As filed with the Securities and Exchange Commission on February 22, 1996
Registration No. 33-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-8
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
INTEGRATED SYSTEMS, INC.
(Exact name of Registrant as specified in its charter)
CALIFORNIA 94-2658153
(State of incorporation) (I.R.S. employer identification no.)
3260 Jay Street
Santa Clara, California 95054-3309
(Address of principal executive offices)
OPTIONS GRANTED UNDER THE DOCTOR DESIGN, INC. 1991 STOCK OPTION PLAN
AND ASSUMED BY INTEGRATED SYSTEMS, INC.
(Full title of the Plan)
Narendra K. Gupta
Integrated Systems, Inc.
3260 Jay Street
Santa Clara, California 95054-3309
(408) 980-1500
(Name, address and telephone number of agent for service)
COPIES TO:
Katherine T. Tallman, Esq.
Fenwick & West
Two Palo Alto Square
Palo Alto, California 94306
CALCULATION OF REGISTRATION FEE
----------------------------------------
Proposed Proposed
Maximum Maximum
Title of Amount Offering Aggregate Amount of
Securities to to be Price Per Offering Registration
be Registered Registered Share Price Fee
- --------------------------------------------------------------------------------
Common Stock 131,862(1) $1.9279(2) $254,217(2) $100.00(3)
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(1) Shares subject to options assumed as of January 26, 1996.
(2) Weighted average per share exercise price of outstanding options assumed
as of January 26, 1996.
(3) Represents the statutory minimum filing fee, which is greater than 1/29 of
1% of $254,217.
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ITEM 3. INCORPORATION OF DOCUMENTS BY REFERENCE.
The following documents filed with the Securities and Exchange
Commission (the "Commission") are incorporated herein by reference:
(a) The Registrant's latest annual report filed pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), or the latest prospectus filed
pursuant to Rule 424(b) under the Securities Act of 1933, as
amended (the "1933 Act"), that contains audited financial
statements for the Registrant's latest fiscal year for which
such statements have been filed.
(b) All other reports filed pursuant to Section 13(a) or 15(d) of
the Exchange Act since the end of the fiscal year covered by
the annual report or the prospectus referred to in (a) above.
(c) The description of the Registrant's Common Stock contained in
the Registrant's registration statement filed with the
Commission under Section 12 of the Exchange Act, including any
amendment or report filed for the purpose of updating such
description.
All documents subsequently filed by the Registrant pursuant to Sections
13(a), 13(c), 14 and 15(d) of the Exchange Act, prior to the filing of a
post-effective amendment which indicates that all securities registered hereby
have been sold or which deregisters all securities then remaining unsold, shall
be deemed to be incorporated by reference herein and to be a part hereof from
the date of the filing of such documents.
ITEM 4. DESCRIPTION OF SECURITIES.
Not Applicable.
ITEM 5. INTERESTS OF NAMED EXPERTS AND COUNSEL.
Not applicable as to Interests of Named Experts and Counsel.
The consolidated balance sheets as of February 28, 1994 and 1995 and
the consolidated statements of operations, shareholders' equity and cash flows
for each of the three years in the period ended February 28, 1995, and the
related financial statement schedules incorporated by reference in this
Registration Statement and appearing in Registrant's Annual Report on Form 10-K
filed May 25, 1995 (File Number 0-18268) have been incorporated herein in
reliance upon the report of Coopers & Lybrand L.L.P.,.independent accountants,
given upon the authority of that firm as experts in accounting and auditing.
ITEM 6. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The provisions of Section 317 of the California Corporations Code,
Article VI of the Registrant's Articles of Incorporation and Article VI of the
Registrant's By-laws provide for indemnification for expenses, judgments, fines,
settlements and other amounts actually and reasonably incurred in connection
with any proceeding arising by reason of the fact that any person is or was a
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director or officer of the Registrant. The Registrant's directors have also
entered into Indemnity Agreements with the Registrant that give such directors
contractual assurances regarding the scope of the indemnification and liability
limitations set forth in the Registrant's Articles of Incorporation and By-laws.
The indemnification may be sufficiently broad to permit indemnification of the
Registrant's officers and directors for liabilities arising under the 1933 Act.
In addition, Article V of the Registrant's Articles of Incorporation provides
that the liability of the Registrant's directors shall be eliminated to the
fullest extent permissible under California law.
The Registrant maintains a director and officer liability insurance
policy with a per annum policy limit of $1,000,000, all claims and coverages,
and a deductible of $100,000 per annum.
ITEM 7. EXEMPTION FROM REGISTRATION CLAIMED.
Not applicable.
ITEM 8. EXHIBITS.
The following exhibits are filed herewith:
4.01 Registrant's Amended and Restated Articles of Incorporation.
4.02 Registrant's Bylaws, as amended to date (incorporated by
reference to Exhibit 3.03 to the Registrant's Form 10-Q for
the quarter ended August 31, 1993).
