the Registrant's Annual
Report on Form 10-K (File No. 0-17154) filed for the year ended March 31,
1994.
<PAGE> 1
EXHIBIT 5.1
<PAGE> 2
Exhibit 5.1
March 4, 1996
Sierra On-Line, Inc.
3380 - 146th Place S.E., Suite 300
Bellevue, Washington 98007
RE: 1,100,594 SHARES OF COMMON STOCK ($.01 PAR VALUE) OF SIERRA
ON-LINE, INC. (THE "COMPANY")
Gentlemen and Ladies:
We have acted as counsel to you in connection with the preparation of a
Registration Statement on Form S-8 (the "Registration Statement") under the
Securities Act of 1933, as amended (the "Act"), which you are filing with the
Securities and Exchange Commission with respect to 1,100,594 shares of Common
Stock, $.01 par value (the "Shares"), 800,000 of which are to be issued pursuant
to the Sierra On-Line, Inc. 1987 Stock Option Plan, 230,594 of which are to be
issued pursuant to the Papyrus Design Group Inc. 1992 Stock Option Plan, 40,000
of which are to be issued pursuant to the Sierra On-Line, Inc. 1993 Stock Option
Grant Agreement and 30,000 of which are to be issued pursuant to the Sierra
On-Line, Inc. 1994 Stock Option Grant Agreement (collectively, the "Plans"). We
have examined the Registration Statement and such documents and records of the
Company and other documents as we have deemed necessary for the purpose of this
opinion.
Based upon and subject to the foregoing, we are of the opinion that the
Shares that will be issued upon the exercise of stock options granted pursuant
to the Plans have been duly authorized and that, upon the due execution by the
Company and the registration by its registrars of the Shares, issuance thereof
by the Company and receipt of the consideration therefor in accordance with the
terms of the Plans, the Shares will be validly issued, fully paid and
nonassessable.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement. In giving such consent, we do not admit that we are in
the category of persons whose consent is required under Section 7 of the Act.
Very truly yours,
PERKINS COIE
<PAGE> 1
EXHIBIT 23.1
<PAGE> 2
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
Sierra On-Line, Inc. on Form S-8 of our report dated February 13, 1996 on the
consolidated financial statements of Sierra On-Line, Inc. and subsidiaries for
the year ended March 31, 1995, appearing in the Quarterly Report on Form 10-Q
for the quarterly period ended December 31, 1995.
DELOITTE & TOUCHE LLP
Seattle, Washington
March 4, 1996
<PAGE> 1
EXHIBIT 99.2
PAPYRUS DESIGN GROUP INC.
1992 STOCK OPTION PLAN
AMENDED AND RESTATED AS OF SEPTEMBER 15, 1993
1. ADMINISTRATION OF PLAN
This Plan is intended to provide for the grant of stock options to
persons whose contributions are important to the success of Papyrus Design
Group Inc. (the "Company"). This Plan shall be administered by the Board of
Directors of the Company. The Board of Directors is authorized to interpret
the Plan, to prescribe, amend and rescind rules and regulations relating to it,
to approve and ratify the form of agreement pursuant to which options may be
granted under the Plan, and to make all other determinations necessary or
advisable for its administration. The Board of Directors may delegate to a
committee thereof any or all of its powers and authority with respect to the
administration of the Plan, and all references herein to the Board of Directors
shall be deemed to include any such committee.
2. SHARES COVERED BY PLAN
The stock subject to Options shall be authorized but unissued shares
of Common Stock of the Company, no par value per share (the "Common Stock"), or
shares of Common Stock reacquired by the Company in any manner. The aggregate
number of shares which may be issued pursuant to the Plan is 3,500 shares of
Common Stock, subject to equitable adjustment for any stock dividends, stock
splits, combinations or other recapitalizations of the Common Stock. Any such
shares may be issued as ISOs or Non-Qualified Options, so long as the number of
shares so issued does not exceed such number, as adjusted or amended from time
to time by a vote of stockholders or otherwise pursuant to Section 14. If any
Option granted under the Plan shall expire or terminate for any reason without
having been exercised in full or shall cease for any reason to be exercisable
in whole or in part, the unpurchased shares subject to such options shall again
be available for grants of stock options under the Plan. Shares covered by
unexercised options that are no longer exercisable because such options have
been terminated or expire or lapse without being exercised (in whole or in
part) shall continue to be available for issuance under options granted under
the Plan for purposes of applying the foregoing limitation. Shares delivered
on exercise of options may be made available from authorized and unissued
Common Stock or from Common Stock held in the treasury of the Company.
<PAGE> 2
3. ELIGIBILITY
The Board of Directors may grant stock options under the Plan to
employees, directors and officers of the Company and to consultants, advisors
and other persons whose contributions are important to the success of the
Company. Incentive Stock Options ("ISOs") may be granted to any employee of
the Company. Those officers and directors of the Company who are not employees
may not be granted ISOs under the Plan. Non-Qualified Options may be granted
to any director (whether or not an employee), officer, employee or consultant
of the Company. The Board may take into consideration a recipient's individual
circumstances in determining whether to grant an ISO or a Non-Qualified Option.
Granting of any stock options to any individual or entity shall neither entitle
that individual or entity to, nor disqualify him from, participation in any
other grant of stock options.
4. GRANT OF OPTIONS
The recipients or options granted under the Plan, the number of shares
to be covered by each option, and the exercise price, vesting terms, if any,
duration and other terms of each option (not inconsistent with the Plan) shall
be determined by the Board of Directors (or any committee) and shall be set
forth in a written agreement between the Company and the optionee. The terms
of such agreement shall be approved or ratified by the Board of Directors.
5. OPTION AGREEMENTS
Each person to whom an option is granted shall enter into a written
agreement with the Company setting forth the terms and conditions of the option
granted to him or her.
6. DURATION OF OPTIONS
No option granted under the Plan shall be exercisable more than ten
years and one month from the date as of which the option agreement is executed
or the option is granted, whichever is later.
7. RIGHTS AS A STOCKHOLDER
An optionee shall have no rights as a stockholder with respect to any
shares covered by his or her options until he or she shall have paid the
exercise price of the option and shall have become the holder of record of such
shares, and no adjustment shall be made, except adjustments for changes in
capitalization pursuant to Section 8 hereof, for dividends (whether in cash,
securities or other property) or distributions or
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<PAGE> 3
other rights in respect of such shares for which the record date is prior to
the date on which he shall have become the holder of record thereof.
8. EFFECT OF CHANGE IN STOCK SUBJECT TO THE PLAN
If there is any change in the shares of Common Stock of the Company
through the declaration of stock dividends or through recapitalization
resulting in stock split-ups or combinations or exchanges of shares or
otherwise, the number of shares available for options, the exercise price of
outstanding options, and the number of shares subject to any option shall be
appropriately and equitably adjusted by the Board of Directors, and in their
discretion, in such cases, fractional parts of shares may be disregarded.
9. AMENDMENT AND DISCONTINUANCE
The Board of Directors may from time to time alter or suspend and at
any time discontinue the Plan. However, no action of the Board of Directors
may alter or impair an optionee's rights under any outstanding option
previously granted under the Plan without the consent of the holder of the
option.
