<PAGE> 1
As filed with the Securities and Exchange Commission on February 7, 1997
Registration No. 333-___________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM S-8
REGISTRATION STATEMENT
Under
The Securities Act of 1933
-----------------------
TOUCHSTONE SOFTWARE CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 95-3778226
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
2124 MAIN STREET, 2ND FLOOR
HUNTINGTON BEACH, CALIFORNIA 92648
(Address of Principal Executive Offices) (Zip Code)
------------------------
TOUCHSTONE SOFTWARE CORPORATION
1997 STOCK INCENTIVE PLAN
(Full Title of the Plan)
-----------------------
RONALD R. MAAS
TOUCHSTONE SOFTWARE CORPORATION
2124 MAIN STREET, 2ND FLOOR, HUNTINGTON BEACH, CALIFORNIA 92648
(Name and Address, Including Zip Code, of Agent For Service)
(714) 969-7746
(Telephone Number, Including Area Code, of Agent For Service)
------------------------
CALCULATION OF REGISTRATION FEE
================================================================================
<TABLE>
<CAPTION>
Proposed Proposed
Title of Maximum Maximum
Securities Amount Offering Aggregate Amount of
to be to be Price Offering Registration
Registered Registered(1) per Share(2) Price(2) Fee
---------- ---------- --------- ----- ---
<S> <C> <C> <C>
1997 Incentive Stock Plan
- -------------------------
Options to purchase Common Stock 1,200,000 N/A N/A N/A
Common Stock, $0.001 par value 1,200,000 shares $2.937 $3,750,000 $1,068
================================================================================
</TABLE>
(1) This Registration Statement shall also cover any additional shares of
Common Stock which become issuable under the TouchStone Software
Corporation 1997 Stock Incentive Plan by reason of any stock dividend,
stock split, recapitalization or other similar transaction effected
without the receipt of consideration which results in an increase in
the number of the outstanding shares of Common Stock of TouchStone
Software Corporation.
(2) Calculated solely for purposes of this offering under Rule 457(h) of
the Securities Act of 1933, as amended (the "1933 Act"), on the basis
of the average of the bid and ask prices per share of Common Stock of
TouchStone Software Corporation on February 3, 1997, as reported on
the Nasdaq National Market.
<PAGE> 2
PART I
Information required by Part I to be contained in the Section 10(a)
prospectus is omitted from this Registration Statement in accordance with Rule
428 under the 1933 Act and the Note to Part I of Form S-8.
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
Item 3. Incorporation of Documents by Reference
TouchStone Software Corporation (the "Registrant") hereby incorporates
by reference into this Registration Statement the following documents
previously filed with the Securities and Exchange Commission (the "SEC"):
(a) The Registrant's Annual Report on Form 10-KSB, for the fiscal year
ended December 31, 1995, filed with the SEC on April 1, 1996, as
amended by Amendment No. 1 thereto, filed with the SEC on April 8,
1996.
(b) The Registrant's Quarterly Report on Form 10-QSB, for the quarter
ended March 31, 1996, filed with the SEC on May 15, 1996.
(c) The Registrant's Quarterly Report on Form 10-QSB, for the quarter
ended June 30, 1996, filed with the SEC on August 14, 1996.
(d) The Registrant's report on Form 8-K, filed with the SEC on
September 27, 1996, and any amendments thereto.
(e) The Registrant's definitive Proxy Statement on Schedule 14A, filed
with the SEC on November 14, 1996.
(f) The Registrant's Quarterly Report on Form 10-QSB, for the quarter
ended September 30, 1996, as filed with the SEC on November 14, 1996.
(g) The Registrant's Registration Statement No. 000-28890 on Form 8-A
filed with the SEC on September 27, 1996, pursuant to Section 12 of
the Securities Exchange Act of 1934, as amended, in which there is
described the terms, rights and provisions applicable to the
Corporation's outstanding Common Stock.
All reports and definitive proxy or information statements filed
pursuant to Section 13(a), 13(c), 14 or 15(d) of the 1934 Act after the date of
this Registration Statement and prior to the filing of a post-effective
amendment which indicates that all securities offered hereby have been sold or
which deregisters all securities then remaining unsold shall be deemed to be
incorporated by reference into this Registration Statement and to be a part
hereof from the date of filing of such documents. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Registration Statement
to the extent that a statement contained herein or in any subsequently filed
document which also is deemed to be incorporated by reference herein modifies
or supersedes such statement. Any such statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Registration Statement.
<PAGE> 3
Item 4. Description of Securities
Not Applicable.
Item 5. Interests of Named Experts and Counsel
Not Applicable.
Item 6. Indemnification of Directors and Officers
Under Section 145 of the Delaware General Corporation Law ("Delaware
Law"), the Registrant has broad powers to indemnify its directors and officers
against liabilities they may incur in such capacities, including liabilities
under the 1933 Act. The Registrant's Bylaws (the "Bylaws") provide that the
Registrant shall indemnify its directors and officers to the fullest extent
permitted by law and require the Registrant to advance litigation expenses upon
receipt by the Registrant of an undertaking by the director or officer to repay
such advances if it is ultimately determined that the director or officer is
not entitled to indemnification. The Bylaws further provide that rights
conferred under such Bylaws shall not be deemed to be exclusive of any other
right such persons may have or acquire under any bylaw, agreement, vote of
stockholders or disinterested directors, or otherwise.
The Registrant's Certificate of Incorporation (the "Certificate of
Incorporation") provides that, pursuant to Delaware Law, its directors shall
not be liable for monetary damages for breach of the director's fiduciary duty
of care to the Registrant and its stockholders. This provision in the
Certificate of Incorporation does not eliminate the duty of care, and in
appropriate circumstances equitable remedies such as injunctive or other forms
of non-monetary relief will remain available under Delaware Law. In addition,
each director will continue to be subject to liability for breach of the
director's duty of loyalty to the Registrant or its stockholders for acts or
omissions not in good faith or involving intentional misconduct, for knowing
violations of law, for actions leading to improper personal benefit to the
director, and for payment of dividends or approval of stock repurchases or
redemptions that are unlawful under Delaware Law. The provision also does not
affect a directors' responsibilities under any other law, such as the federal
securities laws or state or federal environmental laws. The Certificate of
Incorporation further provides that the Registrant shall indemnify its
directors and officers to the fullest extent permitted by law, and requires the
Registrant to advance litigation expenses in the case of stockholder derivative
actions or other actions, against an undertaking by the director to repay such
advances if it is ultimately determined that the director is not entitled to
indemnification.
Item 7. Exemption from Registration Claimed
Not Applicable.
Item 8. Exhibits
<TABLE>
<CAPTION>
Exhibit Number Exhibit
- -------------- -------
<S> <C>
4.0 Instruments Defining Rights of Stockholders.
Reference is made to Registrant's Registration
Statement No. 000-28890 on Form
8-A which is incorporated herein by reference pursuant
to Item 3(f).
5.0 Opinion and consent of Brobeck, Phleger & Harrison
LLP.
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Brobeck, Phleger & Harrison LLP is
contained in Exhibit 5.
</TABLE>
II-2
<PAGE> 4
<TABLE>
<S> <C>
24. Power of Attorney. Reference is made to page II-4.
99.1 1997 Stock Incentive Plan.
99.2 Form of Notice of Grant under Discretionary Option
Grant Program.
99.3 Form of Notice of Grant (Initial) under Automatic
Option Grant Program.
99.4 Form of Notice of Grant (Annual) under Automatic
Option Grant Program.
99.5 Form of Stock Option Agreement (Discretionary Option
Grant Program).
99.6 Form of Stock Option Agreement (Automatic Option Grant
Program).
99.7 Form of Addendum to Stock Option Agreement--Limited
Stock Appreciation Rights (Executive Officers).
</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 (i) to include any prospectus required
by Section 10(a)(3) of the 1933 Act, (ii) to reflect in the prospectus any
facts or events arising after the effective date of this Registration Statement
(or the most recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set forth in
this Registration Statement and (iii) to include any material information with
respect to the plan of distribution not previously disclosed in this
Registration Statement or any material change to such information in this
Registration Statement; provided, however, that clauses (1)(i) and (1)(ii)
shall not apply if the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed by the
Registrant pursuant to Section 13 or Section 15(d) of the 1934 Act that are
incorporated by reference into this Registration Statement; (2) that for the
purpose of determining any liability under the 1933 Act each such post-
effective amendment shall be deemed to be a new registration statement relating
to the securities offered therein and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof and (3) to
remove from registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination of the
Registrant's 1997 Stock Incentive Plan.
B. The undersigned Registrant hereby undertakes that, for
purposes of determining any liability under the 1933 Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
1934 Act that is incorporated by reference into this Registration Statement
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
C. Insofar as indemnification for liabilities arising under the
1933 Act may be permitted to directors, officers or controlling persons of the
Registrant pursuant to the indemnification provisions summarized in Item 6, or
otherwise, the Registrant has been advised that, in the opinion of the SEC,
such indemnification is against public policy as expressed in the 1933 Act, and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the 1933 Act and will be governed by the
final adjudication of such issue.
II-3
<PAGE> 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 Huntington Beach, State
of California, on this 7th day of February, 1997.
TOUCHSTONE SOFTWARE CORPORATION
By: /s/ Ronald R. Maas
---------------------------------
Ronald R. Maas
Executive Vice President
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS:
That the undersigned officers and directors of TouchStone Software
Corporation, a Delaware corporation, do hereby constitute and appoint Ronald R.
Maas and Larry S. Jordan and each of them, the lawful attorneys-in-fact and
agents with full power and authority to do any and all acts and things and to
execute any and all instruments which said attorneys and agents, and any one of
them, determine may be necessary or advisable or required to enable said
corporation to comply with the Securities Act of 1933, as amended, and any
rules or regulations or requirements of the Securities and Exchange Commission
in connection with this Registration Statement. Without limiting the
generality of the foregoing power and authority, the powers granted include the
power and authority to sign the names of the undersigned officers and directors
in the capacities indicated below to this Registration Statement, to any and
all amendments, both pre-effective and post-effective, and supplements to this
Registration Statement, and to any and all instruments or documents filed as
part of or in conjunction with this Registration Statement or amendments or
supplements thereof, and each of the undersigned hereby ratifies and confirms
that all said attorneys and agents, or any one of them, shall do or cause to be
done by virtue hereof. This Power of Attorney may be signed in several
counterparts.
II-4
<PAGE> 6
IN WITNESS WHEREOF, each of the undersigned has executed this Power of
Attorney as of the date indicated.
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Larry S. Jordan President, Chief Executive Officer and February 7, 1997
----------------------------------
Larry S. Jordan Director (Principal Executive Officer)
/s/ Ronald R. Maas Executive Vice President, Chief Financial February 7, 1997
----------------------------------
Ronald R. Maas Officer, Secretary and Director
(Principal Accounting and Financial
Officer)
/s/ Larry W. Dingus Chairman of the Board of Directors February 7, 1997
----------------------------------
Larry W. Dingus
/s/ C. Shannon Dingus Chief Technology Officer and Director February 7, 1997
----------------------------------
C. Shannon Dingus
Director February 7, 1997
----------------------------------
Kenneth C. Welch
Director February 7, 1997
----------------------------------
Richard W. Brail
</TABLE>
II-5
<PAGE> 7
TOUCHSTONE SOFTWARE CORPORATION
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
EXHIBITS
TO
FORM S-8
UNDER
SECURITIES ACT OF 1933
<PAGE> 8
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Exhibit
- -------------- -------
<S> <C>
4.0 Instruments Defining Rights of Stockholders.
Reference is made to Registrant's Registration
Statement No. 000-28890 on Form 8-A which is
incorporated herein by reference pursuant to Item
3(f).
5.0 Opinion and consent of Brobeck, Phleger & Harrison
LLP.
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Brobeck, Phleger & Harrison LLP is
contained in Exhibit 5.
24. Power of Attorney. Reference is made to page II-4.
99.1 1997 Stock Incentive Plan.
99.2 Form of Notice of Grant under Discretionary Option
Grant Program.
99.3 Form of Notice of Grant (Initial) under Automatic
Option Grant Program.
99.4 Form of Notice of Grant (Annual) under Automatic
Option Grant Program.
99.5 Form of Stock Option Agreement (Discretionary Option
Grant Program).
99.6 Form of Stock Option Agreement (Automatic Option Grant
Program).
99.7 Form of Addendum to Stock Option Agreement--Limited
Stock Appreciation Rights (Executive Officers).
</TABLE>
<PAGE> 1
EXHIBIT 5
February 7, 1997
TouchStone Software Corporation
2124 Main Street, 2nd Floor
Huntington Beach, California 92648
Re: Registration Statement for Offering of an aggregate
of 1,200,000 Shares of Common Stock
Ladies and Gentlemen:
We refer to your registration on Form S-8 (the "Registration
Statement") under the Securities Act of 1933, as amended, of 1,200,000 shares
of the Common Stock of TouchStone Software Corporation (the "Company") under
the Company's 1997 Stock Incentive Plan (the "1997 Plan"). We advise you that,
in our opinion, when such shares have been issued and sold pursuant to the
applicable provisions of the 1997 Plan and in accordance with the Registration
Statement, such shares will be duly authorized, validly issued, fully paid and
non-assessable shares of the Company's Common Stock.
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement.
Very truly yours,
/s/ Brobeck, Phleger & Harrison LLP
BROBECK, PHLEGER & HARRISON LLP
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
Touchstone Software Corporation on Form S-8 of our report dated March 13, 1996,
appearing in the Annual Report on Form 10-KSB of Touchstone Software
Corporation for the year ended December 31, 1995.
/s/ DELOITTE & TOUCHE LLP
Costa Mesa, California
February 4, 1997
<PAGE> 1
EXHIBIT 99.1
TOUCHSTONE SOFTWARE CORPORATION
1997 STOCK INCENTIVE PLAN
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 1997 Stock Incentive Plan is intended to promote the
interests of TouchStone Software Corporation, a Delaware corporation, by
providing eligible persons with the opportunity to acquire a proprietary
interest, or otherwise increase their proprietary interest, in the Corporation
as an incentive for them to remain in the service of the Corporation.
Capitalized terms shall have the meanings assigned to such
terms in the attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into two separate equity
programs:
- the Discretionary Option Grant Program under
which eligible persons may, at the discretion of the Plan Administrator, be
granted options to purchase shares of Common Stock, and
- the Automatic Option Grant Program under
which eligible non-employee Board members shall automatically receive option
grants at periodic intervals to purchase shares of Common Stock.
B. The provisions of Articles One and Four shall apply
to all equity programs under the Plan and shall govern the interests of all
persons under the Plan.