4.03 Doctor Design, Inc. 1991 Stock Option Plan, as amended to
date.
5.01 Opinion of Fenwick & West.
23.01 Consent of Fenwick & West (included in Exhibit 5.01).
23.02 Consent of Coopers & Lybrand L.L.P.
24.01 Power of Attorney (see page 4).
ITEM 9. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the 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 the
Registration Statement. Notwithstanding the foregoing, any increase or decrease
in volume of securities offered (if the total dollar value of securities offered
would not exceed that which was registered) and any deviation from the low or
high end of the estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than a 20 percent
change in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
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(iii) To include any material information with respect
to the plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in the Registration
Statement; provided, however, that paragraphs (1)(i) and (1)(ii) above do not
apply if the information required to be included in a post-effective amendment
by those paragraphs is contained in periodic reports filed with or furnished to
the Commission by the Registrant pursuant to Section 13 or Section 15(d) of the
Exchange Act that are incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered that remain unsold at the
termination of the offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the 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.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions discussed in Item 6 hereof, or otherwise,
the Registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered hereby, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
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POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each individual and corporation
whose signature appears below constitutes and appoints Narendra K. Gupta and
Steven Sipowicz, and each of them, his, her or its true and lawful
attorneys-in-fact and agents with full power of substitution, for him, her or it
and in his, her or its name, place and stead, in any and all capacities, to sign
any and all amendments (including post-effective amendments) to this
Registration Statement on Form S-8, and to file the same with all exhibits
thereto and all documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he, she or it might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or any of
them, or his, her, its or their substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, 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 Santa Clara, State of California, on this 22nd day of
February, 1996.
INTEGRATED SYSTEMS, INC.
By: /s/ Naren Gupta
----------------------------
Narendra K. Gupta, Secretary
<TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
PRINCIPAL EXECUTIVE OFFICERS:
/s/ Naren Gupta Secretary and Chairman of the Board of February 22, 1996
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Narendra K. Gupta Directors
/s/ David P. St. Charles President, Chief Executive Officer and February 22, 1996
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David P. St. Charles Director
PRINCIPAL FINANCIAL OFFICER AND PRINCIPAL ACCOUNTING OFFICER:
/s/ Steven Sipowicz Vice President, Finance and February 22, 1996
- ------------------------------------
Steven Sipowicz Chief Financial Officer
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ADDITIONAL DIRECTORS:
Director February 22, 1996
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John C. Bolger
/s/ Vinita Gupta Director February 22, 1996
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Vinita Gupta
Director February 22, 1996
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Thomas Kailath
/s/ Richard C. Murphy Director February 22, 1996
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Richard C. Murphy
</TABLE>
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Exhibit Index
Exhibit Description
4.01 Registrant's Amended and Restated Articles of Incorporation.
4.02 Registrant's Bylaws, as amended to date (incorporated by
reference to Exhibit 3.03 to the Registrant's Form 10-Q for
the quarter ended August 31, 1993).
4.03 Doctor Design, Inc. 1991 Stock Option Plan, as amended to date.
5.01 Opinion of Fenwick & West.
23.01 Consent of Fenwick & West (included in Exhibit 5.01).
23.02 Consent of Coopers & Lybrand L.L.P.
24.01 Power of Attorney (see page 4).
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EXHIBIT 4.01
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
INTEGRATED SYSTEMS, INC.
Narendra K. Gupta certifies that:
1. He is the president and secretary of Integrated Systems, Inc.,
a California corporation.
2. The Articles of Incorporation of this corporation are amended
and restated to read as follows:
I. The name of this Corporation is Integrated Systems, Inc.
II. The purpose of this Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California other than the banking business, the trust company business or
the practice of a profession permitted to be incorporated by the California
Corporations Code.
III. 1. AUTHORIZATION OF SHARES. This Corporation is authorized to
issue two classes of stock to be designated, respectively, Common Stock and
Preferred Stock, both without par value. The total number of shares of all
classes which the Corporation is authorized to issue is 30,000,000 shares. The
number of shares of Common Stock authorized is 25,000,000 shares and the number
of shares of Preferred Stock authorized is 5,000,000 shares of which 672,322
shares are presently designated as Series A Convertible Preferred Stock
("Convertible Preferred Stock"). The rights, preferences, privileges and
restrictions granted to and imposed upon the Common Stock and Convertible
Preferred Stock are set forth below in Article IV.