10. GRANTING OF STOCK OPTIONS
Stock Options may be granted under the Plan at any time on or after
June 30, 1992, and prior to June 30, 2002. The date of grant of stock options
under the Plan will be the date specified by the Board or Committee at the time
it grants the stock options; provided, however, that such date shall not be
prior to the date on which the Board or Committee acts to approve the grant.
The Board or Committee shall have the right, with the consent of the optionee,
to convert an ISO granted under the Plan to a Non- Qualified Option pursuant to
Section 15.
11. MINIMUM OPTION PRICE; ISO LIMITATIONS
A. Price for Non-Qualified Options. The exercise price per share
specified in the agreement relating to each Non- Qualified Option granted under
the Plan shall in no event be less than fifty (50%) percent of the fair market
value per share of Common Stock on the date of such grant.
B. Price for ISOs. The exercise price per share specified in the
agreement relating to each ISO granted under the Plan shall not be less than
the fair market value per share of Common Stock on the date of such grant. In
the case of an ISO to be granted to an employee owning stock possessing more
than ten percent (10%) of the total combined voting power of all classes of
stock of the Company, the price per
-3-
<PAGE> 4
share specified in the agreement relating to such ISO shall not be less than
110% of the fair market value per share of Common Stock on the date of grant.
C. $100,000 Annual Limitation on ISOs. Each eligible employee
may be granted ISOs only to the extent that, in the aggregate under this Plan
and all incentive stock option plans of the Company, such ISOs do not become
exercisable for the first time by such employee during any calendar year in a
manner which would entitle the employee to purchase more than $100,000 in fair
market value (determined at the time the ISOs were granted) of Common Stock in
that year. Any options granted to an employee in excess of such amount will be
treated as Non-Qualified Options as to the amount over the $100,000 annual
vesting limitation.
12. OPTION DURATION
Subject to earlier termination as provided in Sections 18 and 23, each
Option shall expire on the date specified by the Board or Committee, but not
more than (i) ten years and one day from the date of grant in the case of
Non-Qualified Options, (ii) ten years from the date of grant in the case of
ISOs generally, and (iii) five years from the date of grant in the case of ISOs
granted to an employee owning stock possessing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company.
Subject to earlier termination as provided in Sections 18 and 23, the term of
each ISO shall be the term set forth in the original agreement granting such
ISO, except with respect to any part of such ISO that is converted into a Non-
Qualified Option pursuant to Section 15.
13. DEATH; DISABILITY
A. Death. If an optionee ceases to be employed by the Company by
reason of his death, any option of his may be exercised, to the extent of the
number of shares with respect to which he could have exercised it on the date
of his death, by his estate, personal representative or beneficiary who has
acquired the option by will or by the laws of descent and distribution, at any
time prior to the earlier of the specified expiration date of the option or 180
days from the date of the optionee's death.
B. Disability. If an optionee ceases to be employed by the
Company by reason of his disability, he shall have the right to exercise any
option held by him on the date of termination of employment, to the extent of
the number of shares with respect to which he could have exercised it on that
date, at any time prior to the earlier of the specified expiration date of the
option or 180 days from the date of the termination of the optionee's
employment or engagement. For the purposes of the Plan, the term "disability"
shall mean "permanent and total disability" as defined in Section 22(e)(3) of
the Internal Revenue Code or successor statute.
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<PAGE> 5
14. TERM AND AMENDMENT OF PLAN
This Plan was adopted by the Board as of June 30, 1992, subject (with
respect to the validation of options granted under the Plan) to approval of the
Plan by the stockholders of the Company at the next meeting of stockholders or,
in lieu thereof, by unanimous written consent. If the approval of stockholders
is not obtained by June 30, 1993, any grants of Options under the Plan made
prior to that date will be rescinded. The Plan shall expire on June 30, 2002
(except as to Options outstanding on that date). The Board may terminate or
amend the Plan in any respect at any time, except that, without the approval of
the stockholders obtained within 12 months before or after the Board adopts a
resolution authorizing any of the following actions: (a) the total number of
shares that may be issued under the Plan may not be increased (except by
adjustment pursuant to Section 8); (b) the provisions of Section 3 regarding
eligibility for grants of ISOs may not be modified; (c) the provisions of
Section 11 regarding the exercise price at which shares may be offered pursuant
to ISOs may not be modified (except by adjustment pursuant to Section 8); and
(d) the expiration date of the Plan may not be extended. Except as otherwise
provided in this Section 14, in no event may action of the Board or
stockholders alter or impair the rights of an optionee, without his consent,
under any stock options previously granted to him.
15. CONVERSION OF ISOS INTO NON-QUALIFIED OPTIONS; TERMINATION OF ISOS
The Board or Committee, at the written request of any optionee, may in
its discretion take such actions as may be necessary to convert such optionee's
ISOs (or any installments or portions of installments thereof) that have not
been exercised on the date of conversion into Non-Qualified Options at any time
prior to the expiration of such ISOs, regardless of whether the optionee is an
employee of the Company at the time of such conversion. Such actions may
include, but not be limited to, extending the exercise period or reducing the
exercise price of the appropriate installments of such Options. At the time of
such conversion, the Board or Committee (with the consent of the Optionee) may
impose such conditions on the exercise of the resulting Non-Qualified Options
as the Board or Committee in its discretion may determine, provided that such
conditions shall not be inconsistent with this Plan. Nothing in the Plan shall
be deemed to give any optionee the right to have such optionee's ISOs converted
into Non-Qualified Options, and no such conversion shall occur until and unless
the Board or Committee takes appropriate action. The Board or Committee, with
the consent of the optionee, may also terminate any portion of any ISO that has
not been exercised at the time of such termination.
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<PAGE> 6
16. DETERMINATION OF FAIR MARKET VALUE
If, at the time an Option is granted under the Plan, the Company's
Common Stock is publicly traded, "fair market value" shall be determined as of
the last business day for which the prices or quotes discussed in this sentence
are available prior to the date such Option is granted and shall mean (i) the
average (on that date) of the high and low prices of the Common Stock on the
principal national securities exchange on which the Common Stock is traded, if
the Common Stock is then traded on a national securities exchange, or (ii) the
last reported sale price (on that date) of the Common Stock on the Nasdaq
National Market, if the Common Stock is not then traded on a national
securities exchange, or (iii) the average of the closing bid and asked prices
last quoted (on that date) by an established quotation service for
over-the-counter securities, if the Common Stock is not reported on the Nasdaq
National Market. However, if the Common Stock is not publicly traded at the
time an Option is granted under the Plan, "fair market value" shall be deemed
to be the fair value of the Common Stock as determined by the Board after
taking into consideration all factors which it deems appropriate, including,
without limitation, recent sale and offer prices of the Common Stock in private
transactions negotiated at arm's length, revenues and earnings of the Company
for the most recent twelve-month period, projected revenues and earnings of the
Company for the next twelve-month period, discounted positive cash flow of the
Company and other pertinent factors determined by the Board.