III. ADMINISTRATION OF THE PLAN
A. The Primary Committee shall have sole and exclusive
authority to administer the Discretionary Option Grant Program with respect to
Section 16 Insiders.
B. Administration of the Discretionary Option Grant
Program with respect to all other persons eligible to participate in that
program may, at the Board's discretion, be vested in the Primary Committee or a
Secondary Committee, or the Board may retain the power to administer that
program with respect to all such persons. The members of the Secondary
<PAGE> 2
Committee may be Board members who are Employees eligible to receive
discretionary option grants under the Plan or any other stock option, stock
appreciation, stock bonus or other stock plan of the Corporation (or any Parent
or Subsidiary).
C. Members of the Primary Committee or any Secondary
Committee shall serve for such period of time as the Board may determine and
may be removed by the Board at any time. The Board may also at any time
terminate the functions of any Secondary Committee and reassume all powers and
authority previously delegated to such committee.
D. Each Plan Administrator shall, within the scope of
its administrative functions under the Plan, have full power and authority
(subject to the provisions of the Plan) to establish such rules and regulations
as it may deem appropriate for proper administration of the Discretionary
Option Grant Program and to make such determinations under, and issue such
interpretations of, the provisions of such programs and any outstanding options
thereunder as it may deem necessary or advisable. Decisions of the Plan
Administrator within the scope of its administrative functions under the Plan
shall be final and binding on all parties who have an interest in the
Discretionary Option Grant Program under its jurisdiction or any option or
stock issuance thereunder.
E. Service on the Primary Committee or the Secondary
Committee shall constitute service as a Board member, and members of each such
committee shall accordingly be entitled to full indemnification and
reimbursement as Board members for their service on such committee. No member
of the Primary Committee or the Secondary Committee shall be liable for any act
or omission made in good faith with respect to the Plan or any option grants
under the Plan.
F. Administration of the Automatic Option Grant Program
shall be self-executing in accordance with the terms of that program, and no
Plan Administrator shall exercise any discretionary functions with respect to
any option grants made under that program.
IV. ELIGIBILITY
A. The persons eligible to participate in the
Discretionary Option Grant Program are as follows:
(i) Employees,
(ii) non-employee members of the Board or
the board of directors of any Parent or Subsidiary, and
(iii) consultants and other independent
advisors who provide services to the Corporation (or any Parent or
Subsidiary).
B. Each Plan Administrator shall, within the scope of
its administrative jurisdiction under the Plan, have full authority to
determine which eligible persons are to receive option grants under the
Discretionary Option Grant Program, the time or times when such option
2.
<PAGE> 3
grants are to be made, the number of shares to be covered by each such grant,
the status of the granted option as either an Incentive Option or a Non-
Statutory Option, the time or times when each option is to become exercisable,
the vesting schedule (if any) applicable to the option shares and the maximum
term for which the option is to remain outstanding.
C. The individuals who shall be eligible to participate
in the Automatic Option Grant Program shall be limited to (i) those individuals
serving as non-employee Board members on the Plan Effective Date, (ii) those
individuals who first become non-employee Board members on or after the Plan
Effective Date, whether through appointment by the Board or election by the
Corporation's stockholders, and (iii) those individuals who continue to serve
as non-employee Board members at one or more Annual Stockholders Meetings held
after the Plan Effective Date. A non-employee Board member who has previously
been in the employ of the Corporation (or any Parent or Subsidiary) shall not
be eligible to receive an option grant under the Automatic Option Grant Program
at the time he or she first becomes a non-employee Board member, but shall be
eligible to receive periodic option grants under the Automatic Option Grant
Program while he or she continues to serve as a non-employee Board member.
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of
authorized but unissued or reacquired Common Stock, including shares
repurchased by the Corporation on the open market. The maximum number of
shares of Common Stock initially reserved for issuance over the term of the
Plan shall not exceed 1,200,000 shares.
B. No one person participating in the Plan may receive
stock options or separately exercisable stock appreciation rights for more than
120,000 shares of Common Stock in the aggregate per calendar year; provided,
however, that such limit shall be 240,000 shares during the first calendar year
such person is eligible to participate in the Plan as an employee, non-employee
director or consultant.
C. Shares of Common Stock subject to outstanding options
(including options incorporated into this Plan from the Predecessor Plan) shall
be available for subsequent issuance under the Plan to the extent those options
expire or terminate for any reason prior to exercise in full. Unvested shares
issued under the Plan and subsequently cancelled or repurchased by the
Corporation, at the original issue price paid per share, pursuant to the
Corporation's repurchase rights under the Plan shall be added back to the
number of shares of Common Stock reserved for issuance under the Plan and shall
accordingly be available for reissuance through one or more subsequent option
grants under the Plan. However, should the exercise price of an option under
the Plan be paid with shares of Common Stock or should shares of Common Stock
otherwise issuable under the Plan be withheld by the Corporation in
satisfaction of the withholding taxes incurred in connection with the exercise
of an option or the vesting of a stock issuance under the Plan, then the number
of shares of Common Stock available for issuance under the Plan shall be
reduced by the gross number of shares for which the option is exercised or
which vest under the stock issuance, and not by the net number of shares of
Common Stock issued to the holder of such option or stock issuance. Shares of
Common Stock underlying one
3.
<PAGE> 4
or more stock appreciation rights exercised under Section IV of Article Two of
the Plan shall NOT be available for subsequent issuance under the Plan.
D. If any change is made to the Common Stock by reason
of any stock split, stock dividend, recapitalization, combination of shares,
exchange of shares or other change affecting the outstanding Common Stock as a
class without the Corporation's receipt of consideration, appropriate
adjustments shall be made to (i) the maximum number and/or class of securities
issuable under the Plan, (ii) the number and/or class of securities for which
any one person may be granted stock options or separately exercisable stock
appreciation rights in the aggregate under the Plan per calendar year, (iii)
the number and/or class of securities for which grants are subsequently to be
made under the Automatic Option Grant Program to new and continuing non-
employee Board members, (iv) the number and/or class of securities and the
exercise price per share in effect under each outstanding option under the Plan
and (v) the number and/or class of securities and price per share in effect
under each outstanding option incorporated into this Plan from the Predecessor
Plan. Such adjustments to the outstanding options are to be effected in a
manner which shall preclude the enlargement or dilution of rights and benefits
under such options. The adjustments determined by the Plan Administrator shall
be final, binding and conclusive.
4.
<PAGE> 5
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the
form approved by the Plan Administrator; provided, however, that each such
document shall comply with the terms specified below. Each document evidencing
an Incentive Option shall, in addition, be subject to the provisions of the
Plan applicable to such options.
A. EXERCISE PRICE.
1. The exercise price per share shall be fixed
by the Plan Administrator but shall not be less than eighty-five percent (85%)
of the Fair Market Value per share of Common Stock on the option grant date.
2. The exercise price shall become immediately
due upon exercise of the option and shall, subject to the provisions of Section
I of Article Six and the documents evidencing the option, be payable in one or
more of the forms specified below:
(i) cash or check made payable to the
Corporation,
(ii) shares of Common Stock held for the
requisite period necessary to avoid a charge to the Corporation's
earnings for financial reporting purposes and valued at Fair Market
Value on the Exercise Date, or
(iii) to the extent the option is
exercised for vested shares, through a special sale and remittance
procedure pursuant to which the Optionee shall concurrently provide
irrevocable written instructions to (a) a Corporation-designated
brokerage firm to effect the immediate sale of the purchased shares
and remit to the Corporation, out of the sale proceeds available on
the settlement date, sufficient funds to cover the aggregate exercise
price payable for the purchased shares plus all applicable Federal,
state and local income and employment taxes required to be withheld by
the Corporation by reason of such exercise and (b) the Corporation to
deliver the certificates for the purchased shares directly to such
brokerage firm in order to complete the sale.
Except to the extent such sale and remittance procedure is
utilized, payment of the exercise price for the purchased shares must be made
on the Exercise Date.
B. EXERCISE AND TERM OF OPTIONS. Each option shall be
exercisable at such time or times, during such period and for such number of
shares as shall be determined by the Plan Administrator and set forth in the
documents evidencing the option. However, no option shall have a term in
excess of ten (10) years measured from the option grant date.
5.
<PAGE> 6
C. EFFECT OF TERMINATION OF SERVICE.
1. The following provisions shall govern the
exercise of any options held by the Optionee at the time of cessation of
Service or death:
(i) Any option outstanding at the time
of the Optionee's cessation of Service for any reason shall remain
exercisable for such period of time thereafter as shall be determined
by the Plan Administrator and set forth in the documents evidencing
the option, but no such option shall be exercisable after the
expiration of the option term.
(ii) Any option exercisable in whole or
in part by the Optionee at the time of death may be subsequently
exercised by the personal representative of the Optionee's estate or
by the person or persons to whom the option is transferred pursuant to
the Optionee's will or in accordance with the laws of descent and
distribution.
(iii) Should the Optionee's Service be
terminated for Misconduct, then all outstanding options held by the
Optionee shall terminate immediately and cease to be outstanding.
(iv) During the applicable post- Service
exercise period, the option may not be exercised in the aggregate for
more than the number of vested shares for which the option is
exercisable on the date of the Optionee's cessation of Service. Upon
the expiration of the applicable exercise period or (if earlier) upon
the expiration of the option term, the option shall terminate and
cease to be outstanding for any vested shares for which the option has
not been exercised. However, the option shall, immediately upon the
Optionee's cessation of Service, terminate and cease to be outstanding
to the extent the option is not otherwise at that time exercisable for
vested shares.
2. The Plan Administrator shall have complete
discretion, exercisable either at the time an option is granted or at any time
while the option remains outstanding, to:
(i) extend the period of time for which
the option is to remain exercisable following the Optionee's cessation
of Service from the limited exercise period otherwise in effect for
that option to such greater period of time as the Plan Administrator
shall deem appropriate, but in no event beyond the expiration of the
option term, and/or
(ii) permit the option to be exercised,
during the applicable post-Service exercise period, not only with
respect to the number of vested shares of Common Stock for which such
option is exercisable at the time of the Optionee's cessation of
Service but also with respect to one or more additional installments
in which the Optionee would have vested had the Optionee continued in
Service.
6.
<PAGE> 7
D. STOCKHOLDER RIGHTS. The holder of an option shall
have no stockholder rights with respect to the shares subject to the option
until such person shall have exercised the option, paid the exercise price and
become a holder of record of the purchased shares.
E. REPURCHASE RIGHTS. The Plan Administrator shall have
the discretion to grant options which are exercisable for unvested shares of
Common Stock. Should the Optionee cease Service while holding such unvested
shares, the Corporation shall have the right to repurchase, at the exercise
price paid per share, any or all of those unvested shares. The terms upon
which such repurchase right shall be exercisable (including the period and
procedure for exercise and the appropriate vesting schedule for the purchased
shares) shall be established by the Plan Administrator and set forth in the
document evidencing such repurchase right.
F. LIMITED TRANSFERABILITY OF OPTIONS. During the
lifetime of the Optionee, Incentive Options shall be exercisable only by the
Optionee and shall not be assignable or transferable other than by will or by
the laws of descent and distribution following the Optionee's death. However,
a Non-Statutory Option may, in connection with the Optionee's estate plan, be
assigned in whole or in part during the Optionee's lifetime to one or more
members of the Optionee's immediate family or to a trust established
exclusively for one or more such family members. The assigned portion may only
be exercised by the person or persons who acquire a proprietary interest in the
option pursuant to the assignment. The terms applicable to the assigned
portion shall be the same as those in effect for the option immediately prior
to such assignment and shall be set forth in such documents issued to the
assignee as the Plan Administrator may deem appropriate.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section II, all the
provisions of Articles One, Two and Seven shall be applicable to Incentive
Options. Options designated as Non-Statutory Options when issued under the
Plan shall not be subject to the terms of this Section II.
A. ELIGIBILITY. Incentive Options may only be granted
to Employees.
B. DOLLAR LIMITATION. The aggregate Fair Market Value
of the shares of Common Stock (determined as of the respective date or dates of
grant) for which one or more options granted to any Employee under the Plan (or
any other option plan of the Corporation or any Parent or Subsidiary) may for
the first time become exercisable as Incentive Options during any one calendar
year shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To
the extent the Employee holds two (2) or more such options which become
exercisable for the first time in the same calendar year, the foregoing
limitation on the exercisability of such options as Incentive Options shall be
applied on the basis of the order in which such options are granted.
C. 10% STOCKHOLDER. If any Employee to whom an
Incentive Option is granted is a 10% Stockholder, then the exercise price per
share shall not be less than one hundred ten percent (110%) of the Fair Market
Value per share of Common Stock on the option
7.
<PAGE> 8
grant date, and the option term shall not exceed five (5) years measured from
the option grant date.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction, each
outstanding option shall automatically accelerate so that each such option
shall, immediately prior to the effective date of the Corporate Transaction,
become fully exercisable with respect to the total number of shares of Common
Stock at the time subject to such option and may be exercised for any or all of
those shares as fully-vested shares of Common Stock. However, an outstanding
option shall not so accelerate if and to the extent: (i) such option is, in
connection with the Corporate Transaction, either to be assumed by the
successor corporation (or parent thereof) or to be replaced with a comparable
option to purchase shares of the capital stock of the successor corporation (or
parent thereof), (ii) such option is to be replaced with a cash incentive
program of the successor corporation which preserves the spread existing on the
unvested option shares at the time of the Corporate Transaction and provides
for subsequent payout in accordance with the same vesting schedule applicable
to those option shares or (iii) the acceleration of such option is subject to
other limitations imposed by the Plan Administrator at the time of the option
grant. The determination of option comparability under clause (i) above shall
be made by the Plan Administrator, and its determination shall be final,
binding and conclusive.
B. All outstanding repurchase rights shall also
terminate automatically, and the shares of Common Stock subject to those
terminated rights shall immediately vest in full, in the event of any Corporate
Transaction, except to the extent: (i) those repurchase rights are to be
assigned to the successor corporation (or parent thereof) in connection with
such Corporate Transaction or (ii) such accelerated vesting is precluded by
other limitations imposed by the Plan Administrator at the time the repurchase
right is issued.
C. Immediately following the consummation of the
Corporate Transaction, all outstanding options shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
D. Each option which is assumed in connection with a
Corporate Transaction shall be appropriately adjusted, immediately after such
Corporate Transaction, to apply to the number and class of securities which
would have been issuable to the Optionee in consummation of such Corporate
Transaction had the option been exercised immediately prior to such Corporate
Transaction. Appropriate adjustments to reflect such Corporate Transaction
shall also be made to (i) the exercise price payable per share under each
outstanding option, provided the aggregate exercise price payable for such
securities shall remain the same, (ii) the maximum number and/or class of
securities available for issuance over the remaining term of the Plan and (iii)
the maximum number and/or class of securities for which any one person may be
granted stock options or separately exercisable stock appreciation rights under
the Plan per calendar year.