2. DESIGNATION OF UNISSUED SERIES OF PREFERRED STOCK. The
Preferred Stock may be divided into such number of series as the board of
directors may determine. The board of directors of the Corporation may
designate, fix the number of shares of and determine or alter the rights,
preferences, privileges and restrictions granted to or imposed upon, any series
of Preferred Stock as to which there are no outstanding shares or rights to
acquire shares (including the Convertible Preferred Stock which becomes so as a
result of conversion of all outstanding shares of such series pursuant to
Article IV, Section 5 hereof). As to any series of Preferred Stock, the number
of shares of which is authorized to be fixed by the board of directors, the
board may, within any limits and restrictions stated in the resolutions of the
board originally fixing the number of shares constituting such series, increase
or decrease (but not below the number of shares of such series then outstanding
and as to which rights to acquire shares of such series are then outstanding)
the number of shares of any such series subsequent to the issue of shares of
that series.
IV. The relative rights, preferences, privileges and restrictions
granted to or imposed upon the Common Stock and the Convertible Preferred Stock
are as follows:
1. DIVIDENDS.
(a) No dividends shall be declared and set aside for any
shares of the Convertible Preferred Stock except in the event that the Board of
Directors of the Corporation shall declare a dividend payable upon the then
outstanding shares of the Common Stock, in which event the holders of each share
of Convertible Preferred Stock shall be entitled to be paid a dividend in an
amount per share of Convertible Preferred Stock equal to the amount of the
dividend declared payable upon each outstanding share of Common Stock,
multiplied by the largest number of whole shares of Common Stock into which each
share of Convertible Preferred Stock held by each holder thereof could be
converted pursuant to the provisions of Section 5 hereof, such number determined
as of the record date for the determination of holders of Common Stock entitled
to receive such dividend.
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(b) Each holder of shares of Convertible Preferred Stock
shall be deemed to have consented (i) for purposes of Sections 502, 503, and 506
of the California Corporations Code, and (ii) with respect to the rights of each
such holder of Convertible Preferred Stock to receive distributions pursuant to
Sections 1, 2 and/or 4(h) herein, to distributions made by the Corporation in
connection with the repurchase of shares of Common Stock from employees,
officers, directors, consultants, or other persons performing services for the
Corporation or any subsidiary upon termination of their employment or services
pursuant to agreements providing for the right of repurchase.
2. LIQUIDATION, DISSOLUTION OR WINDING UP.
(a) In the event of any liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, holders of each
share of Convertible Preferred Stock then outstanding shall be entitled to be
paid first out of the assets of the Corporation available for distribution to
the holders of the Corporation's capital stock of all classes, whether such
assets are capital, surplus, or earnings, before any sums shall be paid or any
assets distributed among the holders of shares of Common Stock, in an amount
equal to the greater of (i) $1.4874 per share of Convertible Preferred Stock
plus all dividends thereon, if any, payable pursuant to Section 1, up to and
including the date of full payment, or (ii) the amount per share of Convertible
Preferred Stock that would have been payable had each such share, plus all
dividends thereon, if any, payable pursuant to Section 1, been converted to
Common Stock immediately prior to such event of liquidation, dissolution or
winding up pursuant to the provisions of Section 4 hereof, up to and including
the date of full payment, all such sums shall be paid before any sums shall be
paid or any assets distributed among the holders of the shares of Common Stock.
If the assets of the Corporation shall be insufficient to permit the payment in
full to the holders of the Convertible Preferred Stock of the amount thus
distributable, then the entire assets of the Corporation available for such
distribution shall be distributed ratably among the holders of the Convertible
Preferred Stock. After such payment shall have been made in full to the holders
of the Convertible Preferred Stock or funds necessary for such payment shall
have been set aside by the Corporation in trust for the account of holders of
the Convertible Preferred Stock so as to be available for such payment, holders
of the Convertible Preferred Stock shall be entitled to no further participation
in the distribution of the assets of the Corporation and shall have no further
rights of conversion, and the remaining assets available for distribution shall
be distributed ratably among the holders of the Common Stock.
(b) A consolidation or merger of the Corporation in which
the holders of all capital stock of the Corporation outstanding immediately
prior to such a consolidation or merger hold less than two-thirds of the capital
stock of the surviving entity to such consolidation or merger, or a sale of all
or substantially all of the assets of the Corporation, shall be regarded as a
liquidation, dissolution or winding up of the affairs of the Corporation within
the meaning of this Section 2; provided, however, that each holder of
Convertible Preferred Stock shall have the right to elect the benefits of the
provisions of Section 4(h) hereof in lieu of receiving payment in liquidation,
dissolution or winding up of the Corporation pursuant to this Section 2;
provided, further, that in the event a consolidation or merger of the
Corporation or sale of all or substantially all of the assets of the Corporation
in which the aggregate consideration payable to the holders of capital stock of
the Corporation is less than or equal to $2,850,000, is to be regarded as
liquidation, dissolution or winding up pursuant to the terms hereof, then
notwithstanding Section 2(a) hereof, the holders of Convertible Preferred Stock
shall be entitled to receive an amount equal to $1.4874 per share multiplied by
a fraction the numerator of which is the total amount of consideration payable
to the holders of capital stock of the Corporation and the denominator of which
is $2,850,000.