17. EXERCISE OF OPTION
Subject to the provisions of Sections 13, 15, 18 and 19, each Option
granted under the Plan shall be exercisable as follows:
A. Full Vesting or Partial Vesting. The Option shall either be
fully exercisable on the date of grant or shall become exercisable thereafter
in such installments as the Board may specify.
B. Full Vesting of Installments. Once an installment becomes
exercisable it shall remain exercisable until expiration or termination of the
Option, unless otherwise specified by the Board or as otherwise provided in
this Plan.
C. Partial Exercise. Each Option or installment may be exercised
at any time or from time to time, in whole or in part, for up to the total
number of shares with respect to which it is then exercisable.
D. Acceleration of Vesting. Subject to any accounting
considerations with respect to "Accounting for Business Combinations" pursuant
to Accounting Principles Board Opinion No. 16, the Board shall have the right
to accelerate the date of exercise
-6-
<PAGE> 7
of any installment of any Option; provided that the Board shall not accelerate
the exercise date of any installment of any Option granted to any employee as
an ISO (and not previously converted into a Non-Qualified Option pursuant to
Section 15) if such acceleration would violate the annual vesting limitation
contained in Section 422(d) of the Code, as described in Section 11(C).
18. TERMINATION OF EMPLOYMENT
Subject to Sections 19 and 22 below, if an ISO optionee ceases to be
employed by the Company other than by reason of death or disability as defined
in Section 13, no further installments of his ISOs shall become exercisable,
and his ISOs shall terminate after the passage of ninety (90) days from the
date of termination of his employment, but in no event later than on their
specified expiration dates, except to the extent that such ISOs (or unexercised
installments thereof) have been converted into Non-Qualified Options pursuant
to Section 15. Employment shall be considered as continuing uninterrupted
during any bona fide leave of absence (such as those attributable to illness,
military obligations or governmental service) provided that the period of such
leave does not exceed ninety (90) days or, if longer, any period during which
such optionee's right to reemployment is guaranteed by statute. A bona fide
leave of absence with the written approval of the Board shall not be considered
an interruption of employment under the Plan, provided that such written
approval contractually obligates the Company to continue the employment of the
optionee after the approved period of absence. ISOs granted under the Plan
shall not be affected by any change of employment within or among the Company,
so long as the optionee continues to be an employee of the Company. Nothing in
the Plan shall be deemed to give any optionee the right to be retained in
employment or other service by the Company for any period of time.
19. EXERCISE OF OPTION BEFORE INITIAL PUBLIC OFFERING OR ACQUISITION BY A
THIRD PARTY
Prior to the consummation of a public offering of shares of Common
Stock of the Company or prior to an acquisition of the Company by a third
party, if an Optionee should leave the Company for any reason other than
"Cause" (as set forth in Section 23), the Company may elect to either permit
the exercise of the Option or to make a cash payment (pursuant to a promissory
note if so elected by the Company) to the Optionee equal to the difference
between the Option exercise price and the fair market value of the vested
portion of the Option. The fair market value shall be determined by the Board
of Directors pursuant to Section 16. This Section shall expire upon
consummation of a public offering of shares of Common Stock of the Company or
immediately prior to an acquisition of the Company by a third party. If
-7-
<PAGE> 8
the Optionee is terminated for "Cause" (as set forth in Section 23), no portion
of the Option shall be exercisable.
20. ASSIGNABILITY
No Option shall be assignable or transferable by the optionee except
by will or by the laws of descent and distribution or in the case of
Non-Qualified Options only, pursuant to a valid domestic relations order, and
during the lifetime of the optionee each Option shall be exercisable only by
him or her.
21. CONSOLIDATIONS OR MERGER
If the Company is to be consolidated with or acquired by another
entity in a merger, sale of all or substantially all of the Company's assets or
otherwise (an "Acquisition"), the Board or the board of directors of any entity
assuming the obligations of the Company hereunder (the "Successor Board"), may,
as to outstanding Options, take one or more of the following actions: (i) make
appropriate provision for the continuation of such Options by substituting on
an equitable basis for the shares then subject to such Options the
consideration payable with respect to the outstanding shares of Common Stock in
connection with the Acquisition; or (ii) make appropriate provision for the
continuation of such Options by substituting on an equitable basis for the
shares then subject to such Options any equity securities of the successor
corporation; or (iii) upon written notice to the optionees, provide that all
Options must be exercised, to the extent then exercisable, within a specified
number of days of the date of such notice, at the end of which period the
Options shall terminate; or (iv) terminate all Options in exchange for a cash
payment equal to the excess of the fair market value of the shares subject to
such Options (to the extent then exercisable) over the exercise price thereof;
or (v) terminate all Options in exchange for the right to participate in any
stock option or other employee benefit plan of any successor corporation
(giving proper credit to any Optionee for that portion of any Option which has
otherwise vested and become exercisable prior to the Acquisition). The
foregoing actions are subject in all instances to any accounting considerations
for any acquisition which is treated as a "pooling of interests" transaction
pursuant to the Accounting Principle Board (APB) Opinion No. 16 if any
discretionary action by the Board would otherwise violate accounting rules for
treatment of the Acquisition as a "pooling of interests" under APB No. 16.
22. WITHHOLDING OF ADDITIONAL INCOME TAXES
Upon the exercise of a Non-Qualified Option or the making of a
Disqualifying Disposition (as defined in Section 15), the making of a
distribution or other payment with respect to such stock or securities, or the
vesting or transfer of restricted
-8-
<PAGE> 9
Common Stock acquired on the exercise of a stock right hereunder, the Company
may withhold income and/or employment taxes in respect of amounts that
constitute compensation includible in gross income, or otherwise treated by law
as wages for withholding for income or employment tax purposes. The Board in
its discretion may condition the exercise of an Option on the optionee's making
satisfactory arrangement for such withholding. Such arrangement may include
payment by the optionee in cash or by check of the amount of the withholding
taxes or, at the discretion of the Company, by the optionee's delivery of
previously held shares of Common Stock or the withholding from the shares of
Common Stock otherwise deliverable upon exercise of the Option, shares having
an aggregate fair market value equal to the amount of such withholding taxes.
The use of any method of payment other than by cash or check in some cases may
require or cause additional withholding obligations.
23. NO EXERCISE OF OPTION IF ENGAGEMENT OR EMPLOYMENT TERMINATED FOR CAUSE
If the employment of the Optionee is terminated for "Cause," this
option shall terminate on the date of such termination and this option shall
thereupon not be exercisable to any extent whatsoever. "Cause" is conduct, as
determined by the Board of Directors, involving one or more of the following:
(i) gross misconduct by the Employee which is injurious to the Company, or (ii)
the commission of an act of embezzlement, fraud or deliberate disregard of the
rules or policies of the Company which results in economic loss, damage or
injury to the Company, or (iii) the unauthorized disclosure of any trade secret
or confidential information of the Company or any third party who has a
business relationship with the Company or the violation of any noncompetition
or nondisclosure covenant or assignment of inventions obligation with the
Company, or (iv) the commission of an act which induces any customer or
prospective customer of the Company to break a contract with the Company or to
decline to do business with the Company, or (v) the conviction of the Employee
of a felony involving any financial impropriety or which would materially
interfere with the Employee's ability to perform his or her services or which
would otherwise be injurious to the Company, or (vi) the failure of the
Optionee to perform in a material respect his or her employment obligations
without proper cause. In making such determination, the Board of Directors
shall act fairly and in utmost good faith. For the purposes of this Section
23, termination of employment shall be deemed to occur when the Optionee
receives notice that his or her employment is terminated.