E. The Plan Administrator shall have full power and
authority to grant options under the Discretionary Option Grant Program which
will automatically accelerate upon the
8.
<PAGE> 9
consummation of a Corporate Transaction or in the event the Optionee's Service
subsequently terminates by reason of an Involuntary Termination within a
designated period (not to exceed eighteen (18) months) following the effective
date of any Corporate Transaction in which those options are assumed or
replaced and do not otherwise accelerate. Any options so accelerated shall
remain exercisable for fully-vested shares until the earlier of (i) the
expiration of the option term or (ii) the expiration of the one (1)-year period
measured from the effective date of the Involuntary Termination. In addition,
the Plan Administrator may provide that one or more of the Corporation's
outstanding repurchase rights with respect to shares held by the Optionee upon
the consummation of a Corporate Transaction or at the time of such Involuntary
Termination shall immediately terminate, and the shares subject to those
terminated repurchase rights shall accordingly vest in full.
F. The Plan Administrator shall have full power and
authority to grant options under the Discretionary Option Grant Program which
will automatically accelerate upon the consummation of a transaction resulting
in a Change in Control or in the event the Optionee's Service subsequently
terminates by reason of an Involuntary Termination within a designated period
(not to exceed eighteen (18) months) following the effective date of any Change
in Control. Each option so accelerated shall remain exercisable for fully-
vested shares until the earlier of (i) the expiration of the option term or
(ii) the expiration of the one (1)-year period measured from the effective date
of the Involuntary Termination. In addition, the Plan Administrator may
provide that one or more of the Corporation's outstanding repurchase rights
with respect to shares held by the Optionee upon the consummation of a
transaction resulting in a Change in Control or at the time of such Involuntary
Termination shall immediately terminate, and the shares subject to those
terminated repurchase rights shall accordingly vest in full.
G. The portion of any Incentive Option accelerated in
connection with a Corporate Transaction or Change in Control shall remain
exercisable as an Incentive Option only to the extent the applicable One
Hundred Thousand Dollar limitation is not exceeded. To the extent such dollar
limitation is exceeded, the accelerated portion of such option shall be
exercisable as a Non-Statutory Option under the Federal tax laws.
H. The outstanding options shall in no way affect the
right of the Corporation to adjust, reclassify, reorganize or otherwise change
its capital or business structure or to merge, consolidate, dissolve, liquidate
or sell or transfer all or any part of its business or assets.
IV. STOCK APPRECIATION RIGHTS
A. The Plan Administrator shall have full power and
authority, exercisable in its sole discretion, to grant to selected Optionees
or other individuals eligible to receive option grants under the Discretionary
Option Grant Program stock appreciation rights.
B. Three types of stock appreciation rights shall be
authorized for issuance under the Plan: (i) tandem stock appreciation rights
("Tandem Rights"), (ii) stand-alone stock appreciation rights ("Stand-alone
Rights") and (iii) limited stock appreciation rights ("Limited Rights").
9.
<PAGE> 10
C. The following terms and conditions shall govern the
grant and exercise of Tandem Rights under this Article Two.
1. One or more Optionees may be granted a Tandem
Right, exercisable upon such terms and conditions as the Plan
Administrator may establish, to elect between the exercise of the
underlying Article Two stock option for shares of Common Stock or the
surrender of that option in exchange for a distribution from the
Corporation in an amount equal to the excess of (i) the Fair Market
Value (on the option surrender date) of the number of shares in which
the Optionee is at the time vested under the surrendered option (or
surrendered portion thereof) over (ii) the aggregate exercise price
payable for such vested shares.
2. No such option surrender shall be effective
unless it is approved by the Plan Administrator, either at the time of
the actual option surrender or at any earlier time. If the surrender
is so approved, then the distribution to which the Optionee shall
accordingly become entitled under this Section V may be made in shares
of Common Stock valued at Fair Market Value on the option surrender
date, in cash, or partly in shares and partly in cash, as the Plan
Administrator shall in its sole discretion deem appropriate.
3. If the surrender of an option is not approved
by the Plan Administrator, then the Optionee shall retain whatever
rights the Optionee had under the surrendered option (or surrendered
portion thereof) on the option surrender date and may exercise such
rights at any time prior to the later of (i) five (5) business days
after the receipt of the rejection notice or (ii) the last day on
which the option is otherwise exercisable in accordance with the terms
of the instrument evidencing such option, but in no event may such
rights be exercised more than nine (9) years after the date of the
option grant.
D. The following terms and conditions shall govern the
grant and exercise of Stand-alone Rights under this Article Two:
1. One or more individuals eligible to
participate in the Discretionary Option Grant Program may be granted a
Stand-alone Right not tied to any underlying option under this
Discretionary Option Grant Program. The Stand- alone Right shall
cover a specified number of underlying shares of Common Stock and
shall be exercisable upon such terms and conditions as the Plan
Administrator may establish. Upon exercise of the Stand-alone Right,
the holder shall be entitled to receive a distribution from the
Corporation in an amount equal to the excess of (i) the aggregate Fair
Market Value (on the exercise date) of the shares of Common Stock
underlying the exercised right over (ii) the aggregate base price in
effect for those shares.
2. The number of shares of Common Stock
underlying each Stand-alone Right and the base price in effect for
those shares shall be determined
10.
<PAGE> 11
by the Plan Administrator in its sole discretion at the time the
Stand-alone Right is granted. In no event, however, may the base
price per share be less than the Fair Market Value per underlying
share of Common Stock on the grant date.
3. The distribution with respect to an exercised
Stand-alone Right may be made in shares of Common Stock valued at Fair
Market Value on the exercise date, in cash, or partly in shares and
partly in cash, as the Plan Administrator shall in its sole discretion
deem appropriate.
E. The following terms and conditions shall govern the
grant and exercise of Limited Rights under this Article Two:
1. One or more Section 16 Insiders may, in the
Plan Administrator's sole discretion, be granted Limited Rights with
respect to their outstanding options under this Article Two.
2. Upon the occurrence of a Hostile Take-Over,
the Section 16 Insider shall have the unconditional right (exercisable
for a thirty (30)-day period following such Hostile Take-Over) to
surrender each option with such a Limited Right to the Corporation, to
the extent the option is at the time exercisable for fully vested
shares of Common Stock. The Section 16 Insider shall in return be
entitled to a cash distribution from the Corporation in an amount
equal to the excess of (i) the Take-Over Price of the vested shares of
Common Stock at the time subject to each surrendered option (or
surrendered portion of such option) over (ii) the aggregate exercise
price payable for such vested shares. Such cash distribution shall be
made within five (5) days following the option surrender date.
3. The Plan Administrator shall pre-approve, at
the time such Limited Right is granted, the subsequent exercise of
that right in accordance with the terms of the grant and the
provisions of this Section IV. No additional approval of the Plan
Administrator or the Board shall be required at the time of the actual
option surrender and cash distribution. Any unsurrendered portion of
the option shall continue to remain outstanding and become exercisable
in accordance with the terms of the instrument evidencing such grant.
F. The shares of Common Stock underlying any stock
appreciation rights exercised under this Section IV shall NOT be available for
subsequent issuance under the Plan.
11.
<PAGE> 12
ARTICLE THREE
AUTOMATIC OPTION GRANT PROGRAM
I. OPTION TERMS
A. GRANT DATES. Option grants shall be made on the
dates specified below:
1. Each individual who is first elected or
appointed as a non-employee Board member on or after the Plan Effective Date
shall automatically be granted, on the date of such initial election or
appointment, a Non-Statutory Option to purchase 10,000 shares of Common Stock,
provided that individual has not previously been in the employ of the
Corporation or any Parent or Subsidiary.
2. On the date of each Annual Stockholders
Meeting, beginning on the Plan Effective Date, each individual who is re-
elected to serve as an Eligible Director shall automatically be granted a Non-
Statutory Option to purchase 10,000 shares of Common Stock, provided such
individual has served as a non-employee Board member for at least six (6)
months. There shall be no limit on the number of such 10,000-share option
grants any one Eligible Director may receive over his or her period of Board
service, and non-employee Board members who have previously been in the employ
of the Corporation (or any Parent or Subsidiary) shall be eligible to receive
one or more such annual option grants over their period of continued Board
service.
B. EXERCISE PRICE.
1. The exercise price per share shall be equal
to one hundred percent (100%) of the Fair Market Value per share of Common
Stock on the option grant date.
2. The exercise price shall be payable in one or
more of the alternative forms authorized under the Discretionary Option Grant
Program. Except to the extent the sale and remittance procedure specified
thereunder is utilized, payment of the exercise price for the purchased shares
must be made on the Exercise Date.
C. OPTION TERM. Each option shall have a maximum term
equal to the lesser of (i) ten (10) years measured from the option grant date
or (ii) twelve (12) months following termination of Board service.
D. EXERCISE AND VESTING OF OPTIONS. Each option shall
be immediately exercisable for any or all of the option shares. However, any
shares purchased under the option shall be subject to repurchase by the
Corporation, at the exercise price paid per share, upon the Optionee's
cessation of Board service prior to vesting in those shares. Each initial
10,000-share grant shall vest, and the Corporation's repurchase right shall
lapse in four (4) successive equal annual installments over the Optionee's
period of Board service, with the first such installment to vest upon the
completion of one (1) year of Board service measured from the automatic grant
12.
<PAGE> 13
date. Each annual 10,000-share grant shall vest, and the Corporation's
repurchase right shall lapse, in two (2) successive equal annual installments
over the optionee's period of Board service measured from the automatic grant
date.
E. TERMINATION OF BOARD SERVICE. The following
provisions shall govern the exercise of any options held by the Optionee upon
his or her cessation of Board service:
(i) The Optionee (or, in the event of
Optionee's death, the personal representative of the Optionee's estate
or the person or persons to whom the option is transferred pursuant to
the Optionee's will or in accordance with the laws of descent and
distribution) shall have a twelve (12)-month period following the date
of such cessation of Board service in which to exercise each such
option.
(ii) During the twelve (12)-month
exercise period, the option may not be exercised in the aggregate for
more than the number of vested shares of Common Stock for which the
option is exercisable at the time of the Optionee's cessation of Board
service.
(iii) Should the Optionee cease to serve
as a Board member by reason of death or Permanent Disability, then all
shares at the time subject to the option shall immediately vest so
that such option may, during the twelve (12)-month exercise period
following such cessation of Board service, be exercised for all or any
portion of those shares as fully-vested shares of Common Stock.
(iv) In no event shall the option remain
exercisable after the expiration of the option term. Upon the
expiration of the twelve (12)-month exercise period or (if earlier)
upon the expiration of the option term, the option shall terminate and
cease to be outstanding for any vested shares for which the option has
not been exercised. However, the option shall, immediately upon the
Optionee's cessation of Board service for any reason other than death
or Permanent Disability, terminate and cease to be outstanding to the
extent the option is not otherwise at that time exercisable for vested
shares.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL/ HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction, the shares
of Common Stock at the time subject to each outstanding option but not
otherwise vested shall automatically vest in full so that each such option
shall, immediately prior to the effective date of the Corporate Transaction,
become fully exercisable for all of the shares of Common Stock at the time
subject to such option and may be exercised for all or any portion of those
shares as fully-vested shares of Common Stock. Immediately following the
consummation of the Corporate Transaction, each automatic option grant shall
terminate and cease to be outstanding, except to the extent assumed by the
successor corporation (or parent thereof).
13.
<PAGE> 14
B. In connection with any Change in Control, the shares
of Common Stock at the time subject to each outstanding option but not
otherwise vested shall automatically vest in full so that each such option
shall, immediately prior to the effective date of the Change in Control, become
fully exercisable for all of the shares of Common Stock at the time subject to
such option and may be exercised for all or any portion of those shares as
fully-vested shares of Common Stock. Each such option shall remain exercisable
for such fully-vested option shares until the expiration or sooner termination
of the option term or the surrender of the option in connection with a Hostile
Take-Over.
C. Upon the occurrence of a Hostile Take-Over, the
Optionee shall have a thirty (30)-day period in which to surrender to the
Corporation each of his or her outstanding automatic option grants. The
Optionee shall in return be entitled to a cash distribution from the
Corporation in an amount equal to the excess of (i) the Take-Over Price of the
shares of Common Stock at the time subject to each surrendered option (whether
or not the Optionee is otherwise at the time vested in those shares) over (ii)
the aggregate exercise price payable for such shares. Such cash distribution
shall be paid within five (5) days following the surrender of the option to the
Corporation. This provision of the Automatic Option Grant Program shall
constitute advance approval by the Board of any subsequent surrender of the
option in accordance with the provisions of this Section II.C, and no
additional approval of the Board or any Plan Administrator shall accordingly be
required at the time of the actual option surrender and cash distribution.
D. Each option which is assumed in connection with a
Corporate Transaction shall be appropriately adjusted, immediately after such
Corporate Transaction, to apply to the number and class of securities which
would have been issuable to the Optionee in consummation of such Corporate
Transaction had the option been exercised immediately prior to such Corporate
Transaction. Appropriate adjustments shall also be made to the exercise price
payable per share under each outstanding option, provided the aggregate
exercise price payable for such securities shall remain the same.
E. The grant of options under the Automatic Option Grant
Program shall in no way affect the right of the Corporation to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.
III. REMAINING TERMS
The remaining terms of each option granted under the Automatic
Option Grant Program shall be the same as the terms in effect for option grants
made under the Discretionary Option Grant Program.
14.
<PAGE> 15
ARTICLE FOUR
MISCELLANEOUS
I. FINANCING
The Plan Administrator may permit any Optionee to pay the
option exercise price under the Discretionary Option Grant Program by
delivering a full-recourse, interest bearing promissory note payable in one or
more installments. The terms of any such promissory note (including the
interest rate and the terms of repayment) shall be established by the Plan
Administrator in its sole discretion. In no event may the maximum credit
available to the Optionee exceed the sum of (i) the aggregate option exercise
price payable for the purchased shares plus (ii) any Federal, state and local
income and employment tax liability incurred by the Optionee in connection with
the option exercise or share purchase.
II. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of
Common Stock upon the exercise of options under the Plan shall be subject to
the satisfaction of all applicable Federal, state and local income and
employment tax withholding requirements.