(c) Whenever the distribution provided for herein shall
be paid in property other than cash, the value of such distribution shall be the
fair market value of such property as determined in good faith by the Board of
Directors of the Corporation.
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3. VOTING POWER. Each holder of Convertible Preferred Stock
shall be entitled to that number of votes equal to the largest number of whole
shares of Common Stock into which such holder's shares of Convertible Preferred
Stock could be converted, pursuant to the provisions of Section 4 hereof (taking
into account all dividends, if any, payable pursuant to Section 1 with respect
to such Convertible Preferred Stock), at the record date for the determination
of shareholders entitled to vote on such matter or, if no such record date is
established, at the date such vote is taken or any written consent of
shareholders is solicited. Except as otherwise expressly provided in Section 6
herein or as required by law, (i) the holders of shares of Convertible Preferred
Stock and Common Stock shall be entitled to vote together as a class on all
matters and (ii) the holders of shares of Convertible Preferred Stock shall have
no rights to vote as a separate class on any corporate matters.
4. CONVERSION RIGHTS. The holders of the Convertible
Preferred Stock shall have the following conversion rights:
(a) General.
(i) Subject to and in compliance with the
provisions of this Section 4, any shares of the Convertible Preferred Stock and,
at the option of the holder, all dividends thereon, if any, payable pursuant to
Section 1, up to and including the date of conversion, may, at the option of the
holder, be converted at any time or from time to time into fully-paid and
nonassessable shares (calculated as to each conversion rounded upwards to the
largest whole share) of Common Stock. The number of shares of Common Stock to
which a holder of Convertible Preferred Stock shall be entitled upon conversion
shall be the product obtained by multiplying the "Applicable Conversion Rate"
(determined as provided in Section 4(c)) by the number of shares of Convertible
Preferred Stock being converted.
(ii) Notwithstanding the foregoing, the holders
of Convertible Preferred Stock shall have the right to convert all or any
portion of any dividends payable pursuant to Section 1 hereunder, into shares of
Common Stock at any time upon written notice to the Corporation. The number of
shares of Common Stock issuable upon any such conversion shall be the number of
shares equal to the amount of the unpaid dividends being so converted dividend
by the "Applicable Conversion Value" then in effect, (determined as provided in
Section 4(d) hereof.) Upon receipt of any such notice, the Corporation shall
promptly issue a certificate in the name of the holder of Convertible Preferred
Stock for the number of shares of Common Stock so issuable, together with a
check representing cash in lieu of any fractional share.
(b) Conversion Following Underwritten Public Offering.
(i) All outstanding shares of Convertible Preferred
Stock and, at the option of the holder, all dividends thereon, if any, payable
pursuant to Section 1, up to and including the date of conversion, shall, at the
option of the Corporation and upon ten (10) days written notice to the holders
thereof be converted automatically into the number of shares of Common Stock to
which a holder of Convertible Preferred Stock shall be entitled upon conversion
pursuant to Section 4(a) hereof without any further action by such holders and
whether or not the certificates representing such shares are surrendered to the
Corporation or its transfer agent for the Common Stock, such conversion to be
effective only upon the closing of an underwritten public offering pursuant to
an effective registration statement under the Securities Act of 1933, as
amended, covering the offer and sale of Common Stock for the account of the
Corporation in which the Common Stock is sold at a price to the public of not
less than $5.00 per share (such per share amounts to be equitably adjusted
whenever there shall occur a stock split, combination, reclassification or other
similar event affecting the Common Stock) and in which the aggregate net
proceeds to the Corporation exceed $7,000,000.
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(ii) Upon the occurrence of the conversion
specified in Section 4(b)(i), the holders of such Convertible Preferred Stock
shall surrender the certificates representing such shares at the office of the
Corporation or of its transfer agent for the Common Stock. Thereupon, there
shall be issued and delivered to such holder a certificate or certificates for
the number of shares of Common Stock into which the shares of the Convertible
Preferred Stock surrendered were convertible on the date on which such
conversion occurred. The Corporation shall not be obligated to issue
certificates evidencing the shares of Common Stock issuable upon such conversion
unless certificates evidencing such shares of the Convertible Preferred Stock
being converted are either delivered to the Corporation or any such transfer
agent or the holder notifies the Corporation or any such transfer agent that
such certificates have been lost, stolen or destroyed and executes an agreement
satisfactory to the Corporation to indemnify the Corporation from any loss
incurred by it in connection therewith.