-9-
<PAGE> 10
24. ACCELERATION AND VESTING OF OPTION FOR BUSINESS COMBINATIONS
Upon any merger, consolidation, sale of all (or substantially all) of
the assets of the Company, or other business combination involving the sale or
transfer of all (or substantially all) of the capital stock or assets of the
Company in which the Company is not the surviving entity, or, if it is the
surviving entity, does not survive as an operating going concern in
substantially the same line of business (an "Acquisition"), then the remaining
unvested portions of any Option outstanding to any Optionee shall, immediately
prior to the consummation of any of the foregoing events, become vested and
immediately exercisable by the Optionee according to the following formula and
dependent upon the length of the Optionee's continuous months of employment or
engagement by the Company prior to the consummation of the Acquisition:
(i) If the Optionee has been employed by the Company for
24 months or more, then 100% of the remaining unvested portion of any Option
held by such Optionee shall become fully vested and exercisable.
(ii) If the Optionee has been employed by the Company for
more than 20 but less than 24 months, then 80% of the remaining unvested
portion of any Option held by such Optionee shall become fully vested and
exercisable.
(iii) If the Optionee has been employed by the Company for
more than 18 but less than 20 months, then 70% of the remaining unvested
portion of any Option held by such Optionee shall become fully vested and
exercisable.
(iv) If the Optionee has been employed by the Company for
more than 15 but less than 18 months, then 50% of the remaining unvested
portion of any Option held by such Optionee shall become fully vested and
exercisable.
(v) If the Optionee has been employed by the Company for
more than 12 but less than 15 months, then 35% of the remaining unvested
portion of any Option held by such Optionee shall become fully vested and
exercisable.
(vi) If the Optionee has been employed by the Company for
more than 6 but less than 12 months, then 20% of the remaining unvested portion
of any Option held by such Optionee shall become fully vested and exercisable.
(vii) If the Optionee has been employed by the Company for
less than 6 months, then no portion of the remaining unvested portion of any
Option held by such Optionee shall become vested and exercisable.
Notwithstanding the preceding clauses (i) - (vii), as to any Optionee,
the remaining unvested portion of any Option held by such Optionee shall become
vested
-10-
<PAGE> 11
and exercisable in the event of an Acquisition if the acceleration of such
vesting is otherwise set forth in any employment agreement or offer of
employment with such person and which such offer is executed at the time of
initial employment of the optionee.
This Section shall not apply to any merger of Company with any
affiliated entity or corporation controlled by, or under common control with,
the principal stockholders of the Company, or any merger or consolidation due to
a change in the state of incorporation of the Company.
25. GOVERNING LAW; CONSTRUCTION
The validity and construction of the Plan and the instruments
evidencing Options shall be governed by the laws of the Commonwealth of
Massachusetts or the laws of any jurisdiction in which the Company or its
successors in interest may be organized. In construing this Plan, the singular
shall include the plural and the masculine gender shall include the feminine
and neuter, unless the context otherwise requires.
-11-
<PAGE> 1
EXHIBIT 99.3
SIERRA ON-LINE, INC.
STOCK OPTION GRANT
<TABLE>
<S> <C>
Optionee: Kenneth A. Williams
Total Options Granted: 20,000 shares
Exercise Price Per Share: $10.75
Date of Grant: March 31, 1993
Vesting Period: 5 years
Expiration Date: March 31, 2003
Type of Stock Option: NQSO
</TABLE>
1. Grant of Option. Sierra On-Line, Inc., (Company), a Delaware
corporation, hereby grants to the optionee named above (Optionee) an
option (Option) to purchase the total number of shares of common stock
of the Company set forth below (Shares) at the exercise price per
share set forth above (Exercise Price), subject to all of the terms
and conditions of this Grant.
2. Exercise Period of Option. Subject to the terms and conditions of this
Grant, this Option will become exercisable as to portions of the
Shares as follows:
<TABLE>
<CAPTION>
Number
On or After: But Before: of Shares:
------------ ----------- ----------
<S> <C> <C>
March 31, 1994 March 31, 2003 4,000
March 31, 1995 March 31, 2003 4,000
March 31, 1996 March 31,2003 4,000
March 31, 1997 March 31, 2003 4,000
March 31, 2003 March 31, 2003 4,000
Total Number of Shares: 20,000
</TABLE>
provided, however, that this Option will expire on the Expiration Date
set forth above and must be exercised, if at all, on or before the
Expiration Date.
<PAGE> 2
3. Restrictions on Exercise. Exercise of this Option is subject to the
following limitations:
(a) This Option may not be exercised unless the exercise is in
compliance with the Securities Act of 1933, as amended, and
all applicable state securities laws and the requirements of
any stock exchange or national market system upon which the
shares may then be listed, as they are in effect on the date
of exercise. The Company shall be under no obligation to
register the Shares with the Securities and Exchange
Commission or to effect compliance with the registration,
qualification or listing requirements of any state securities
laws, stock exchange or national market system and the Company
shall have no liability for any inability or failure to do so.
(b) This Option may not be exercised as to fewer than 100 Shares
unless it is exercised as to all Shares as to which this
Option is then exercisable.
4. Termination of Option. Except as provided below in this Section, this
Option will terminate and may not be exercised if Optionee ceases to
be employed by the Company. Optionee shall be considered to be
employed by the Company if Optionee is an officer, director (of the
board) or full- time employee of the Company or any Parent, Subsidiary
or Affiliate of the Company or if the Compensation Committee
determines that Optionee is rendering substantial services as a
part-time employee, consultant or independent contractor to the
Company or any Parent, Subsidiary or Affiliate of the Company. The
Compensation Committee will have discretion to determine whether
Optionee has ceased to be employed by the Company and the effective
date on which the employment terminated (Termination Date).
(a) If Optionee ceases to be employed by the Company for any
reason except death or disability, this Option, to the extent
(and only to the extent) that it would have been exercisable
by Optionee on the Termination Date, may be exercised by
Optionee within three months after the Termination Date, but
in any event no later than the Expiration Date.
(b) If Optionee's employment with and/or service as a director (of
the board) of the Company is terminated because of the death
of Optionee or disability of Optionee within the meaning of
Section
<PAGE> 3
22(e)(3) of the Code, this Option, to the extent that it is
exercisable by Optionee on the Termination Date, may be
exercised by the Optionee (or Optionee's legal representative)
within twelve months after the Termination Date but in any
event no later than the Expiration Date.
Nothing in this Grant will confer on Optionee any right to continue in
the employ of the Company or any Parent, Subsidiary or Affiliate of
the Company or limit in any way the right of the Company or any
Parent, Subsidiary or Affiliate of the Company to terminate Optionee's
employment at any time, with or without cause.