B. The Plan Administrator may, in its discretion,
provide any or all holders of Non-Statutory Options under the Discretionary
Option Grant Program with the right to use shares of Common Stock in
satisfaction of all or part of the Taxes incurred by such holders in connection
with the exercise of their options. Such right may be provided to any such
holder in either or both of the following formats:
Stock Withholding: The election to have the
Corporation withhold, from the shares of Common Stock otherwise
issuable upon the exercise of such Non-Statutory Option, a portion of
those shares with an aggregate Fair Market Value equal to the
percentage of the Taxes (not to exceed one hundred percent (100%))
designated by the holder.
Stock Delivery: The election to deliver to the
Corporation, at the time the Non-Statutory Option is exercised, one or
more shares of Common Stock previously acquired by such holder (other
than in connection with the option exercise triggering the Taxes) with
an aggregate Fair Market Value equal to the percentage of the Taxes
(not to exceed one hundred percent (100%)) designated by the holder.
III. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan and each of the equity incentive programs
thereunder shall become effective immediately upon the approval of the
Corporation's stockholders at the 1996 Annual Meeting. Options may be granted
under the Plan at any time on or after the date of such
15.
<PAGE> 16
stockholder approval. If such stockholder approval is not obtained, then this
Plan shall not become effective, and no options shall be granted and no shares
shall be issued under the Plan.
B. The Plan shall serve as the successor to the
Predecessor Plan, and no further option grants shall be made under the
Predecessor Plan after this Plan is approved by the stockholders at the 1996
Annual Meeting. All options outstanding under the Predecessor Plan at the time
of such stockholder approval shall be incorporated into the Plan at that time
and shall be treated as outstanding options under the Plan. However, each
outstanding option so incorporated shall continue to be governed solely by the
terms of the documents evidencing such option, and no provision of the Plan
shall be deemed to affect or otherwise modify the rights or obligations of the
holders of such incorporated options with respect to their acquisition of
shares of Common Stock.
C. One or more provisions of the Plan, including
(without limitation) the option/vesting acceleration provisions of Article Two
relating to Corporate Transactions and Changes in Control, may, in the Plan
Administrator's discretion, be extended to one or more options incorporated
from the Predecessor Plan which do not otherwise contain such provisions.
D. The Plan shall terminate upon the earliest of (i)
December 16, 2006, (ii) the date on which all shares available for issuance
under the Plan shall have been issued as fully-vested shares or (iii) the
termination of all outstanding options in connection with a Corporate
Transaction. Upon such plan termination, all outstanding option grants shall
thereafter continue to have force and effect in accordance with the provisions
of the documents evidencing such grants.
IV. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and
authority to amend or modify the Plan in any or all respects. However, no such
amendment or modification shall adversely affect the rights and obligations
with respect to stock options at the time outstanding under the Plan unless the
Optionee consents to such amendment or modification. In addition, certain
amendments may require stockholder approval in accordance with applicable laws
and regulations.
B. Options to purchase shares of Common Stock may be
granted under the Discretionary Option Grant Program that are in excess of the
number of shares then available for issuance under the Plan, provided any
excess shares actually issued under that program shall be held in escrow until
there is obtained stockholder approval of an amendment sufficiently increasing
the number of shares of Common Stock available for issuance under the Plan. If
such stockholder approval is not obtained within twelve (12) months after the
date the first such excess issuances are made, then (i) any unexercised options
granted on the basis of such excess shares shall terminate and cease to be
outstanding and (ii) the Corporation shall promptly refund to the Optionees the
exercise or purchase price paid for any excess shares issued under the Plan and
held in escrow, together with interest (at the applicable Short Term Federal
Rate) for the period the shares were held in escrow, and such shares shall
thereupon be automatically cancelled and cease to be outstanding.
16.
<PAGE> 17
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of
shares of Common Stock under the Plan shall be used for general corporate
purposes.
VI. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any
stock option under the Plan and the issuance of any shares of Common Stock upon
the exercise of any granted option shall be subject to the Corporation's
procurement of all approvals and permits required by regulatory authorities
having jurisdiction over the Plan, the stock options granted under it and the
shares of Common Stock issued pursuant to it.
B. No shares of Common Stock or other assets shall be
issued or delivered under the Plan unless and until there shall have been
compliance with all applicable requirements of Federal and state securities
laws, including the filing and effectiveness of the Form S-8 registration
statement for the shares of Common Stock issuable under the Plan, and all
applicable listing requirements of any stock exchange (or the Nasdaq National
Market, if applicable) on which Common Stock is then listed for trading.
VII. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee any right
to continue in Service for any period of specific duration or interfere with or
otherwise restrict in any way the rights of the Corporation (or any Parent or
Subsidiary employing or retaining such person) or of the Optionee, which rights
are hereby expressly reserved by each, to terminate such person's Service at
any time for any reason, with or without cause.
17.
<PAGE> 18
APPENDIX
The following definitions shall be in effect under the Plan:
A. AUTOMATIC OPTION GRANT PROGRAM shall mean the automatic option
grant program in effect under the Plan.
B. BOARD shall mean the Corporation's Board of Directors.
C. CHANGE IN CONTROL shall mean a change in ownership or control
of the Corporation effected through either of the following transactions:
(i) the acquisition, directly or indirectly by
any person or related group of persons (other than the Corporation or
a person that directly or indirectly controls, is controlled by, or is
under common control with, the Corporation), of beneficial ownership
(within the meaning of Rule 13d-3 of the 1934 Act) of securities
possessing more than thirty-five percent (35%) of the total combined
voting power of the Corporation's outstanding securities pursuant to a
tender or exchange offer made directly to the Corporation's
stockholders which the Board does not recommend such stockholders to
accept, or
(ii) a change in the composition of the Board over
a period of thirty-six (36) consecutive months or less such that a
majority of the Board members ceases, by reason of one or more
contested elections for Board membership, to be comprised of
individuals who either (A) have been Board members continuously since
the beginning of such period or (B) have been elected or nominated for
election as Board members during such period by at least a majority of
the Board members described in clause (A) who were still in office at
the time the Board approved such election or nomination.
D. CODE shall mean the Internal Revenue Code of 1986, as amended.
E. COMMON STOCK shall mean the Corporation's common stock.
F. CORPORATE TRANSACTION shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities
possessing more than fifty percent (50%) of the total combined voting
power of the Corporation's outstanding securities are transferred to a
person or persons different from the persons holding those securities
immediately prior to such transaction, or
A-1.
<PAGE> 19
(ii) the sale, transfer or other
disposition of all or substantially all of the Corporation's assets in
complete liquidation or dissolution of the Corporation.
G. CORPORATION shall mean TouchStone Software Corporation, a
Delaware corporation, and its successors.
H. DISCRETIONARY OPTION GRANT PROGRAM shall mean the
discretionary option grant program in effect under the Plan.
I. ELIGIBLE DIRECTOR shall mean a non-employee Board member
eligible to participate in the Automatic Option Grant Program in accordance
with the eligibility provisions of Article One.
J. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
K. EXERCISE DATE shall mean the date on which the Corporation
shall have received written notice of the option exercise.
L. FAIR MARKET VALUE per share of Common Stock on any relevant
date shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on
the Nasdaq National Market, then the Fair Market Value shall be deemed
equal to the closing selling price per share of Common Stock on the
date in question, as such price is reported on the Nasdaq National
Market or any successor system. If there is no closing selling price
for the Common Stock on the date in question, then the Fair Market
Value shall be determined by reference to the most recent bid price as
reported on the Nasdaq National Market or any successor system.
(ii) If the Common Stock is at the time listed on
any Stock Exchange, then the Fair Market Value shall be deemed equal
to the closing selling price per share of Common Stock on the date in
question on the Stock Exchange determined by the Plan Administrator to
be the primary market for the Common Stock, as such price is
officially quoted in the composite tape of transactions on such
exchange. If there is no closing selling price for the Common Stock
on the date in question, then the Fair Market Value shall be the
closing selling price on the last preceding date for which such
quotation exists.
M. HOSTILE TAKE-OVER shall mean the acquisition, directly or
indirectly, by any person or related group of persons (other than the
Corporation or a person that directly or indirectly controls, is controlled by,
or is under common control with, the Corporation) of beneficial ownership
(within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing
more than thirty-five percent (35%) of the total combined voting power of the
Corporation's
A-2.
<PAGE> 20
outstanding securities pursuant to a tender or exchange offer made directly to
the Corporation's stockholders which the Board does not recommend such
stockholders to accept.
N. INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code Section 422.
O. INVOLUNTARY TERMINATION shall mean the termination of the
Service of any individual which occurs by reason of:
(i) such individual's involuntary dismissal or
discharge by the Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary
resignation following (A) a change in his or her position with the
Corporation which materially reduces his or her level of
responsibility, (B) a reduction in his or her level of compensation
(including base salary, fringe benefits and target bonuses under any
corporate-performance based bonus or incentive programs) by more than
fifteen percent (15%) or (C) a relocation of such individual's place
of employment by more than fifty (50) miles, provided and only if such
change, reduction or relocation is effected without the individual's
consent.
P. MISCONDUCT shall mean the commission of any act of fraud,
embezzlement or dishonesty by the Optionee, any unauthorized use or disclosure
by such person of confidential information or trade secrets of the Corporation
(or any Parent or Subsidiary), or any other intentional misconduct by such
person adversely affecting the business or affairs of the Corporation (or any
Parent or Subsidiary) in a material manner. The foregoing definition shall not
be deemed to be inclusive of all the acts or omissions which the Corporation
(or any Parent or Subsidiary) may consider as grounds for the dismissal or
discharge of any Optionee or other person in the Service of the Corporation (or
any Parent or Subsidiary).
Q. 1934 ACT shall mean the Securities Exchange Act of 1934, as
amended.
R. NON-STATUTORY OPTION shall mean an option not intended to
satisfy the requirements of Code Section 422.
S. OPTIONEE shall mean any person to whom an option is granted
under the Discretionary Option Grant or Automatic Option Grant Program.
T. PARENT shall mean any corporation (other than the Corporation)
in an unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the
time of the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
U. PERMANENT DISABILITY OR PERMANENTLY DISABLED shall mean the
inability of the Optionee to engage in any substantial gainful activity by
reason of any medically determinable
A-3.
<PAGE> 21
physical or mental impairment expected to result in death or to be of
continuous duration of twelve (12) months or more. However, solely for
purposes of the Automatic Option Grant Program, Permanent Disability or
Permanently Disabled shall mean the inability of the non-employee Board member
to perform his or her usual duties as a Board member by reason of any medically
determinable physical or mental impairment expected to result in death or to be
of continuous duration of twelve (12) months or more.
V. PLAN shall mean the Corporation's 1997 Stock Incentive Plan,
as set forth in this document.
W. PLAN ADMINISTRATOR shall mean the particular entity, whether
the Primary Committee, the Board or the Secondary Committee, which is
authorized to administer the Discretionary Option Grant Program with respect to
one or more classes of eligible persons, to the extent such entity is carrying
out its administrative functions under those programs with respect to the
persons under its jurisdiction.
X. PREDECESSOR PLAN shall mean the Corporation's pre-existing
1996 Stock Option Plan in effect immediately prior to the Plan Effective Date
hereunder.
Y. PRIMARY COMMITTEE shall mean the committee of two (2) or more
non-employee Board members appointed by the Board to administer the
Discretionary Option Grant Program with respect to Section 16 Insiders.
Z. SECONDARY COMMITTEE shall mean a committee of two (2) or more
Board members appointed by the Board to administer the Discretionary Option
Grant Program with respect to eligible persons other than Section 16 Insiders.
AA. SECTION 16 INSIDER shall mean an officer or director of the
Corporation subject to the short-swing profit liabilities of Section 16 of the
1934 Act.
AB. SERVICE shall mean the performance of services for the
Corporation (or any Parent or Subsidiary) by a person in the capacity of an
Employee, a non-employee member of the board of directors or a consultant or
independent advisor, except to the extent otherwise specifically provided in
the documents evidencing the option grant or stock issuance.
AC. STOCK EXCHANGE shall mean either the American Stock Exchange
or the New York Stock Exchange.
AD. SUBSIDIARY shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations beginning with the
Corporation, provided each corporation (other than the last corporation) in the
unbroken chain owns, at the time of the determination, stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
AE. TAKE-OVER PRICE shall mean the greater of (i) the Fair Market
Value per share of Common Stock on the date the option is surrendered to the
Corporation in connection with
A-4.
<PAGE> 22
a Hostile Take-Over or (ii) the highest reported price per share of Common
Stock paid by the tender offeror in effecting such Hostile Take-Over. However,
if the surrendered option is an Incentive Option, the Take-Over Price shall not
exceed the clause (i) price per share.
AF. TAXES shall mean the Federal, state and local income and
employment tax liabilities incurred by the holder of Non-Statutory Options or
unvested shares of Common Stock in connection with the exercise of those
options or the vesting of those shares.
AG. 10% STOCKHOLDER shall mean the owner of stock (as determined
under Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any Parent
or Subsidiary).
A-5.
<PAGE> 1
EXHIBIT 99.2
TOUCHSTONE SOFTWARE CORPORATION
NOTICE OF GRANT OF STOCK OPTION
Notice is hereby given of the following option grant (the
"Option") to purchase shares of the Common Stock of TouchStone Software
Corporation (the "Corporation"):
<TABLE>
<S> <C>
Optionee:
-------- ----------------------------------------------------
Grant Date:
---------- --------------------------------------------------
Vesting Commencement Date:
------------------------- ------------------------------------
Exercise Price: $ per share
-------------- ----------------------------------
Number of Option Shares: shares
----------------------- -------------------------------
Expiration Date:
--------------- ---------------------------------------------
Type of Option: Incentive Stock Option
-------------- ------
Non-Statutory Stock Option
------
</TABLE>
Exercise Schedule: The Option shall become exercisable with
respect to twenty five percent (25%) of the Option Shares upon
Optionee's completion of one (1) year of Service measured from
the Vesting Commencement Date and shall become exercisable for
the balance of the Option Shares in thirty-six (36) successive
equal monthly installments upon Optionee's completion of each
additional month of Service over the thirty-six (36) month
period measured from the first anniversary of the Vesting
Commencement Date. In no event shall the Option become
exercisable for any additional Option Shares after Optionee's
cessation of Service.
Optionee understands and agrees that the Option is granted
subject to and in accordance with the terms of the TouchStone Software
Corporation 1997 Stock Incentive Plan (the "Plan"). Optionee further agrees to
be bound by the terms of the Plan and the terms of the Option as set forth in
the Stock Option Agreement attached hereto as Exhibit A.