(c) Applicable Conversion Rate. The conversion rate
in effect at any time (the "Applicable Conversion Rate") shall be the quotient
obtained by dividing the sum of (i) $1.4874 and (ii) at the election of the
holder, an amount equal to the amount of unpaid dividends, if any, per share of
Convertible Preferred Stock, payable pursuant to Section 1, by the "Applicable
Conversion Value," calculated as, provided in Section 4(d).
(d) Applicable Conversion Value. The " Applicable
Conversion Value" in effect from time to time, except as adjusted in accordance
with Section 4(e) hereof, shall be $1.4874.
(e) Adjustments to Applicable Conversion Value. Upon
the happening of an "Extraordinary Common Stock Event" (as hereinafter defined),
the Applicable Conversion Value shall, simultaneously with the happening of such
Extraordinary Common Stock Event, be adjusted by multiplying the then effective
Applicable Conversion Value by a fraction, the numerator of which shall be the
number of shares of Common Stock outstanding immediately prior to such
Extraordinary Common Stock Event and the denominator of which shall be the
number of shares of Common Stock outstanding immediately after such
Extraordinary Common Stock Event, and the product so obtained shall thereafter
be the Applicable Conversion Value. The Applicable Conversion Value, as so
adjusted, shall be readjusted in the same manner upon the happening of any
successive Extraordinary Common Stock Events.
"Extraordinary Common Stock Event" shall mean (i) the
issue of additional shares of the Common Stock as a dividend or other
distribution on outstanding Common Stock, (ii) subdivision of outstanding shares
of Common Stock into a greater number of shares of the Common Stock, or (iii)
combination of outstanding shares of the Common Stock into a smaller number of
shares of the Common Stock.
(f) Dividends. In the event the Corporation shall make
or issue, or fix a record date for the determination of holders of Common Stock
entitled to receive a dividend or other distribution payable in securities of
the Corporation other than shares of Common Stock or in assets (excluding cash
dividends or distributions), and the holders of Convertible Preferred Stock have
not received such dividend or distribution, then and in each such event
provision shall be made so that the holders of Convertible Preferred Stock shall
receive upon conversion thereof in addition to the number of shares of Common
Stock receivable thereupon, the number of securities or such other assets of the
Corporation that they would have received had their Convertible Preferred Stock
been converted into Common Stock on the date of such event and had they
thereafter, during the period from the date of such event to and including the
Conversion Date (as that term is hereafter defined in Section 4(j)), retained
such securities or such other assets receivable by them as aforesaid during such
period, giving application to all adjustments called for during such period
under this Section 4 with respect to the rights of the holders of the
Convertible Preferred Stock.
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(g) Recapitalization or Reclassification. If the Common
Stock issuable upon the conversion of the Convertible Preferred Stock shall be
changed into the same or different number of shares of any class or classes of
stock of the Corporation, whether by recapitalization, reclassification or
otherwise (other than a subdivision or combination of shares or stock dividend
provided for elsewhere in this Section 4, or a reorganization, merger,
consolidation or sale of assets provided for elsewhere in this Section 4), then
and in each such event the holder of each share of Convertible Preferred Stock
shall have the right thereafter to convert such share into the kind and amount
of shares of stock and other securities and property receivable upon such
reorganization, reclassification or other change by holders of the number of
shares of Common Stock into which such share of Convertible Preferred Stock
might have been converted (taking into account all dividends payable pursuant to
Section 1 with respect to such Convertible Preferred Stock) immediately prior to
such reorganization, reclassification or change, all subject to further
adjustment as provided herein.
(h) Capital Reorganization, Merger or Sale of Assets.
If at any time or from time to time there shall be a capital reorganization of
the Common Stock (other than a subdivision, combination, reclassification or
exchange of shares provided for elsewhere in this Section 4) or a merger or
consolidation of the Corporation with or into another corporation, or the sale
of all or substantially all of the Corporation's properties and assets to any
other person, then, as a part of such reorganization, merger, consolidation or
sale, provision shall be made so that the holders of the Convertible Preferred
Stock shall thereafter be entitled to receive upon conversion of the Convertible
Preferred Stock, the number of shares of stock or other securities or property
of the Corporation, or of the successor corporation resulting from such merger,
consolidation or sale, to which a holder of Common Stock issuable upon
conversion would have been entitled on such capital reorganization, merger,
consolidation, or sale. In any such case, appropriate adjustment shall be made
in the application of the provisions of this Section 4 with respect to the
rights of the holders of the Convertible Preferred Stock after the
reorganization, merger, consolidation or sale to the end that the provisions of
this Section 4 (including adjustment of the Applicable Conversion Value then in
effect and the number of shares purchasable upon conversion of the Convertible
Preferred Stock) shall be applicable after that event in as nearly equivalent a
manner as may be practicable.