5. Manner of Exercise
(a) This Option will be exercisable by delivery to the Company of
an executed written Notice and Agreement in the form attached
hereto as Exhibit A, or in such other form as may be approved
by the Company, which will set forth Optionee's election to
exercise this Option, the number of Shares being purchased,
any restrictions imposed on the Shares and such other
representations and agreements regarding Optionee's investment
intent and access to information as may be required by the
Company to comply with applicable securities laws.
(b) The notice will be accompanied by full payment of the Exercise
Price for the Shares being purchased (i) in cash (by check);
(ii) by surrender of shares of common stock of the Company
having a fair market value equal to the exercise price of the
Option; (iii) where permitted by applicable law and approved
by the Compensation Committee in its sole discretion, by
tender of a full recourse promissory note having such terms as
may be approved by the Compensation Committee; (iv) by waiver
of compensation due or accrued to Optionee for services
rendered; (v) provided that a public market for the Company's
stock exists, through a "same day sale" commitment from
Optionee and a broker- dealer that is a member of the National
Association of Securities Dealers (a "NASD" Dealer) whereby
Optionee irrevocably elects to exercise the option and to sell
a portion of the shares so purchased to pay for the exercise
price and whereby the NASD Dealer irrevocably commits upon
receipt of such shares to forward the exercise price directly
to the Company; (vi) provided that a public market for the
Company's stock exists, through a "margin" commitment from
Optionee and a NASD Dealer
<PAGE> 4
whereby Optionee irrevocably elects to exercise the Option and
to pledge the Shares so purchased to the NASD Dealer in a
margin account as security for a loan from the NASD Dealer in
the amount of the exercise price, and whereby the NASD Dealer
irrevocably commits upon receipt of such shares to forward the
exercise price directly to the Company; (vii) by any
combination of the foregoing where approved by the
Compensation Committee, in its sole discretion. Optionees who
are not employees or directors (of the board) of the Company
shall not be entitled to purchase Shares with a promissory
note unless the note is adequately secured by collateral other
than the Shares. Payment may be made in any combination of
the foregoing means or those previously available, where
approved by the Compensation Committee, in its sole
discretion.
(c) Prior to the issuance of the Shares upon exercise of this
Option, Optionee must pay or make adequate provision for any
applicable federal or state withholding obligations of the
Company.
(d) Provided that the notice and payment are in form and substance
satisfactory to counsel for the Company, the Company will
issue the Shares registered in the name of Optionee or
Optionee's legal representative.
6. Notice of Disqualifying Disposition of 1SO Shares. If the Option
granted to Optionee herein is an 1SO, and if Optionee sells or
otherwise disposes of any of the Shares acquired pursuant to the 1SO
on or before the later of (1) the date two years after the date of
this grant, and (2) the date one year after transfer of the Shares to
the Optionee upon exercise of the 1SO, the Optionee will immediately
notify the Company in writing of the disposition. Optionee agrees that
Optionee may be subject to income tax withholding by the Company on
the compensation income recognized by the Optionee from the early
disposition by payment in cash or out of the current earnings paid to
the Optionee.
7. Compliance with Laws and Regulations. The issuance and transfer of
Shares will be subject to compliance by the Company and the Optionee
with all applicable requirements of federal and state securities laws
and with all applicable requirements of any stock exchange on which
the Company's common stock may be listed at the time of the issuance
or transfer. Optionee understands that the Company is under no
obligation to register or qualify the Shares with the Securities and
Exchange
<PAGE> 5
Commission, any state securities commission or any stock exchange to
effect the compliance.
8. Nontransferability of Option. During the lifetime of Optionee, this
Option shall be exercisable only by Optionee. This Option may not be
sold, pledged, assigned, hypothecated, transferred or disposed of in
any manner other than by will or by the laws of descent and
distribution. The terms of this Option will be binding upon the
executors, administrators, successors and assigns of the Optionee.
9. Tax Consequences. Set forth below is a brief summary as of the date of
this Option of some of the federal and California tax consequences of
exercise of this Option and disposition of the Shares. THIS SUMMARY IS
NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT
TO CHANGE. OPTIONEE SHOULD CONSULT A TAX ADVISOR BEFORE EXERCISING
THIS OPTION OR DISPOSING OF THE SHARES.
(a) Exercise of Nonqualified Stock Option. There may be a regular
federal income tax liability and a California income tax
liability upon the exercise of the Option. The Optionee will
be treated as having received compensation income (taxable at
ordinary income tax rates) equal to the excess, if any, of the
fair market value of the Shares on the date of exercise over
the Exercise Price. The Company will be required to withhold
from Optionee's compensation or collect from Optionee and pay
to the applicable taxing authorities an amount equal to a
percentage of this compensation income at the time of
exercise.
(b) Disposition of Shares. If the Shares are held for at least
twelve months after the date of the transfer of the Shares
pursuant to the exercise of this Option, any gain realized on
disposition of the Shares will be treated as long term capital
gain for federal and California income tax purposes.
10. Interpretation. Any dispute regarding the interpretation of this
agreement will be submitted by Optionee or the Company to the
Compensation Committee which will review the dispute at its next
regular meeting. The resolution of the dispute by Compensation
Committee will be final and binding on the Company and on Optionee.
<PAGE> 6
11. Modification, Extensions and Renewal. The Compensation Committee shall
have the power to modify, extend or renew this Option and to authorize
the grant of new Options in substitution therefor, provided that any
such action may not, without the written consent of Optionee, impair
any rights under any Option previously granted.
12. Stock Ownership. Optionee shall not have any of the rights of a
shareholder with respect to any Shares subject to this Option until
the Option is properly exercised. No adjustment shall be made for
dividends or distributions or other rights for which the record date
is prior to such date, except as provided in this Grant.
13. Adjustment of Option Shares. In the event that the number of
outstanding shares of common stock of the Company is changed by a
stock dividend, stock split, reverse stock split, recapitalization,
combination, reclassification or similar change in the capital
structure of the Company without additional consideration, the number
of shares subject to this Option and the exercise price per Share of
this Option shall be proportionately adjusted, subject to any required
action by the Board of Directors or shareholders of the Company and
compliance with applicable securities laws; provided, however, that no
certificate or scrip representing fractional shares shall be issued
upon exercise of this Option and any resulting fractions of a Share
shall be ignored; and provided further that the exercise price may not
be decreased to below the par value, if any, for the Shares.
14. Assumption of Options by Successors.
14.1 Assumption or Substitution. In the event of a dissolution or
liquidation of the Company, a merger in which the Company is
not the surviving corporation, or the sale of substantially
all of the assets of the Company, this Option shall accelerate
and become exercisable in full prior to the consummation of
such dissolution, liquidation, merger or sale of assets at
such times and on such conditions as the Compensation
Committee shall determine unless the successor corporation
assumes the outstanding Options or substitutes substantially
equivalent options.