Optionee hereby acknowledges receipt of a copy of the official
prospectus for the Plan in the form attached hereto as Exhibit B. A copy of
the Plan is available upon request made to the Corporate Secretary at the
Corporation's principal offices.
<PAGE> 2
No Employment or Service Contract. Nothing in this Notice or
in the attached Stock Option Agreement or in the Plan shall confer upon
Optionee any right to continue in Service for any period of specific duration
or interfere with or otherwise restrict in any way the rights of the
Corporation (or any Parent or Subsidiary employing or retaining Optionee) or of
Optionee, which rights are hereby expressly reserved by each, to terminate
Optionee's Service at any time for any reason, with or without cause.
Definitions. All capitalized terms in this Notice shall have
the meaning assigned to them in this Notice or in the attached Stock Option
Agreement.
DATED: ____________________________________, 199___
TOUCHSTONE SOFTWARE CORPORATION
By:
-------------------------------------
Title:
-------------------------------------
----------------------------------------------
OPTIONEE
Address:
------------------------------------
----------------------------------------------
ATTACHMENTS
EXHIBIT A - STOCK OPTION AGREEMENT
EXHIBIT B - PLAN SUMMARY AND PROSPECTUS
2.
<PAGE> 3
EXHIBIT A
STOCK OPTION AGREEMENT
<PAGE> 4
EXHIBIT B
PLAN SUMMARY AND PROSPECTUS
<PAGE> 1
EXHIBIT 99.3
INITIAL GRANT
TOUCHSTONE SOFTWARE CORPORATION
NOTICE OF GRANT OF NON-EMPLOYEE DIRECTOR
AUTOMATIC STOCK OPTION
Notice is hereby given of the following option grant (the
"Option") to purchase shares of the Common Stock of TouchStone Software
Corporation (the "Corporation"):
Optionee:
-------- ----------------------------------------------------
Grant Date:
---------- --------------------------------------------------
Exercise Price: $ per share
-------------- -------------------------------
Number of Option Shares: 10,000 shares
-----------------------
Expiration Date:
--------------- ---------------------------------------------
Type of Option: Non-Statutory Stock Option
--------------
Date Exercisable: Immediately Exercisable
----------------
Vesting Schedule: The Option Shares shall initially be
unvested and subject to repurchase by the Corporation at the
Exercise Price paid per share. Optionee shall acquire a
vested interest in, and the Corporation's repurchase right
shall accordingly lapse with respect to, the Option Shares in
a series of four (4) successive equal annual installments upon
the Optionee's completion of each year of service as a member
of the Corporation's Board of Directors (the "Board") over the
four (4)-year period measured from the Grant Date. In no
event shall any additional Option Shares vest after Optionee's
cessation of Board service.
Optionee understands and agrees that the Option is granted
subject to and in accordance with the terms of the automatic option grant
program under the TouchStone Software Corporation 1997 Stock Incentive Plan
(the "Plan"). Optionee further agrees to be bound by the terms of the Plan and
the terms of the Option as set forth in the Automatic Stock Option Agreement
attached hereto as Exhibit A.
<PAGE> 2
Optionee hereby acknowledges receipt of a copy of the official
prospectus for the Plan in the form attached hereto as Exhibit B. A copy of
the Plan is available upon request made to the Corporate Secretary at the
Corporation's principal offices.
REPURCHASE RIGHT. OPTIONEE HEREBY AGREES THAT ALL UNVESTED
OPTION SHARES ACQUIRED UPON THE EXERCISE OF THE OPTION SHALL NOT BE
TRANSFERABLE AND SHALL BE SUBJECT TO REPURCHASE BY THE CORPORATION, AT THE
EXERCISE PRICE PAID PER SHARE, UPON OPTIONEE'S TERMINATION OF SERVICE AS A
MEMBER OF THE CORPORATION'S BOARD OF DIRECTORS PRIOR TO VESTING IN THOSE
SHARES. THE TERMS AND CONDITIONS OF SUCH REPURCHASE RIGHT SHALL BE SPECIFIED
IN A STOCK PURCHASE AGREEMENT, IN FORM AND SUBSTANCE SATISFACTORY TO THE
CORPORATION, EXECUTED BY OPTIONEE AT THE TIME OF THE OPTION EXERCISE.
No Impairment of Rights. Nothing in this Notice or in the
attached Automatic Stock Option Agreement or the Plan shall interfere with or
otherwise restrict in any way the rights of the Corporation or the
Corporation's shareholders to remove Optionee from the Board at any time in
accordance with the provisions of applicable law.
Definitions. All capitalized terms in this Notice shall have
the meaning assigned to them in this Notice or in the attached Automatic Stock
Option Agreement.
DATED: , 199
----------------- ----
TOUCHSTONE SOFTWARE CORPORATION
By:
-------------------------------------
Title:
------------------------------------
----------------------------------------------
OPTIONEE
Address:
------------------------------------
----------------------------------
ATTACHMENTS
EXHIBIT A - AUTOMATIC STOCK OPTION AGREEMENT
EXHIBIT B - PLAN SUMMARY AND PROSPECTUS
2.
<PAGE> 3
EXHIBIT A
AUTOMATIC STOCK OPTION AGREEMENT
<PAGE> 4
EXHIBIT B
PLAN SUMMARY AND PROSPECTUS
<PAGE> 1
EXHIBIT 99.4
ANNUAL GRANT
TOUCHSTONE SOFTWARE CORPORATION
NOTICE OF GRANT OF NON-EMPLOYEE DIRECTOR
AUTOMATIC STOCK OPTION
Notice is hereby given of the following option grant (the
"Option") to purchase shares of the Common Stock of TouchStone Software
Corporation (the "Corporation"):
Optionee:
-------- ----------------------------------------------------
Grant Date:
---------- --------------------------------------------------
Exercise Price: $ per share
-------------- ----------------------------------
Number of Option Shares: 10,000 shares
-----------------------
Expiration Date:
--------------- ---------------------------------------------
Type of Option: Non-Statutory Stock Option
--------------
Date Exercisable: Immediately Exercisable
----------------
Vesting Schedule: The Option Shares shall initially be
unvested and subject to repurchase by the Corporation at the
Exercise Price paid per share. Optionee shall acquire a
vested interest in, and the Corporation's repurchase right
shall accordingly lapse with respect to, the Option Shares in
a series of two (2) successive equal annual installments upon
Optionee's completion of each year of service as a member of
the Corporation's Board of Directors (the "Board") over the
two (2)-year period measured from the Grant Date. In no event
shall any additional Option Shares vest after Optionee's
cessation of Board service.
Optionee understands and agrees that the Option is granted
subject to and in accordance with the terms of the automatic option grant
program under the TouchStone Software Corporation 1997 Stock Incentive Plan
(the "Plan"). Optionee further agrees to be bound by the terms of the Plan and
the terms of the Option as set forth in the Automatic Stock Option Agreement
attached hereto as Exhibit A.
<PAGE> 2
Optionee hereby acknowledges receipt of a copy of the official
prospectus for the Plan in the form attached hereto as Exhibit B. A copy of
the Plan is available upon request made to the Corporate Secretary at the
Corporation's principal offices.
REPURCHASE RIGHT. OPTIONEE HEREBY AGREES THAT ALL UNVESTED
OPTION SHARES ACQUIRED UPON THE EXERCISE OF THE OPTION SHALL NOT BE
TRANSFERABLE AND SHALL BE SUBJECT TO REPURCHASE BY THE CORPORATION, AT THE
EXERCISE PRICE PAID PER SHARE, UPON OPTIONEE'S TERMINATION OF SERVICE AS A
MEMBER OF THE CORPORATION'S BOARD OF DIRECTORS PRIOR TO VESTING IN THOSE
SHARES. THE TERMS AND CONDITIONS OF SUCH REPURCHASE RIGHT SHALL BE SPECIFIED
IN A STOCK PURCHASE AGREEMENT, IN FORM AND SUBSTANCE SATISFACTORY TO THE
CORPORATION, EXECUTED BY OPTIONEE AT THE TIME OF THE OPTION EXERCISE.
No Impairment of Rights. Nothing in this Notice or in the
attached Automatic Stock Option Agreement or the Plan shall interfere with or
otherwise restrict in any way the rights of the Corporation or the
Corporation's shareholders to remove Optionee from the Board at any time in
accordance with the provisions of applicable law.
Definitions. All capitalized terms in this Notice shall have
the meaning assigned to them in this Notice or in the attached Automatic Stock
Option Agreement.
DATED: , 199
------------------- ----
TOUCHSTONE SOFTWARE CORPORATION
By:
--------------------------------
Title:
--------------------------------
--------------------------------
OPTIONEE
Address:
--------------------------------
--------------------------------
ATTACHMENTS
EXHIBIT A - AUTOMATIC STOCK OPTION AGREEMENT
EXHIBIT B - PLAN SUMMARY AND PROSPECTUS
2.
<PAGE> 3
EXHIBIT A
AUTOMATIC STOCK OPTION AGREEMENT
<PAGE> 4
EXHIBIT B
PLAN SUMMARY AND PROSPECTUS
<PAGE> 1
EXHIBIT 99.5
TOUCHSTONE SOFTWARE CORPORATION
STOCK OPTION AGREEMENT
RECITALS
A. The Board has adopted the Plan for the purpose of retaining
the services of selected Employees, non-employee members of the Board or of the
board of directors of any Parent or Subsidiary and consultants and other
independent advisors who provide services to the Corporation (or any Parent or
Subsidiary).
B. Optionee is to render valuable services to the Corporation (or
a Parent or Subsidiary), and this Agreement is executed pursuant to, and is
intended to carry out the purposes of, the Plan in connection with the
Corporation's grant of an option to Optionee.
C. All capitalized terms in this Agreement shall have the meaning
assigned to them in the attached Appendix.
NOW, THEREFORE, it is hereby agreed as follows:
1. GRANT OF OPTION. The Corporation hereby grants to
Optionee, as of the Grant Date, an option to purchase up to the number of
Option Shares specified in the Grant Notice. The Option Shares shall be
purchasable from time to time during the option term specified in Paragraph 2
at the Exercise Price.
2. OPTION TERM. This option shall have a maximum term
of ten (10) years measured from the Grant Date and shall accordingly expire at
the close of business on the Expiration Date, unless sooner terminated in
accordance with Paragraph 5 or 6.
3. LIMITED TRANSFERABILITY. This option may, in
connection with the Optionee's estate plan, be assigned in whole or in part
during Optionee's lifetime to one or more members of the Optionee's immediate
family or to a trust established for the exclusive benefit of one or more such
family members. The assigned portion shall be exercisable only by the person
or persons who acquire a proprietary interest in the option pursuant to such
assignment. The terms applicable to the assigned portion shall be the same as
those in effect for this option immediately prior to such assignment and shall
be set forth in such documents issued to the assignee as the Corporation may
deem appropriate. Should the Optionee die while holding this option, then this
option shall be transferred in accordance with Optionee's will or the laws of
descent and distribution.
4. DATES OF EXERCISE. This option shall become
exercisable for the Option Shares in one or more installments as specified in
the Grant Notice. As the option becomes exercisable for such installments,
those installments shall accumulate and the option shall remain
<PAGE> 2
exercisable for the accumulated installments until the Expiration Date or
sooner termination of the option term under Paragraph 5 or 6.
5. CESSATION OF SERVICE. The option term specified in
Paragraph 2 shall terminate (and this option shall cease to be outstanding)
prior to the Expiration Date should any of the following provisions become
applicable:
(i) Should Optionee cease to remain in Service
for any reason (other than death, Permanent Disability or Misconduct)
while this option is outstanding, then Optionee shall have a period of
three (3) months (commencing with the date of such cessation of
Service) during which to exercise this option, but in no event shall
this option be exercisable at any time after the Expiration Date.
(ii) If Optionee dies while this option is
outstanding, then the personal representative of Optionee's estate or
the person or persons to whom the option is transferred pursuant to
Optionee's will or in accordance with the laws of descent and
distribution shall have the right to exercise this option. Such right
shall lapse, and this option shall cease to be outstanding, upon the
earlier of (A) the expiration of the twelve (12) month period measured
from the date of Optionee's death or (B) the Expiration Date.
(iii) Should Optionee cease Service by reason of
Permanent Disability while this option is outstanding, then Optionee
shall have a period of twelve (12) months (commencing with the date of
such cessation of Service) during which to exercise this option. In
no event shall this option be exercisable at any time after the
Expiration Date.
(iv) During the limited period of post- Service
exercisability, this option may not be exercised in the aggregate for
more than the number of vested Option Shares for which the option is
exercisable at the time of Optionee's cessation of Service. Upon the
expiration of such limited exercise period or (if earlier) upon the
Expiration Date, this option shall terminate and cease to be
outstanding for any vested Option Shares for which the option has not
been exercised. However, this option shall, immediately upon
Optionee's cessation of Service for any reason, terminate and cease to
be outstanding with respect to any Option Shares in which Optionee is
not otherwise at that time vested or for which this option is not
otherwise at that time exercisable.
(v) Should Optionee's Service be terminated for
Misconduct, then this option shall terminate immediately and cease to
remain outstanding.
2.
<PAGE> 3
6. EFFECT ON OPTION OF A CORPORATE TRANSACTION.
(a) This option, to the extent outstanding at the
time of a Corporate Transaction but not otherwise fully exercisable, shall
automatically accelerate so that this option shall, immediately prior to the
effective date of the Corporate Transaction, become exercisable for all of the
Option Shares at the time subject to this option and may be exercised for any
or all of those Option Shares as fully-vested shares of Common Stock. No such
acceleration of this option, however, shall occur if and to the extent: (i)
this option is, in connection with the Corporate Transaction, either to be
assumed by the successor corporation (or parent thereof) or to be replaced with
a comparable option to purchase shares of the capital stock of the successor
corporation (or parent thereof) or (ii) this option is to be replaced with a
cash incentive program of the successor corporation which preserves the spread
existing on the unvested Option Shares at the time of the Corporate Transaction
(the excess of the Fair Market Value of those Option Shares over the aggregate
Exercise Price payable for such shares) and provides for subsequent pay-out in
accordance with the same option exercise/vesting schedule set forth in the
Grant Notice. The determination of option comparability under clause (i) shall
be made by the Plan Administrator, and such determination shall be final,
binding and conclusive.
(b) Immediately following the Corporate
Transaction, this option shall terminate and cease to be outstanding, except to
the extent assumed by the successor corporation (or parent thereof) in
connection with the Corporate Transaction.
(c) If this option is assumed in connection with
a Corporate Transaction, then this option shall be appropriately adjusted,
immediately after such Corporate Transaction, to apply to the number and class
of securities which would have been issuable to Optionee in consummation of
such Corporate Transaction had the option been exercised immediately prior to
such Corporate Transaction, and appropriate adjustments shall also be made to
the Exercise Price, provided the aggregate Exercise Price shall remain the
same.