Each holder of Convertible Preferred Stock upon the
occurrence of a capital reorganization, merger or consolidation of the
Corporation, or the sale of all or substantially all its assets and properties
as such events are more fully set forth in the first paragraph of this Section
4(h), shall have the option of electing treatment of his Convertible Preferred
Stock under either this Section 4(h) or Section 2(b) hereof, notice of which
election shall be submitted in writing to the Corporation at its principal
offices no later than five (5) days before the effective date of such event.
(i) Accountant's Certificate as to Adjustments. In each
case of an adjustment or readjustment of the Applicable Conversion Rate, the
Corporation will furnish each holder of Convertible Preferred Stock with a
certificate, prepared by independent public accountants of recognized standing
showing such adjustment or readjustment, and stating in detail the facts upon
which such adjustment or readjustment is based.
(j) Exercise of Conversion Privilege. To exercise
his conversion privilege, a holder of Convertible Preferred Stock shall
surrender the certificate or certificates representing the shares being
converted to the Corporation at its principal office, and shall have written
notice to the Corporation at that office that such holder elects to convert such
share. Such notice shall also state the name or names (with the address or
addresses) in which the certificate or certificates for shares of Common Stock
issuable upon such conversion shall be issued. The date on which the certificate
or certificates for shares of Convertible Preferred Stock surrendered for
conversion (accompanied by proper assignment thereof) is
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received by the Corporation, shall be the "Conversion Date." As promptly as
practicable after theConversion Date, the Corporation shall issue and shall
deliver to the holder of the shares of Convertible Preferred Stock being
converted, or on its written order, such certificate or certificates as it may
request for the number of whole shares of Common Stock issuable upon the
conversion of such shares of Convertible Preferred Stock in accordance with the
provisions of this Section 4, cash in the amounts of all dividends payable
pursuant to Section 1 on such shares of Convertible Preferred Stock, up to and
including the Conversion Date, and cash, as provided in Section 4(k), in respect
of any fraction of a share of Common Stock issuable upon such conversion. Such
conversion shall be deemed to have been effected immediately prior to the close
of business on this Conversion Date, and at such time the rights of the holder
as holder of the converted shares of Convertible Preferred Stock shall cease and
the person or persons in whose name or names any certificate or certificates for
shares of Common Stock shall be issuable upon such conversion shall be deemed to
have become the holder or holders of record of the shares of Common Stock
represented thereby.
(k) Cash in Lieu of Fractional Shares. No fractional
shares of Common Stock or scrip representing fractional shares shall be issued
upon the conversion of shares of Convertible Preferred Stock. Instead of any
fractional shares of Common Stock which would otherwise be issuable upon
conversion of Convertible Preferred Stock, the Corporation shall pay to the
holder of the shares of Convertible Preferred Stock which were converted, a cash
adjustment in respect of such fractional shares in an amount as determined in a
reasonable manner prescribed by the Board of Directors at the close of business
on the Conversion Date. The determination as to whether or not any fractional
shares are issuable shall be based upon the total number of shares of
Convertible Preferred Stock being converted at any one time by any holder
thereof, not upon each share of Convertible Preferred Stock being converted.
(l) Partial Conversion. In the event some but not all
of the shares of Convertible Preferred Stock represented by a certificate or
certificates surrendered by a holder are converted, the Corporation shall
execute and deliver to or on the order of the holder, at the expense of the
Corporation, a new certificate representing the number of shares of Convertible
Preferred Stock which were not converted.
(m) Reservation of Common Stock. The Corporation shall
at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the Convertible Preferred Stock, such number of its shares of
Common stock as shall from time to time be sufficient to effect the conversion
of all outstanding shares of the Convertible Preferred Stock, and if at any time
the number of authorized but unissued shares of Common Stock shall not be
sufficient to effect the conversion of all then outstanding shares of the
Convertible Preferred Stock, the Corporation shall take such corporate action as
be necessary to increase its authorized but unissued shares of Common Stock to
such number of shares as shall be sufficient for purpose.
5. CANCELLATION OF PREFERRED STOCK ON CONVERSION. All
certificates of the Convertible Preferred Stock surrendered for conversion shall
be appropriately canceled on the books of the Corporation, and the shares so
converted represented by such certificates shall be restored to the status of
authorized but unissued Preferred Stock of the Corporation, undesignated as to
series and subject to designation by the Board of Directors of the Corporation
pursuant to Article III, Section 2 hereof.