14.2 Additional Provisions. Subject to the foregoing provisions of
this Section 14, in the event of the occurrence of any
transaction described in Section 14.1, this Option shall be
treated as provided in the applicable agreement or plan of
merger, consolidation,
<PAGE> 7
dissolution, liquidation, sale of assets or other "corporate
transaction".
15. Certain Definitions. As used in this Grant, the following terms shall
have the following meanings:
15.1 "Affiliate" means any corporation that directly, or indirectly
through one or more intermediaries, controls or is controlled
by, or is under common control with, another corporation,
where "control" (including the terms "controlled by" and
"under common control with") means the possession, direct or
indirect, of the power to cause the direction of the
management and policies of the corporation, whether through
the ownership of voting securities, by contract or otherwise.
15.2 "Compensation Committee" shall mean the Board of Directors of
the Company or any committee of the Board appointed to
administer the Company's 1987 Stock Option Plan or any
successor thereto.
15.3 "Fair Market Value" shall mean the fair market value of the
Shares as determined by the Compensation Committee from time
to time in good faith. If a public market exists for the
Shares, the Fair Market Value shall be the average of the last
reported bid and asked prices for common stock of the Company
on the last trading day prior to the date of determination or,
in the event the common stock of the Company is listed on a
stock exchange or on the NASDAQ National Market System, the
Fair Market Value shall be the closing price on such exchange
or quotation system on the last trading day prior to the date
of determination (or the average closing price over the number
of consecutive working days preceding the date of
determination as the Company's Board of Directors shall deem
appropriate).
15.4 "Parent" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company if, at
the time of the granting of the Option, each of such
corporations other than the Company owns stock possessing 50%
or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
15.5 "Subsidiary" means any corporation (other than the Company) in
an unbroken chain of corporations beginning with the Company
if, at
<PAGE> 8
the time of granting of the Option, each of the corporations
other than the last corporation in the unbroken chain owns
stock possessing 50% or more of the total combined voting
power of all classes of stock in one of the other corporations
in such chain.
16. Entire Agreement. The Notice and Agreement attached as Exhibit A are
incorporated by reference. This Grant and the Notice and Agreement
constitute the entire agreement of the parties and supersede all prior
undertakings and agreements with respect to the subject matter hereof.
Sierra On-Line, Inc.
By:
-------------------------------------
Its:
------------------------------------
<PAGE> 9
ACCEPTANCE FORM
I hereby acknowledge receipt of a copy of the Grant. I represent that
I have read and understand the terms and provisions contained therein, and
accept this Nonqualified Stock Option Grant to purchase 20,000 shares at a
price of $10.75 over ten (10) years beginning March 31, 1994, subject to all
the terms and provisions of the Grant.
I acknowledge that there may be adverse tax consequences upon exercise
of this Option or disposition of the Shares and that I should consult a tax
adviser prior to the exercise or disposition.
------------------------------------
Kenneth A. Williams
<PAGE> 10
EXHIBIT A
STOCK OPTION EXERCISE NOTICE AND AGREEMENT
Sierra On-Line, Inc.
P.O. Box 485
Coarsegold, CA 93614
Attention: Stock Option Administrator
1. Exercise of Option. The undersigned (Optionee) hereby elects to
exercise Optionee's option to purchase 20,000 shares of the common
stock (Shares) of Sierra On-Line, Inc. (Company) under Stock Option
Grant dated March 31, 1993 (Option).
2. Representations of Optionee. Optionee acknowledges that Optionee has
received, read and understood the Option and agrees to abide by and be
bound by its terms and conditions.
3. Market Standoff Agreement. Optionee agrees in connection with any
registration of the Company's securities that, upon the request of the
Company or the underwriters managing any public offering of the
Company's securities, Optionee will not sell or otherwise dispose of
any Shares without the prior written consent of the Company or such
underwriters, as the case may be, for a period of time (not to exceed
180 days) from the effective date of such registration as the Company
or the underwriters may specify for employee shareholders generally.
4. Stop-Transfer Notices. Optionee understands and agrees that, in order
to ensure compliance with the restrictions referred to herein, the
Company may issue appropriate "stop-transfer" instructions to its
transfer agent, if any, and that, if the Company transfers its own
securities, it may make appropriate notations to the same effect in
its own records.
5. Tax Consequences. Optionee understands that Optionee may suffer
adverse tax consequences as a result of Optionee's purchase or
disposition of the Shares. Optionee represents that Optionee has
consulted with any tax consultants(s) Optionee deems advisable in
connection with the purchase or
<PAGE> 11
disposition of the Shares and that Optionee is not relying on the
Company for any tax advice.
6. Delivery of Payment. Optionee herewith delivers to the company the
aggregate purchase price of the Shares that Optionee has elected to
purchase and has made provision for the payment of any federal or
state withholding taxes required to be paid or withheld by the
Company.
7. Entire Agreement. The Grant is incorporated herein by reference. This
Agreement and the Grant constitute the entire agreement of the parties
and supersede in their entirety all prior undertakings and agreements
of the Company and Optionee with respect to the subject matter hereof,
and is governed by California law except for that body of law
pertaining to conflict of laws.
Submitted by: Accepted by:
OPTIONEE: SIERRA ON-LINE, INC.
By
- ---------------------------------- ----------------------------------
Its
---------------------------------
Address:
--------------------------
--------------------------
Dated: Dated:
---------------------------- ------------------------------
<PAGE> 1
EXHIBIT 99.4
SIERRA ON-LINE, INC.
STOCK OPTION GRANT
<TABLE>
<S> <C>
Optionee: Walter A. Forbes
Total Options Granted: 15,000 shares
Exercise Price Per Share: $16.75
Date of Grant: July 1, 1994
Vesting Period: 5 years
Expiration Date: July 1, 2004
Type of Stock Option: NQSO
</TABLE>
1. Grant of Option. Sierra On-Line, Inc., (Company), a Delaware
corporation, hereby grants to the optionee named above (Optionee) an
option (Option) to purchase the total number of shares of common stock
of the Company set forth below (Shares) at the exercise price per
share set forth above (Exercise Price), subject to all of the terms
and conditions of this Grant.
2. Exercise Period of Option. Subject to the terms and conditions of this
Grant, this Option will become exercisable as to portions of the
Shares as follows:
<TABLE>
<CAPTION>
Number
On or After: But Before: of Shares:
------------ ----------- ----------
<S> <C> <C>
July 1, 1995 July 1, 2004 3,000
July 1, 1996 July 1, 2004 3,000
July 1, 1997 July 1, 2004 3,000
July 1, 1998 July 1, 2004 3,000
July 1, 2004 July 1, 2004 3,000
Total Number of Shares: 15,000
</TABLE>
provided, however, that this Option will expire on the Expiration Date
set forth above and must be exercised, if at all, on or before the
Expiration Date.
<PAGE> 2
3. Restrictions on Exercise. Exercise of this Option is subject to the
following limitations:
(a) This Option may not be exercised unless the exercise is in
compliance with the Securities Act of 1933, as amended, and
all applicable state securities laws and the requirements of
any stock exchange or national market system upon which the
shares may then be listed, as they are in effect on the date
of exercise. The Company shall be under no obligation to
register the Shares with the Securities and Exchange
Commission or to effect compliance with the registration,
qualification or listing requirements of any state securities
laws, stock exchange or national market system and the Company
shall have no liability for any inability or failure to do so.