(d) This Agreement shall not in any way affect
the right of the Corporation to adjust, reclassify, reorganize or otherwise
change its capital or business structure or to merge, consolidate, dissolve,
liquidate or sell or transfer all or any part of its business or assets.
(e) To the extent the Option is, in connection
with a Corporate Transaction, to be assumed or replaced with a comparable
option in accordance with this Paragraph 6, the Option shall not accelerate
upon the occurrence of that Corporate Transaction, and the Option shall
accordingly continue, over Optionee's period of Service after the Corporate
Transaction, to become exercisable for the Option Shares in one or more
installments in accordance with the provisions of the Option Agreement.
However, immediately upon an Involuntary Termination of Optionee's Service
within eighteen (18) months following such Corporate Transaction, the Option
(or any replacement grant), to the extent outstanding at the time but not
otherwise fully exercisable, shall automatically accelerate so that the Option
shall become immediately exercisable for all the Option Shares at the time
subject to the Option and may be exercised for any or all of those Option
Shares as fully vested shares. The Option shall
3.
<PAGE> 4
remain so exercisable until the earlier of (i) the Expiration Date or (ii) the
expiration of the one (1)-year period measured from the date of the Involuntary
Termination.
7. SPECIAL ACCELERATION OF OPTION UPON A CHANGE IN
CONTROL. This option, to the extent outstanding at the time of a Change in
Control but not otherwise fully exercisable, shall automatically accelerate so
that this option shall, immediately prior to the effective date of the Change
in Control, become exercisable for all of the Option Shares at the time subject
to this option and may be exercised for any or all of those Option Shares as
fully-vested shares of Common Stock. This option shall remain exercisable for
such fully-vested Option Shares until the earliest to occur of (i) the
specified Expiration Date or (ii) the sooner termination of this option in
accordance with Paragraph 5 or 6.
8. ADJUSTMENT IN OPTION SHARES. Should any change be
made to the Common Stock by reason of any stock split, stock dividend,
recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding Common Stock as a class without the Corporation's
receipt of consideration, appropriate adjustments shall be made to (i) the
total number and/or class of securities subject to this option and (ii) the
Exercise Price in order to reflect such change and thereby preclude a dilution
or enlargement of benefits hereunder.
9. STOCKHOLDER RIGHTS. The holder of this option shall
not have any stockholder rights with respect to the Option Shares until such
person shall have exercised the option, paid the Exercise Price and become a
holder of record of the purchased shares.
10. MANNER OF EXERCISING OPTION.
(a) In order to exercise this option with respect
to all or any part of the Option Shares for which this option is at the time
exercisable, Optionee (or any other person or persons exercising the option)
must take the following actions:
(i) Execute and deliver to the
Corporation a Notice of Exercise for the Option Shares for which the
option is exercised.
(ii) Pay the aggregate Exercise
Price for the purchased shares in one or more of the following forms:
(A) cash or check made payable to
the Corporation;
(B) a promissory note payable to
the Corporation, but only to the extent authorized by the Plan
Administrator in accordance with Paragraph 13;
(C) shares of Common Stock held by
Optionee (or any other person or persons exercising the
option) for the requisite period necessary to avoid a charge
to the Corporation's earnings for
4.
<PAGE> 5
financial reporting purposes and valued at Fair Market Value on the
Exercise Date; or
(D) to the extent the option is
exercised for vested Option Shares, through a special sale and
remittance procedure pursuant to which Optionee (or any other
person or persons exercising the option) shall concurrently
provide irrevocable written instructions (I) to a Corporation-
designated brokerage firm to effect the immediate sale of the
purchased shares and remit to the Corporation, out of the sale
proceeds available on the settlement date, sufficient funds to
cover the aggregate Exercise Price payable for the purchased
shares plus all applicable Federal, state and local income and
employment taxes required to be withheld by the Corporation by
reason of such exercise and (II) to the Corporation to deliver
the certificates for the purchased shares directly to such
brokerage firm in order to complete the sale transaction.
Except to the extent the sale and remittance
procedure is utilized in connection with the option exercise,
payment of the Exercise Price must accompany the Notice of
Exercise delivered to the Corporation in connection with the
option exercise.
(iii) Furnish to the Corporation
appropriate documentation that the person or persons exercising the
option (if other than Optionee) have the right to exercise this
option.
(iv) Make appropriate
arrangements with the Corporation (or Parent or Subsidiary employing
or retaining Optionee) for the satisfaction of all Federal, state and
local income and employment tax withholding requirements applicable to
the option exercise.
(b) As soon as practical after the Exercise Date,
the Corporation shall issue to or on behalf of Optionee (or any other person or
persons exercising this option) a certificate for the purchased Option Shares,
with the appropriate legends affixed thereto.
(c) In no event may this option be exercised for
any fractional shares.
11. COMPLIANCE WITH LAWS AND REGULATIONS.
(a) The exercise of this option and the issuance
of the Option Shares upon such exercise shall be subject to compliance by the
Corporation and Optionee with all applicable requirements of law relating
thereto and with all applicable regulations of any stock exchange (or the
Nasdaq National Market, if applicable) on which the Common Stock may be listed
for trading at the time of such exercise and issuance.
(b) The inability of the Corporation to obtain
approval from any regulatory body having authority deemed by the Corporation to
be necessary to the lawful
5.
<PAGE> 6
issuance and sale of any Common Stock pursuant to this option shall relieve the
Corporation of any liability with respect to the non-issuance or sale of the
Common Stock as to which such approval shall not have been obtained. The
Corporation, however, shall use its best efforts to obtain all such approvals.
12. SUCCESSORS AND ASSIGNS. Except to the extent
otherwise provided in Paragraphs 3 and 6, the provisions of this Agreement
shall inure to the benefit of, and be binding upon, the Corporation and its
successors and assigns and Optionee, Optionee's assigns and the legal
representatives, heirs and legatees of Optionee's estate.
13. NOTICES. Any notice required to be given or
delivered to the Corporation under the terms of this Agreement shall be in
writing and addressed to the Corporation at its principal corporate offices.
Any notice required to be given or delivered to Optionee shall be in writing
and addressed to Optionee at the address indicated below Optionee's signature
line on the Grant Notice. All notices shall be deemed effective upon personal
delivery or upon deposit in the U.S. mail, postage prepaid and properly
addressed to the party to be notified.
14. FINANCING. The Plan Administrator may, in its
absolute discretion and without any obligation to do so, permit Optionee to pay
the Exercise Price for the purchased Option Shares by delivering a full-
recourse promissory note payable to the Corporation. The terms of any such
promissory note (including the interest rate, the requirements for collateral
and the terms of repayment) shall be established by the Plan Administrator in
its sole discretion.
15. CONSTRUCTION. This Agreement and the option
evidenced hereby are made and granted pursuant to the Plan and are in all
respects limited by and subject to the terms of the Plan. All decisions of the
Plan Administrator with respect to any question or issue arising under the Plan
or this Agreement shall be conclusive and binding on all persons having an
interest in this option.
16. GOVERNING LAW. The interpretation, performance and
enforcement of this Agreement shall be governed by the laws of the State of
California without resort to that State's conflict-of-laws rules.
17. EXCESS SHARES. If the Option Shares covered by this
Agreement exceed, as of the Grant Date, the number of shares of Common Stock
which may without stockholder approval be issued under the Plan, then this
option shall be void with respect to those excess shares, unless stockholder
approval of an amendment sufficiently increasing the number of shares of Common
Stock issuable under the Plan is obtained in accordance with the provisions of
the Plan.
18. ADDITIONAL TERMS APPLICABLE TO AN INCENTIVE OPTION.
In the event this option is designated an Incentive Option in the Grant Notice,
the following terms and conditions shall also apply to the grant:
- This option shall cease to qualify for
favorable tax treatment as an Incentive Option if (and to the extent)
this option is exercised for one or
6.
<PAGE> 7
more Option Shares: (A) more than three (3) months after the date
Optionee ceases to be an Employee for any reason other than death or
Permanent Disability or (B) more than twelve (12) months after the
date Optionee ceases to be an Employee by reason of Permanent
Disability.
- No installment under this option shall
qualify for favorable tax treatment as an Incentive Option if (and to
the extent) the aggregate Fair Market Value (determined at the Grant
Date) of the Common Stock for which such installment first becomes
exercisable hereunder would, when added to the aggregate value
(determined as of the respective date or dates of grant) of the Common
Stock or other securities for which this option or any other Incentive
Options granted to Optionee prior to the Grant Date (whether under the
Plan or any other option plan of the Corporation or any Parent or
Subsidiary) first become exercisable during the same calendar year,
exceed One Hundred Thousand Dollars ($100,000) in the aggregate.
Should such One Hundred Thousand Dollar ($100,000) limitation be
exceeded in any calendar year, this option shall nevertheless become
exercisable for the excess shares in such calendar year as a
Non-Statutory Option.
- Should the exercisability of this option be
accelerated upon a Corporate Transaction, then this option shall
qualify for favorable tax treatment as an Incentive Option only to the
extent the aggregate Fair Market Value (determined at the Grant Date)
of the Common Stock for which this option first becomes exercisable in
the calendar year in which the Corporate Transaction occurs does not,
when added to the aggregate value (determined as of the respective
date or dates of grant) of the Common Stock or other securities for
which this option or one or more other Incentive Options granted to
Optionee prior to the Grant Date (whether under the Plan or any other
option plan of the Corporation or any Parent or Subsidiary) first
become exercisable during the same calendar year, exceed One Hundred
Thousand Dollars ($100,000) in the aggregate. Should the applicable
One Hundred Thousand Dollar ($100,000) limitation be exceeded in the
calendar year of such Corporate Transaction, the option may
nevertheless be exercised for the excess shares in such calendar year
as a Non-Statutory Option.
- Should Optionee hold, in addition to this
option, one or more other options to purchase Common Stock which
become exercisable for the first time in the same calendar year as
this option, then the foregoing limitations on the exercisability of
such options as Incentive Options shall be applied on the basis of the
order in which such options are granted.
18. LEAVE OF ABSENCE. The following provisions shall
apply upon the Optionee's commencement of an authorized leave of absence:
(a) The exercise schedule in effect under the
Grant Notice shall be frozen as of the first day of the authorized
leave, and this option shall not
7.
<PAGE> 8
become exercisable for any additional installments of the Option
Shares during the period Optionee remains on such leave.
(b) Should Optionee resume active Employee status
within sixty (60) days after the start date of the authorized leave,
Optionee shall, for purposes of the exercise schedule set forth in the
Grant Notice, receive Service credit for the entire period of such
leave. If Optionee does not resume active Employee status within such
sixty (60)-day period, then no Service credit shall be given for the
period of such leave.
(c) If the option is designated as an Incentive
Option in the Grant Notice, then the following additional provision
shall apply:
- If the leave of absence continues
for more than three (3) months, then this option shall
automatically convert to a Non-Statutory Option under the
Federal tax laws at the end of such three (3)-month period,
unless the Optionee's reemployment rights are guaranteed by
statute or by written agreement. Following any such
conversion of the option, all subsequent exercises of such
option, whether effected before or after Optionee's return to
active Employee status, shall result in an immediate taxable
event, and the Corporation shall be required to collect from
Optionee the Federal, state and local income and employment
withholding taxes applicable to such exercise.
(d) In no event shall this option become
exercisable for any additional Option Shares or otherwise remain
outstanding if Optionee does not resume Employee status prior to the
Expiration Date of the option term.
8.
<PAGE> 9
EXHIBIT I
NOTICE OF EXERCISE
I hereby notify TouchStone Software Corporation (the
"Corporation") that I elect to purchase ___________ shares of the Corporation's
Common Stock (the "Purchased Shares") at the option exercise price of $ _____
per share (the "Exercise Price") pursuant to that certain option (the "Option")
granted to me under the Corporation's 1997 Stock Incentive Plan on __________,
199__.
Concurrently with the delivery of this Exercise Notice to the
Corporation, I shall hereby pay to the Corporation the Exercise Price for the
Purchased Shares in accordance with the provisions of my agreement with the
Corporation (or other documents) evidencing the Option and shall deliver
whatever additional documents may be required by such agreement as a condition
for exercise. Alternatively, I may utilize the special broker-dealer sale and
remittance procedure specified in my agreement to effect payment of the
Exercise Price.
_______________________, 199__
Date
_____________________________
Optionee
Address: ____________________
_____________________________
Print name in exact manner
it is to appear on the
stock certificate: _____________________________
Address to which certificate
is to be sent, if different
from address above: _____________________________
_____________________________
Social Security Number: _____________________________
Employee Number: _____________________________
<PAGE> 10
APPENDIX
The following definitions shall be in effect under the
Agreement:
A. AGREEMENT shall mean this Stock Option Agreement.
B. BOARD shall mean the Corporation's Board of Directors.
C. CHANGE IN CONTROL shall mean a change in ownership or control
of the Corporation effected through either of the following transactions:
(a) the acquisition, directly or indirectly by
any person or related group of persons (other than the Corporation or
a person that directly or indirectly controls, is controlled by, or is
under common control with, the Corporation), of beneficial ownership
(within the meaning of Rule 13d-3 of the 1934 Act) of securities
possessing more than thirty-five percent (35%) of the total combined
voting power of the Corporation's outstanding securities pursuant to a
tender or exchange offer made directly to the Corporation's
shareholders which the Board does not recommend such shareholders to
accept, or
(b) a change in the composition of the Board over
a period of thirty-six (36) consecutive months or less such that a
majority of the Board members ceases, by reason of one or more
contested elections for Board membership, to be comprised of
individuals who either (A) have been Board members continuously since
the beginning of such period or (B) have been elected or nominated for
election as Board members during such period by at least a majority of
the Board members described in clause (A) who were still in office at
the time the Board approved such election or nomination.
D. CODE shall mean the Internal Revenue Code of 1986, as amended.
E. COMMON STOCK shall mean the Corporation's common stock.
F. CORPORATE TRANSACTION shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities
possessing more than fifty percent (50%) of the total combined voting
power of the Corporation's outstanding securities are transferred to a
person or persons different from the persons holding those securities
immediately prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation
or dissolution of the Corporation.
G. CORPORATION shall mean TouchStone Software Corporation, a
Delaware corporation.
A-1.
<PAGE> 11
H. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
I. EXERCISE DATE shall mean the date on which the option shall
have been exercised in accordance with Paragraph 9 of the Agreement.
J. EXERCISE PRICE shall mean the exercise price per share as
specified in the Grant Notice.