6. RESTRICTIONS AND LIMITATIONS.
(a) Except as expressly provided herein or as required
by law, so long as any shares of the Convertible Preferred Stock remain
outstanding, the Corporation shall not, and shall not permit any subsidiary
(which shall mean corporation or trust of which the Corporation directly or
indirectly owns at the time all of the outstanding shares of every class of such
corporation or trust other than directors' qualifying shares) without the vote
or written consent by the holders of at least 51% of the then outstanding shares
of the Convertible Preferred Stock (each share of Convertible Preferred Stock to
be entitled to one vote in each instance) to:
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<PAGE>
(i)Redeem, purchase or otherwise acquire for value
(or pay into or set aside for a sinking fund for such purpose), any share or
shares of Convertible Preferred Stock; or
(ii) Authorize or issue, or obligate itself to
authorize or issue, any other equity security senior to or on a parity with the
Convertible Preferred Stock as to liquidation preference, conversion rights,
voting rights or otherwise.
(b) The Corporation shall not amend its Articles of
Incorporation without the approval by vote or written consent by the holders of
at least 51% of the then outstanding shares of Convertible Preferred Stock, each
share of Convertible Preferred Stock to be entitled to one vote in each
instance, if such amendment would change any of the rights, preferences,
privileges of or limitations provided for herein for the benefit of any shares
of Convertible Preferred Stock. Without limiting the generality of the last
preceding sentence, the Corporation will not amend its Articles of Incorporation
without the approval by the holders of at least 51% of the then outstanding
shares of Convertible Preferred Stock if such amendment would:
(i) Change the relative seniority rights of the
holders of Convertible Preferred Stock as to the payment of dividends in
relation to the holders of any other capital stock of the Corporation; or
(ii) Reduce the amount payable to the holders
of Convertible Preferred Stock upon the voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, or change the relative seniority
of the liquidation preferences of the holders of Convertible Preferred Stock to
the rights upon liquidation of the holders of any other capital stock of the
Corporation or change the dividend rights of the holders of Convertible
Preferred Stock; or
(iii) Cancel or modify the conversion rights of
the holders of Convertible Preferred Stock provided for in Section 4 herein.
7. NO DILUTION OR IMPAIRMENT. The Corporation will not, by
amendment of its Articles of Incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of the Convertible Preferred Stock set forth
herein, but will at all times in good faith assist in the carrying out of all
terms and in the taking of all action that may be necessary or appropriate in
order to protect the rights of the holders of the Convertible Preferred Stock
against dilution or other impairment. Without limiting the generality of the
foregoing, the Corporation (a) will take all action that may be necessary or
appropriate in order that the Corporation may validly and legally issue fully
paid and nonassessable shares of stock on the conversion of Convertible
Preferred Stock from time to time outstanding; and (b) will not transfer all or
substantially all of its properties and assets to any other person (corporate or
otherwise), or consolidate with or merge into any other person or permit any
such person to consolidate with or merge into the Corporation (if the
Corporation is not the surviving person), unless such other person shall
expressly agree in writing to be bound by all the terms of the Convertible
Preferred Stock set forth herein.
8. NOTICES OF RECORD DATE. In the event of
(a) any taking by the Corporation of a record of the
holders of any class of securities for the purpose of determining the holders
thereof who are entitled to receive any dividend or other distribution, or any
right to subscribe for, purchase or otherwise acquire any shares of stock of any
class or any other securities or property, or to receive any other right, or
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<PAGE>
(b) any capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of the Corporation,
any merger, or consolidation of the Corporation, or any transfer of all or
substantially all of the assets of the Corporation to any other corporation, or
any other entity or person, or
(c) any voluntary or involuntary dissolution, liquidation
or winding up of the Corporation, then and in each such event the Corporation
shall mail or cause to be mailed to each holder of Convertible Preferred Stock a
notice specifying (i) the date on which any such record is to be taken for the
purpose of such dividend, distribution or right and a description of such
dividend, distribution or right, (ii) the date on which any such reorganization,
reclassification, recapitalization, transfer, consolidation, merger,
dissolution, liquidation or winding up is expected to become effective, (iii)
the time, if any, that is to be fixed, as to when the holders of record of
Common Stock (or other securities) shall be entitled to exchange their shares of
Common Stock (or other securities) for securities or other property deliverable
upon such reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding up. Such notice shall
be mailed at least 30 days prior to the date specified in such notice on which
such dividend or other distribution or right is to be distributed or any
reorganization, reclassification, recapitalization, transfer, consolidation,
merger, dissolution, liquidation or winding up is to be consummated.
V. The liability of the directors of the corporation for monetary
damages shall be eliminated to the fullest extent permissible under California
law.
VI. The corporation is authorized to provide indemnification of agents
(as defined in Section 317 of the California Corporations Code) through bylaw
provisions, by agreement or otherwise, in excess of the indemnification
otherwise permitted by Section 317 of the California Corporations Code, subject
only to the limits on such excess indemnification set forth in Section 204 of
the California Corporations Code.
VII. This Corporation shall not have cumulative voting. This provision
shall become effective only when this Corporation becomes a listed corporation
within the meaning of Section 301.5 of the California Corporations Code.