(b) This Option may not be exercised as to fewer than 100 Shares
unless it is exercised as to all Shares as to which this
Option is then exercisable.
4. Termination of Option. Except as provided below in this Section, this
Option will terminate and may not be exercised if Optionee ceases to
be employed by the Company. Optionee shall be considered to be
employed by the Company if Optionee is an officer, director (of the
board) or full- time employee of the Company or any Parent, Subsidiary
or Affiliate of the Company or if the Compensation Committee
determines that Optionee is rendering substantial services as a
part-time employee, consultant or independent contractor to the
Company or any Parent, Subsidiary or Affiliate of the Company. The
Compensation Committee will have discretion to determine whether
Optionee has ceased to be employed by the Company and the effective
date on which the employment terminated (Termination Date).
(a) If Optionee ceases to be employed by the Company for any
reason except death or disability, this Option, to the extent
(and only to the extent) that it would have been exercisable
by Optionee on the Termination Date, may be exercised by
Optionee within three months after the Termination Date, but
in any event no later than the Expiration Date.
(b) If Optionee's employment with and/or service as a director (of
the board) of the Company is terminated because of the death
of Optionee or disability of Optionee within the meaning of
Section
<PAGE> 3
22(e)(3) of the Code, this Option, to the extent that it is
exercisable by Optionee on the Termination Date, may be
exercised by the Optionee (or Optionee's legal representative)
within twelve months after the Termination Date but in any
event no later than the Expiration Date.
Nothing in this Grant will confer on Optionee any right to continue in
the employ of the Company or any Parent, Subsidiary or Affiliate of
the Company or limit in any way the right of the Company or any
Parent, Subsidiary or Affiliate of the Company to terminate Optionee's
employment at any time, with or without cause.
5. Manner of Exercise
(a) This Option will be exercisable by delivery to the Company of
an executed written Notice and Agreement in the form attached
hereto as Exhibit A, or in such other form as may be approved
by the Company, which will set forth Optionee's election to
exercise this Option, the number of Shares being purchased,
any restrictions imposed on the Shares and such other
representations and agreements regarding Optionee's investment
intent and access to information as may be required by the
Company to comply with applicable securities laws.
(b) The notice will be accompanied by full payment of the Exercise
Price for the Shares being purchased (i) in cash (by check);
(ii) by surrender of shares of common stock of the Company
having a fair market value equal to the exercise price of the
Option; (iii) where permitted by applicable law and approved
by the Compensation Committee in its sole discretion, by
tender of a full recourse promissory note having such terms as
may be approved by the Compensation Committee; (iv) by waiver
of compensation due or accrued to Optionee for services
rendered; (v) provided that a public market for the Company's
stock exists, through a "same day sale" commitment from
Optionee and a broker- dealer that is a member of the National
Association of Securities Dealers (a "NASD" Dealer) whereby
Optionee irrevocably elects to exercise the option and to sell
a portion of the shares so purchased to pay for the exercise
price and whereby the NASD Dealer irrevocably commits upon
receipt of such shares to forward the exercise price directly
to the Company; (vi) provided that a public market for the
Company's stock exists, through a "margin" commitment from
Optionee and a NASD Dealer
<PAGE> 4
whereby Optionee irrevocably elects to exercise the Option and
to pledge the Shares so purchased to the NASD Dealer in a
margin account as security for a loan from the NASD Dealer in
the amount of the exercise price, and whereby the NASD Dealer
irrevocably commits upon receipt of such shares to forward the
exercise price directly to the Company; (vii) by any
combination of the foregoing where approved by the
Compensation Committee, in its sole discretion. Optionees who
are not employees or directors (of the board) of the Company
shall not be entitled to purchase Shares with a promissory
note unless the note is adequately secured by collateral other
than the Shares. Payment may be made in any combination of
the foregoing means or those previously available, where
approved by the Compensation Committee, in its sole
discretion.
(c) Prior to the issuance of the Shares upon exercise of this
Option, Optionee must pay or make adequate provision for any
applicable federal or state withholding obligations of the
Company.
(d) Provided that the notice and payment are in form and substance
satisfactory to counsel for the Company, the Company will
issue the Shares registered in the name of Optionee or
Optionee's legal representative.
6. Notice of Disqualifying Disposition of 1SO Shares. If the Option
granted to Optionee herein is an 1SO, and if Optionee sells or
otherwise disposes of any of the Shares acquired pursuant to the 1SO
on or before the later of (1) the date two years after the date of
this grant, and (2) the date one year after transfer of the Shares to
the Optionee upon exercise of the 1SO, the Optionee will immediately
notify the Company in writing of the disposition. Optionee agrees that
Optionee may be subject to income tax withholding by the Company on
the compensation income recognized by the Optionee from the early
disposition by payment in cash or out of the current earnings paid to
the Optionee.
7. Compliance with Laws and Regulations. The issuance and transfer of
Shares will be subject to compliance by the Company and the Optionee
with all applicable requirements of federal and state securities laws
and with all applicable requirements of any stock exchange on which
the Company's common stock may be listed at the time of the issuance
or transfer. Optionee understands that the Company is under no
obligation to register or qualify the Shares with the Securities and
Exchange
<PAGE> 5
Commission, any state securities commission or any stock exchange to
effect the compliance.
8. Nontransferability of Option. During the lifetime of Optionee, this
Option shall be exercisable only by Optionee. This Option may not be
sold, pledged, assigned, hypothecated, transferred or disposed of in
any manner other than by will or by the laws of descent and
distribution. The terms of this Option will be binding upon the
executors, administrators, successors and assigns of the Optionee.
9. Tax Consequences. Set forth below is a brief summary as of the date of
this Option of some of the federal and California tax consequences of
exercise of this Option and disposition of the Shares. THIS SUMMARY IS
NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT
TO CHANGE. OPTIONEE SHOULD CONSULT A TAX ADVISOR BEFORE EXERCISING
THIS OPTION OR DISPOSING OF THE SHARES.
(a) Exercise of Nonqualified Stock Option. There may be a regular
federal income tax liability and a California income tax
liability upon the exercise of the Option. The Optionee will
be treated as having received compensation income (taxable at
ordinary income tax rates) equal to the excess, if any, of the
fair market value of the Shares on the date of exercise over
the Exercise Price. The Company will be required to withhold
from Optionee's compensation or collect from Optionee and pay
to the applicable taxing authorities an amount equal to a
percentage of this compensation income at the time of
exercise.
(b) Disposition of Shares. If the Shares are held for at least
twelve months after the date of the transfer of the Shares
pursuant to the exercise of this Option, any gain realized on
disposition of the Shares will be treated as long term capital
gain for federal and California income tax purposes.
10. Interpretation. Any dispute regarding the interpretation of this
agreement will be submitted by Optionee or the Company to the
Compensation Committee which will review the dispute at its next
regular meeting. The resolution of the dispute by Compensation
Committee will be final and binding on the Company and on Optionee.