K. EXPIRATION DATE shall mean the date on which the option
expires as specified in the Grant Notice.
L. FAIR MARKET VALUE per share of Common Stock on any relevant
date shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the
Nasdaq National Market, then the Fair Market Value shall be the
closing selling price per share of Common Stock on the date in
question, as the price is reported by the National Association of
Securities Dealers on the Nasdaq National Market or any successor
system. If there is no closing selling price for the Common Stock on
the date in question, then the Fair Market Value shall be determined
by reference to the most recent bid price as reported on the Nasdaq
National Market or any successor system.
(ii) If the Common Stock is at the time listed on any
Stock Exchange, then the Fair Market Value shall be the closing
selling price per share of Common Stock on the date in question on the
Stock Exchange determined by the Plan Administrator to be the primary
market for the Common Stock, as such price is officially quoted in the
composite tape of transactions on such exchange. If there is no
closing selling price for the Common Stock on the date in question,
then the Fair Market Value shall be the closing selling price on the
last preceding date for which such quotation exists.
M. GRANT DATE shall mean the date of grant of the option as
specified in the Grant Notice.
N. GRANT NOTICE shall mean the Notice of Grant of Stock Option
accompanying the Agreement, pursuant to which Optionee has been informed of the
basic terms of the option evidenced hereby.
O. INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code Section 422.
P. INVOLUNTARY TERMINATION shall mean the termination of the
Service of any individual which occurs by reason of:
A-2.
<PAGE> 12
(a) such individual's involuntary dismissal or
discharge by the Corporation for reasons other than Misconduct, or
(b) such individual's voluntary resignation
following (A) a change in his or her position with the Corporation
which materially reduces his or her level of responsibility, (B) a
reduction in his or her level of compensation (including base salary,
fringe benefits and target bonuses under any corporate-performance
based bonus or incentive programs) by more than fifteen percent (15%)
or (C) a relocation of such individual's place of employment by more
than fifty (50) miles, provided and only if such change, reduction or
relocation is effected without the individual's consent.
Q. MISCONDUCT shall mean the commission of any act of fraud,
embezzlement or dishonesty by Optionee, any unauthorized use or disclosure by
Optionee of confidential information or trade secrets of the Corporation (or
any Parent or Subsidiary), or any other intentional misconduct by Optionee
adversely affecting the business or affairs of the Corporation (or any Parent
or Subsidiary) in a material manner. The foregoing definition shall not be
deemed to be inclusive of all the acts or omissions which the Corporation (or
any Parent or Subsidiary) may consider as grounds for the dismissal or
discharge of Optionee or any other individual in the Service of the Corporation
(or any Parent or Subsidiary).
R. NON-STATUTORY OPTION shall mean an option not intended to
satisfy the requirements of Code Section 422.
S. NOTICE OF EXERCISE shall mean the notice of exercise in the
form attached hereto as Exhibit I.
T. OPTION SHARES shall mean the number of shares of Common Stock
subject to the option as specified in the Grant Notice.
U. OPTIONEE shall mean the person to whom the option is granted
as specified in the Grant Notice.
V. PARENT shall mean any corporation (other than the Corporation)
in an unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the
time of the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
W. PERMANENT DISABILITY shall mean the inability of Optionee to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which is expected to result in death
or has lasted or can be expected to last for a continuous period of twelve (12)
months or more.
X. PLAN shall mean the Corporation's 1997 Stock Incentive Plan.
A-3.
<PAGE> 13
Y. PLAN ADMINISTRATOR shall mean either the Board or a committee
of the Board acting in its administrative capacity under the Plan.
Z. SERVICE shall mean the Optionee's performance of services for
the Corporation (or any Parent or Subsidiary) in the capacity of an Employee, a
non-employee member of the board of directors or a consultant or independent
advisor.
AA. STOCK EXCHANGE shall mean the American Stock Exchange or the
New York Stock Exchange.
AB. SUBSIDIARY shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations beginning with the
Corporation, provided each corporation (other than the last corporation) in the
unbroken chain owns, at the time of the determination, stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
A-4.
<PAGE> 1
EXHIBIT 99.6
TOUCHSTONE SOFTWARE CORPORATION
AUTOMATIC STOCK OPTION AGREEMENT
RECITALS
A. The Corporation has implemented an automatic option grant
program under the Corporation's 1997 Stock Incentive Plan pursuant to which
eligible non-employee members of the Board will automatically receive special
option grants at designated intervals over their period of Board service in
order to provide such individuals with a meaningful incentive to continue to
serve as a member of the Board.
B. Optionee is an eligible non-employee Board member, and this
Agreement is executed pursuant to, and is intended to carry out the purposes
of, the Plan in connection with the automatic grant of a stock option to
purchase shares of the Corporation's Common Stock under the Plan.
C. The granted option is intended to be a non-statutory option
which does not meet the requirements of Section 422 of the Internal Revenue
Code.
D. All capitalized terms in this Agreement, to the extent not
otherwise defined in the Agreement, shall have the meaning assigned to them in
the attached Appendix.
NOW, THEREFORE, it is hereby agreed as follows:
1. GRANT OF OPTION. The Corporation hereby grants to
Optionee, as of the Grant Date, a Non-Statutory Option to purchase up to the
number of Option Shares specified in the Grant Notice. The Option Shares shall
be purchasable from time to time during the option term specified in Paragraph
2 at the Exercise Price.
2. OPTION TERM. This option shall have a maximum term
of ten (10) years measured from the Grant Date and shall accordingly expire at
the close of business on the Expiration Date, unless sooner terminated in
accordance with Paragraph 5, 6 or 7.
3. LIMITED TRANSFERABILITY. This option may, in
connection with the Optionee's estate plan, be assigned in whole or in part
during Optionee's lifetime to one or more members of the Optionee's immediate
family or to a trust established for the exclusive benefit of one or more such
family members. The assigned portion shall be exercisable only by the person
or persons who acquire a proprietary interest in the option pursuant to such
assignment. The terms applicable to the assigned portion shall be the same as
those in effect for this option immediately prior to such assignment and shall
be set forth in such documents issued to the assignee as the Corporation may
deem appropriate. Should the Optionee die while holding this option, then this
<PAGE> 2
option shall be transferred in accordance with Optionee's will or the laws of
descent and distribution.
4. EXERCISABILITY/VESTING.
(a) This option shall be immediately exercisable
for any or all of the Option Shares, whether or not the Option Shares are
vested in accordance with the Vesting Schedule set forth in the Grant Notice,
and shall remain so exercisable until the Expiration Date or the sooner
termination of the option term under Paragraph 5, 6 or 7.
(b) Optionee shall, in accordance with the
Vesting Schedule set forth in the Grant Notice, vest in the Option Shares in a
series of installments over his or her period of Board service. Vesting in the
Option Shares may be accelerated pursuant to the provisions of Paragraph 5, 6
or 7. In no event, however, shall any additional Option Shares vest following
Optionee's cessation of service as a Board member.
5. CESSATION OF BOARD SERVICE. Should Optionee's
service as a Board member cease while this option remains outstanding, then the
option term specified in Paragraph 2 shall terminate (and this option shall
cease to be outstanding) prior to the Expiration Date in accordance with the
following provisions:
(i) Should Optionee cease to serve as a
Board member for any reason (other than death or Permanent Disability)
while holding this option, then the period for exercising this option
shall be reduced to a twelve (12)-month period commencing with the
date of such cessation of Board service, but in no event shall this
option be exercisable at any time after the Expiration Date. During
such limited period of exercisability, this option may not be
exercised in the aggregate for more than the number of Option Shares
(if any) in which Optionee is vested on the date of his or her
cessation of Board service. Upon the earlier of (i) the expiration of
such twelve (12)- month period or (ii) the specified Expiration Date,
the option shall terminate and cease to be exercisable with respect to
any vested Option Shares for which the option has not been exercised.
(ii) Should Optionee die during the
twelve (12)-month period following his or her cessation of Board
service, then the personal representative of Optionee's estate or the
person or persons to whom the option is transferred pursuant to
Optionee's will or in accordance with the laws of descent and
distribution shall have the right to exercise this option for any or
all of the Option Shares in which Optionee is vested at the time of
Optionee's cessation of Board service (less any Option Shares
purchased by Optionee after such cessation of Board service but prior
to death). Such right of exercise shall terminate, and this option
shall accordingly cease to be exercisable for such vested Option
Shares, upon the earlier of (i) the expiration of the twelve
(12)-month period measured from the date of Optionee's cessation of
Board service or (ii) the specified Expiration Date of the option
term.
2.
<PAGE> 3
(iii) Should Optionee cease service as a
Board member by reason of death or Permanent Disability, then all
Option Shares at the time subject to this option but not otherwise
vested shall immediately vest in full so that Optionee (or the
personal representative of Optionee's estate or the person or persons
to whom the option is transferred upon Optionee's death) shall have
the right to exercise this option for any or all of the Option Shares
as fully- vested shares of Common Stock at any time prior to the
earlier of (i) the expiration of the twelve (12)-month period measured
from the date of Optionee's cessation of Board service or (ii) the
specified Expiration Date.
(iv) Upon Optionee's cessation of Board
service for any reason other than death or Permanent Disability, this
option shall immediately terminate and cease to be outstanding with
respect to any and all Option Shares in which Optionee is not
otherwise at that time vested in accordance with the normal Vesting
Schedule set forth in the Grant Notice or the special vesting
acceleration provisions of Paragraph 6 or 7 below.
6. CORPORATE TRANSACTION.
(a) In the event of a Corporate Transaction, all
Option Shares at the time subject to this option but not otherwise vested shall
automatically vest so that this option shall, immediately prior to the
specified effective date for the Corporate Transaction, become fully
exercisable for all of the Option Shares at the time subject to this option and
may be exercised for all or any portion of such shares as fully-vested shares
of Common Stock. Immediately following the consummation of the Corporate
Transaction, this option shall terminate and cease to be outstanding, except to
the extent assumed by the successor corporation or its parent company.
(b) If this option is assumed in connection with
a Corporate Transaction, then this option shall be appropriately adjusted,
immediately after such Corporate Transaction, to apply to the number and class
of securities which would have been issuable to Optionee in consummation of
such Corporate Transaction had the option been exercised immediately prior to
such Corporate Transaction, and appropriate adjustments shall also be made to
the Exercise Price, provided the aggregate Exercise Price shall remain the
same.
7. CHANGE IN CONTROL/HOSTILE TAKE-OVER.
(a) All Option Shares subject to this option at
the time of a Change in Control but not otherwise vested shall automatically
vest so that this option shall, immediately prior to the effective date of such
Change in Control, become fully exercisable for all of the Option Shares at the
time subject to this option and may be exercised for all or any portion of such
shares as fully-vested shares of Common Stock. This option shall remain
exercisable for such fully-vested Option Shares until the earliest to occur of
(i) the specified Expiration Date, (ii) the sooner termination of this option
in accordance with Paragraph 5 or 6 or (iii) the surrender of this option under
Paragraph 7(b).
3.
<PAGE> 4
(b) Optionee shall have an unconditional right
(exercisable during the thirty (30)-day period immediately following the
consummation of a Hostile Take-Over) to surrender this option to the
Corporation in exchange for a cash distribution from the Corporation in an
amount equal to the excess of (i) the Take-Over Price of the Option Shares at
the time subject to the surrendered option (whether or not those Option Shares
are otherwise at the time vested) over (ii) the aggregate Exercise Price
payable for such shares. This Paragraph 7(b) limited stock appreciation right
shall in all events terminate upon the expiration or sooner termination of the
option term and may not be assigned or transferred by Optionee.
(c) To exercise the Paragraph 7(b) limited stock
appreciation right, Optionee must, during the applicable thirty (30)-day
exercise period, provide the Corporation with written notice of the option
surrender in which there is specified the number of Option Shares as to which
the option is being surrendered. Such notice must be accompanied by the return
of Optionee's copy of this Agreement, together with any written amendments to
such Agreement. The cash distribution shall be paid to Optionee within five
(5) business days following such delivery date. Such option surrender and cash
distribution has been pre-approved by the Corporation's stockholders in
connection with their approval of the Plan, and no additional approval of the
Plan Administrator or the Board shall be required at the time of the actual
option surrender and cash distribution. Upon receipt of such cash
distribution, this option shall be cancelled with respect to the shares subject
to the surrendered option (or the surrendered portion), and Optionee shall
cease to have any further right to acquire those Option Shares under this
Agreement. The option shall, however, remain outstanding for the balance of
the Option Shares (if any) in accordance with the terms and provisions of this
Agreement, and the Corporation shall accordingly issue a new stock option
agreement (substantially in the same form as this Agreement) for those
remaining Option Shares.
8. ADJUSTMENT IN OPTION SHARES. Should any change be
made to the Common Stock by reason of any stock split, stock dividend,
recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding Common Stock as a class without the Corporation's
receipt of consideration, appropriate adjustments shall be made to (i) the
number and/or class of securities subject to this option and (ii) the Exercise
Price in order to reflect such change and thereby preclude a dilution or
enlargement of benefits hereunder; provided, however, that the aggregate
Exercise Price shall remain the same.
9. STOCKHOLDER RIGHTS. The holder of this option shall
not have any stockholder rights with respect to the Option Shares until such
person shall have exercised the option, paid the Exercise Price and become a
holder of record of the purchased shares.
10. MANNER OF EXERCISING OPTION.
(a) In order to exercise this option for all or
any part of the Option Shares for which the option is at the time exercisable,
Optionee or, in the case of exercise after Optionee's death, Optionee's
executor, administrator, heir or legatee, as the case may be, must take the
following actions:
4.
<PAGE> 5
(i) To the extent the option is
exercised for vested Option Shares, the Secretary of the Corporation
shall be provided with written notice of the option exercise (the
"Exercise Notice") in substantially the form of Exhibit I attached
hereto, in which there is specified the number of vested Option Shares
to be purchased under the exercised option. To the extent that the
option is exercised for one or more unvested Option Shares, Optionee
(or other person exercising the option) shall deliver to the Secretary
of the Corporation a Purchase Agreement for those unvested Option
Shares.
(ii) The Exercise Price for the
purchased shares shall be paid in one or more of the following
alternative forms:
- cash or check made payable to
the Corporation's order; or
- shares of Common Stock held by
Optionee (or any other person or persons exercising the
option) for the requisite period necessary to avoid a charge
to the Corporation's earnings for financial reporting purposes
and valued at Fair Market Value on the Exercise Date; or
- to the extent the option is
exercised for vested Option Shares, through a special sale and
remittance procedure pursuant to which Optionee shall provide
irrevocable written instructions (A) to a
Corporation-designated brokerage firm to effect the immediate
sale of the vested shares purchased under the option and remit
to the Corporation, out of the sale proceeds available on the
settlement date, sufficient funds to cover the aggregate
Exercise Price payable for those shares plus the applicable
Federal, state and local income taxes required to be withheld
by the Corporation by reason of such exercise and (B) to the
Corporation to deliver the certificates for the purchased
shares directly to such brokerage firm in order to complete
the sale.