<PAGE> 6
11. Modification, Extensions and Renewal. The Compensation Committee shall
have the power to modify, extend or renew this Option and to authorize
the grant of new Options in substitution therefor, provided that any
such action may not, without the written consent of Optionee, impair
any rights under any Option previously granted.
12. Stock Ownership. Optionee shall not have any of the rights of a
shareholder with respect to any Shares subject to this Option until
the Option is properly exercised. No adjustment shall be made for
dividends or distributions or other rights for which the record date
is prior to such date, except as provided in this Grant.
13. Adjustment of Option Shares. In the event that the number of
outstanding shares of common stock of the Company is changed by a
stock dividend, stock split, reverse stock split, recapitalization,
combination, reclassification or similar change in the capital
structure of the Company without additional consideration, the number
of shares subject to this Option and the exercise price per Share of
this Option shall be proportionately adjusted, subject to any required
action by the Board of Directors or shareholders of the Company and
compliance with applicable securities laws; provided, however, that no
certificate or scrip representing fractional shares shall be issued
upon exercise of this Option and any resulting fractions of a Share
shall be ignored; and provided further that the exercise price may not
be decreased to below the par value, if any, for the Shares.
14. Assumption of Options by Successors.
14.1 Assumption or Substitution. In the event of a dissolution or
liquidation of the Company, a merger in which the Company is
not the surviving corporation, or the sale of substantially
all of the assets of the Company, this Option shall accelerate
and become exercisable in full prior to the consummation of
such dissolution, liquidation, merger or sale of assets at
such times and on such conditions as the Compensation
Committee shall determine unless the successor corporation
assumes the outstanding Options or substitutes substantially
equivalent options.
14.2 Additional Provisions. Subject to the foregoing provisions of
this Section 14, in the event of the occurrence of any
transaction described in Section 14.1, this Option shall be
treated as provided in the applicable agreement or plan of
merger, consolidation,
<PAGE> 7
dissolution, liquidation, sale of assets or other "corporate
transaction".
15. Certain Definitions. As used in this Grant, the following terms shall
have the following meanings:
15.1 "Affiliate" means any corporation that directly, or indirectly
through one or more intermediaries, controls or is controlled
by, or is under common control with, another corporation,
where "control" (including the terms "controlled by" and
"under common control with") means the possession, direct or
indirect, of the power to cause the direction of the
management and policies of the corporation, whether through
the ownership of voting securities, by contract or otherwise.
15.2 "Compensation Committee" shall mean the Board of Directors of
the Company or any committee of the Board appointed to
administer the Company's 1987 Stock Option Plan or any
successor thereto.
15.3 "Fair Market Value" shall mean the fair market value of the
Shares as determined by the Compensation Committee from time
to time in good faith. If a public market exists for the
Shares, the Fair Market Value shall be the average of the last
reported bid and asked prices for common stock of the Company
on the last trading day prior to the date of determination or,
in the event the common stock of the Company is listed on a
stock exchange or on the NASDAQ National Market System, the
Fair Market Value shall be the closing price on such exchange
or quotation system on the last trading day prior to the date
of determination (or the average closing price over the number
of consecutive working days preceding the date of
determination as the Company's Board of Directors shall deem
appropriate).
15.4 "Parent" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company if, at
the time of the granting of the Option, each of such
corporations other than the Company owns stock possessing 50%
or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
15.5 "Subsidiary" means any corporation (other than the Company) in
an unbroken chain of corporations beginning with the Company
if, at
<PAGE> 8
the time of granting of the Option, each of the corporations
other than the last corporation in the unbroken chain owns
stock possessing 50% or more of the total combined voting
power of all classes of stock in one of the other corporations
in such chain.
16. Entire Agreement. The Notice and Agreement attached as Exhibit A are
incorporated by reference. This Grant and the Notice and Agreement
constitute the entire agreement of the parties and supersede all prior
undertakings and agreements with respect to the subject matter hereof.
Sierra On-Line, Inc.
By:
-------------------------------------
Its:
------------------------------------
<PAGE> 9
ACCEPTANCE FORM
I hereby acknowledge receipt of a copy of the Grant. I represent that
I have read and understand the terms and provisions contained therein, and
accept this Nonqualified Stock Option Grant to purchase 15,000 shares at a
price of $16.75 over ten (10) years beginning July 1, 1995, subject to all the
terms and provisions of the Grant.
I acknowledge that there may be adverse tax consequences upon exercise
of this Option or disposition of the Shares and that I should consult a tax
adviser prior to the exercise or disposition.
------------------------------------
Walter A. Forbes
<PAGE> 10
EXHIBIT A
STOCK OPTION EXERCISE NOTICE AND AGREEMENT
Sierra On-Line, Inc.
3380 - 146th Place S.E., Suite 300
Bellevue, Washington 98007
Attention: Stock Option Administrator
1. Exercise of Option. The undersigned (Optionee) hereby elects to
exercise Optionee's option to purchase 15,000 shares of the common
stock (Shares) of Sierra On-Line, Inc. (Company) under Stock Option
Grant dated July 1, 1994 (Option).
2. Representations of Optionee. Optionee acknowledges that Optionee has
received, read and understood the Option and agrees to abide by and be
bound by its terms and conditions.
3. Market Standoff Agreement. Optionee agrees in connection with any
registration of the Company's securities that, upon the request of the
Company or the underwriters managing any public offering of the
Company's securities, Optionee will not sell or otherwise dispose of
any Shares without the prior written consent of the Company or such
underwriters, as the case may be, for a period of time (not to exceed
180 days) from the effective date of such registration as the Company
or the underwriters may specify for employee shareholders generally.
4. Stop-Transfer Notices. Optionee understands and agrees that, in order
to ensure compliance with the restrictions referred to herein, the
Company may issue appropriate "stop-transfer" instructions to its
transfer agent, if any, and that, if the Company transfers its own
securities, it may make appropriate notations to the same effect in
its own records.
5. Tax Consequences. Optionee understands that Optionee may suffer
adverse tax consequences as a result of Optionee's purchase or
disposition of the Shares. Optionee represents that Optionee has
consulted with any tax consultants(s) Optionee deems advisable in
connection with the purchase or
<PAGE> 11
disposition of the Shares and that Optionee is not relying on the
Company for any tax advice.
6. Delivery of Payment. Optionee herewith delivers to the company the
aggregate purchase price of the Shares that Optionee has elected to
purchase and has made provision for the payment of any federal or
state withholding taxes required to be paid or withheld by the
Company.
7. Entire Agreement. The Grant is incorporated herein by reference. This
Agreement and the Grant constitute the entire agreement of the parties
and supersede in their entirety all prior undertakings and agreements
of the Company and Optionee with respect to the subject matter hereof,
and is governed by California law except for that body of law
pertaining to conflict of laws.
Submitted by: Accepted by:
OPTIONEE: SIERRA ON-LINE, INC.
By
- ----------------------------------- ----------------------------------
Its
---------------------------------
Address:
---------------------------
---------------------------
Dated: Dated:
----------------------------- ------------------------------