(iii) Appropriate documentation
evidencing the right to exercise this option shall be furnished the
Corporation if the person or persons exercising the option is other
than Optionee.
(iv) Appropriate arrangement must
be made with the Corporation for the satisfaction of all Federal,
state and local income tax withholding requirements applicable to the
option exercise.
(b) Except to the extent the sale and remittance
procedure specified above is utilized in connection with the exercise of the
option for vested Option Shares, payment
5.
<PAGE> 6
of the Exercise Price for the purchased shares must accompany the Exercise
Notice or Purchase Agreement delivered to the Corporation in connection with
the option exercise.
(c) As soon as practical after the Exercise Date,
the Corporation shall issue to or on behalf of Optionee (or any other person or
persons exercising this option) a certificate or certificates representing the
purchased Option Shares. To the extent any such Option Shares are unvested,
the certificates for those Option Shares shall be endorsed with an appropriate
legend evidencing the Corporation's repurchase rights and may be held in escrow
with the Corporation until such shares vest.
(d) In no event may this option be exercised for
fractional shares.
11. NO IMPAIRMENT OF RIGHTS. This Agreement shall not in
any way affect the right of the Corporation to adjust, reclassify, reorganize
or otherwise make changes in its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets. In addition, nothing in this Agreement shall in any way be
construed or interpreted so as to affect adversely or otherwise impair the
right of the Corporation or the stockholders to remove Optionee from the Board
at any time in accordance with the provisions of applicable law.
12. COMPLIANCE WITH LAWS AND REGULATIONS.
(a) The exercise of this option and the issuance
of the Option Shares upon such exercise shall be subject to compliance by the
Corporation and Optionee with all applicable requirements of law relating
thereto and with all applicable regulations of any stock exchange (or the
Nasdaq National Market, if applicable) on which the Common Stock may be listed
for trading at the time of such exercise and issuance.
(b) The inability of the Corporation to obtain
approval from any regulatory body having authority deemed by the Corporation to
be necessary to the lawful issuance and sale of any Common Stock pursuant to
this option shall relieve the Corporation of any liability with respect to the
non-issuance or sale of the Common Stock as to which such approval shall not
have been obtained. However, the Corporation shall use its best efforts to
obtain all such applicable approvals.
13. SUCCESSORS AND ASSIGNS. Except to the extent
otherwise provided in Paragraph 3 or 6, the provisions of this Agreement shall
inure to the benefit of, and be binding upon, the Corporation and its
successors and assigns and Optionee, Optionee's assigns and the legal
representatives, heirs and legatees of Optionee's estate.
14. CONSTRUCTION/GOVERNING LAW. This Agreement and the
option evidenced hereby are made and granted pursuant to the automatic option
grant program in effect under the Plan and are in all respects limited by and
subject to the express terms and provisions of that
6.
<PAGE> 7
program. The interpretation, performance, and enforcement of this Agreement
shall be governed by the laws of the State of California without resort to that
State's conflict-of-laws rules.
15. NOTICES. Any notice required to be given or
delivered to the Corporation under the terms of this Agreement shall be in
writing and addressed to the Corporation at its principal corporate offices.
Any notice required to be given or delivered to Optionee shall be in writing
and addressed to Optionee at the address indicated below Optionee's signature
line on the Grant Notice. All notices shall be deemed effective upon personal
delivery or upon deposit in the U.S. mail, postage prepaid and properly
addressed to the party to be notified.
7.
<PAGE> 8
EXHIBIT I
NOTICE OF EXERCISE
I hereby notify TouchStone Software Corporation (the
"Corporation") that I elect to purchase __________ shares of the Corporation's
Common Stock (the "Purchased Shares") at the option exercise price of
$___________ per share (the "Exercise Price") pursuant to that certain option
(the "Option") granted to me pursuant to the automatic option grant program
under the Corporation's 1997 Stock Incentive Plan on ____________________,
199___.
Concurrently with the delivery of this Exercise Notice to the
Secretary of the Corporation, I shall hereby pay to the Corporation the
Exercise Price for the Purchased Shares in accordance with the provisions of my
agreement with the Corporation evidencing the Option and shall deliver whatever
additional documents may be required by such agreement as a condition for
exercise. Alternatively, I may utilize the special broker/dealer sale and
remittance procedure specified in my agreement to effect payment of the
Exercise Price for any Purchased Shares in which I am vested at the time of
exercise.
_______________________, 199___
Date
_____________________________
Optionee
Address: ____________________
_____________________________
Print name in exact manner
it is to appear on the
stock certificate: _____________________________
Address to which certificate
is to be sent, if different
from address above: _____________________________
_____________________________
Social Security Number: _____________________________
<PAGE> 9
APPENDIX
The following definitions shall be in effect under the Agreement:
A. AGREEMENT shall mean this Automatic Stock Option Agreement.
B. BOARD shall mean the Corporation's Board of Directors.
C. CHANGE IN CONTROL shall mean a change in ownership or control
of the Corporation effected through either of the following transactions:
(i) the acquisition, directly or indirectly, by
any person or related group of persons (other than the Corporation or
a person that directly or indirectly controls, is controlled by, or is
under common control with, the Corporation) of beneficial ownership
(within the meaning of Rule 13d-3 of the 1934 Act) of securities
possessing more than thirty-five percent (35%) of the total combined
voting power of the Corporation's outstanding securities pursuant to a
tender or exchange offer made directly to the Corporation's
stockholders which the Board does not recommend such stockholders to
accept, or
(ii) a change in the composition of the Board over
a period of thirty-six (36) consecutive months or less such that a
majority of the Board members ceases, by reason of one or more
contested elections for Board membership, to be comprised of
individuals who either (A) have been Board members continuously since
the beginning of such period or (B) have been elected or nominated for
election as Board members during such period by at least a majority of
the Board members described in clause (A) who were still in office at
the time the Board approved such election or nomination.
D. CODE shall mean the Internal Revenue Code of 1986, as amended.
E. COMMON STOCK shall mean the Corporation's common stock.
F. CORPORATE TRANSACTION shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities
possessing more than fifty percent (50%) of the total combined voting
power of the Corporation's outstanding securities are transferred to a
person or persons different from the persons holding those securities
immediately prior to such transaction, or
A-1.
<PAGE> 10
(ii) the sale, transfer or other
disposition of all or substantially all of the Corporation's assets in
complete liquidation or dissolution of the Corporation.
G. CORPORATION shall mean TouchStone Software Corporation, a
Delaware corporation.
H. EXERCISE DATE shall mean the date on which the option shall
have been exercised in accordance with Paragraph 10 of the Agreement.
I. EXERCISE PRICE shall mean the exercise price payable per share
as specified in the Grant Notice.
J. EXPIRATION DATE shall mean the date on which the option term
expires as specified in the Grant Notice.
K. FAIR MARKET VALUE per share of Common Stock on any relevant
date shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on
the Nasdaq National Market, then the Fair Market Value shall be the
closing selling price per share of Common Stock on the date in
question, as the price is reported by the National Association of
Securities Dealers on the Nasdaq National Market or any successor
system. If there is no closing selling price for the Common Stock on
the date in question, then the Fair Market Value shall be determined
by reference to the most recent bid price as reported on the Nasdaq
National Market or any successor system.
(ii) If the Common Stock is at the time listed on
any Stock Exchange, then the Fair Market Value shall be the closing
selling price per share of Common Stock on the date in question on the
Stock Exchange determined by the Plan Administrator to be the primary
market for the Common Stock, as such price is officially quoted in the
composite tape of transactions on such exchange. If there is no
closing selling price for the Common Stock on the date in question,
then the Fair Market Value shall be the closing selling price on the
last preceding date for which such quotation exists.
L. GRANT DATE shall mean the date of grant of the option as
specified in the Grant Notice.
M. GRANT NOTICE shall mean the Notice of Grant of Automatic Stock
Option accompanying this Agreement, pursuant to which Optionee has been
informed of the basic terms of the option evidenced hereby.
A-2.
<PAGE> 11
N. HOSTILE TAKE-OVER shall mean the acquisition, directly or
indirectly, by any person or related group of persons (other than the
Corporation or a person that directly or indirectly controls, is controlled by,
or is under common control with, the Corporation) of beneficial ownership
(within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing
more than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities pursuant to a tender or exchange offer
made directly to the Corporation's stockholders which the Board does not
recommend such stockholders to accept.
O. 1934 ACT shall mean the Securities Exchange Act of 1934, as
amended.
P. NON-STATUTORY OPTION shall mean an option not intended to
satisfy the requirements of Code Section 422.
Q. OPTION SHARES shall mean the number of shares of Common Stock
subject to the option.
R. OPTIONEE shall mean the person to whom the option is granted
as specified in the Grant Notice.
S. PERMANENT DISABILITY shall mean the inability of Optionee to
perform his or her usual duties as a Board member by reason of any medically
determinable physical or mental impairment which is expected to result in death
or has lasted or can be expected to last for a continuous period of twelve (12)
months or more.
T. PLAN shall mean the Corporation's 1997 Stock Incentive Plan.
U. PURCHASE AGREEMENT shall mean the stock purchase agreement (in
form and substance satisfactory to the Corporation) which must be executed at
the time the option is exercised for unvested Option Shares and which will
accordingly (i) grant the Corporation the right to repurchase, at the Exercise
Price, any and all of those Option Shares in which Optionee is not otherwise
vested at the time of his or her cessation of service as a Board member and
(ii) preclude the sale, transfer or other disposition of any of the Option
Shares purchased under such agreement while those Option Shares remain subject
to the repurchase right.
V. STOCK EXCHANGE shall mean the American Stock Exchange or the
New York Stock Exchange.
W. TAKE-OVER PRICE shall mean the greater of (i) the Fair Market
Value per share of Common Stock on the date the option is surrendered to the
Corporation in connection with a Hostile Take-Over or (ii) the highest reported
price per share of Common Stock paid by the tender offeror in effecting the
Hostile Take-Over.
X. VESTING SCHEDULE shall mean the vesting schedule specified in
the Grant Notice, pursuant to which Optionee will vest in the Option Shares in
one or more installments over his
A-3.
<PAGE> 12
or her period of Board service, subject to acceleration in accordance with the
provisions of the Agreement.
A-4.
<PAGE> 1
EXHIBIT 99.7
ADDENDUM
TO
STOCK OPTION AGREEMENT
The following provisions are hereby incorporated into, and are
hereby made a part of, that certain Stock Option Agreement dated 2~ (the
"Option Agreement") by and between TouchStone Software Corporation (the
"Corporation") and 1~ ("Optionee") evidencing the stock option (the "Option")
granted on such date to Optionee under the terms of the Corporation's 1997
Stock Incentive Plan, and such provisions shall be effective immediately. All
capitalized terms in this Addendum, to the extent not otherwise defined herein,
shall have the meanings assigned to them in the Option Agreement.
LIMITED STOCK APPRECIATION RIGHT
1. Optionee is hereby granted a limited stock
appreciation right exercisable upon the following terms and conditions:
- Optionee shall have the unconditional right
(exercisable at any time during the thirty (30)-day period immediately
following a Hostile Take-Over) to surrender the Option to the Corporation, to
the extent the Option is at the time exercisable for vested shares of Common
Stock. In return for the surrendered Option, Optionee shall receive a cash
distribution from the Corporation in an amount equal to the excess of (A) the
Take-Over Price of the shares of Common Stock which are at the time vested
under the surrendered Option (or surrendered portion) over (B) the aggregate
Exercise Price payable for such shares.
- To exercise this limited stock appreciation right,
Optionee must, during the applicable thirty (30)-day exercise period, provide
the Corporation with written notice of the option surrender in which there is
specified the number of Option Shares as to which the Option is being
surrendered. Such notice must be accompanied by the return of Optionee's copy
of the Option Agreement, together with any written amendments to such
Agreement. The cash distribution shall be paid to Optionee within five (5)
business days following such delivery date, and neither the approval of the
Plan Administrator nor the consent of the Board shall be required in connection
with such option surrender and cash distribution. Upon receipt of such cash
distribution, the Option shall be cancelled with respect to the Option Shares
for which the Option has been surrendered, and Optionee shall cease to have any
further right to acquire those Option Shares under the Option Agreement. The
Option shall, however, remain outstanding and exercisable for the balance of
the Option Shares (if any) in accordance with the terms of the Option
Agreement, and the Corporation shall issue a new stock option agreement
(substantially in the same form of the surrendered Option Agreement) for those
remaining Option Shares.
- In no event may this limited stock appreciation right
be exercised when there is not a positive spread between the Fair Market Value
of the Option Shares and the
<PAGE> 2
aggregate Exercise Price payable for such shares. This limited stock
appreciation right shall in all events terminate upon the expiration or sooner
termination of the option term and may not be assigned or transferred by
Optionee.
2. For purposes of this Addendum, the following
definitions shall be in effect:
- A HOSTILE TAKE-OVER shall be deemed to occur
in the event any person or related group of persons (other than the
Corporation or a person that directly or indirectly controls, is
controlled by, or is under common control with, the Corporation)
directly or indirectly acquires beneficial ownership (within the
meaning of Rule 13d-3 of the Securities Exchange Act of 1934, as
amended) of securities possessing more than thirty-five percent (35%)
of the total combined voting power of the Corporation's outstanding
securities pursuant to a tender or exchange offer made directly to the
Corporation's stockholders which the Board does not recommend such
stockholders to accept.
- The TAKE-OVER PRICE per share shall be deemed
to be equal to the greater of (A) the Fair Market Value per Option
Share on the option surrender date or (B) the highest reported price
per share of Common Stock paid by the tender offeror in effecting the
Hostile Take-Over. However, if the surrendered Option is designated
as an Incentive Option in the Grant Notice, then the Take-Over Price
shall not exceed the clause (A) price per share.
IN WITNESS WHEREOF, TouchStone Software Corporation has caused
this Addendum to be executed by its duly-authorized officer, and Optionee has
executed this Addendum, all as of the Effective Date specified below.
TOUCHSTONE SOFTWARE CORPORATION
By:
------------------------------
Title:
---------------------------
-----------------------------------
, OPTIONEE
EFFECTIVE DATE: , 199
------------ ---
2.