3. The foregoing amendment and restatement of the Articles of
Incorporation has been duly approved by the Board of Directors of this
corporation.
4. The foregoing amendment and restatement of the Articles of
Incorporation has been duly approved by the required vote of the shareholders in
accordance with Sections 902 and 903 of the California Corporations Code. This
Corporation has two classes of shares of capital stock outstanding; and the
number of outstanding shares of Common Stock is 5,908,720 and the number of
outstanding shares of Preferred Stock is 672,322. The percentage vote required
was more than 50% of each class and of the outstanding shares. The number of
shares voting in favor of the amendment and restatement of the Articles of
Incorporation equaled or exceeded the vote required for each class of shares and
for the outstanding shares.
I further declare under penalty of perjury under the laws of the State
of California that I have read the foregoing Certificate and know the contents
thereof and that the matters set forth in this Certificate are true and correct
of my knowledge.
/s/ Naren K. Gupta
------------------------------------------
Date: January 23, 1990 Narendra K. Gupta, President and Secretary
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STATE OF CALIFORNIA
SECRETARY OF STATE
CORPORATE DIVISION
I, BILL JONES, Secretary of State of the State of California, hereby
certify:
That the annexed transcript has been compared with the corporate record
on file in this office, of which it purports to be a copy, and that same is
full, true and correct.
IN WITNESS WHEREOF, I
execute this certificate
and affix the Great Seal of
the State of California
this February 7, 1996
/s/ Bill Jones
--------------------------------
Secretary of State
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<PAGE>
AGREEMENT OF MERGER
OF ISI PURCHASING CORPORATION
AND
DR. DESIGN, INC.
This Agreement of Merger (this "Agreement") is entered into as of
January 26, 1996 by and between ISI Purchasing Corporation, a Delaware
corporation ("Newco") and a wholly-owned subsidiary of Integrated Systems, Inc.,
a California corporation ("Buyer"), and Dr. Design, Inc., a California
corporation (the "Company").
RECITALS
A. Buyer, Newco and Company have entered into an Agreement and Plan of
Reorganization, dated as of December 14, 1995 (the "Plan"), providing for
certain representations, warranties and agreements in connection with the
transactions contemplated hereby, in accordance with the General Corporation Law
of California (the "California Law"). All capitalized terms not herein defined
shall have the meaning ascribed to them in the Plan.
B. The Boards of Directors of Buyer, Newco and Company have determined
it to be advisable and in the respective best interests of Buyer, Newco and
Company and their respective shareholders that Newco be merged with and into
Company (the "Merger") so that Company will be the surviving corporation of the
Merger.
NOW, THEREFORE, Newco and Company hereby agree as follows:
1. THE MERGER
At the time of the filing of this Agreement (together with the
Officers' Certificates attached hereto) with the Secretary of State of the
States of California and Delaware (the "Effective Time"), Newco will be merged
with and into Company, and Company shall continue as the surviving corporation
(following the Merger, the Company is hereinafter sometimes referred to as the
"Surviving Corporation"), pursuant to the terms and conditions of this Agreement
and in accordance with applicable provisions of the laws of the States of
Delaware and California as follows:
1.1 ARTICLES OF INCORPORATION. The Articles of Incorporation of Company
immediately prior to the Effective Time, without amendment thereto, shall be the
Articles of Incorporation of the Surviving Corporation.
1.2 BYLAWS. The Bylaws of Company immediately prior to the Effective
Time, without amendment thereto, shall be the Bylaws of the Surviving
Corporation. The Bylaws of the Surviving Corporation thereafter may be amended
in accordance with their terms, the Articles of Incorporation of the Surviving
Corporation and as provided by the California Law.
1.3 CONVERSION OF SHARES. As of the Effective Time, by virtue of the
Merger and without any action on the part of any shareholder of Company, each of
the issued and outstanding shares of Company's Common Stock (the "Company
Shares") (other than any shares held by persons exercising dissenters' rights in
accordance with Chapter 13 of the California Law ("Dissenting Shares")) shall be
converted into the right to receive, subject to the provisions of Section 1.1.1
of the Plan, 0.148612 (the "Applicable Fraction") shares of fully paid and
nonassessable Buyer's Common Stock (the "Conversion Shares").
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<PAGE>
1.4 ASSUMPTION OF OPTIONS. At the Effective Time, each option to
purchase shares of Company Common Stock (the "Company Options") that is
outstanding immediately prior to the Effective Time will, by virtue of the
Merger and without further action on the part of any holder thereof, be assumed
by Buyer and become exercisable for the number of shares of Buyer's Common Stock
that equals the number of shares of Company Common Stock subject to such Company
Option multiplied by the Applicable Fraction. The exercise price per share of
Buyer Common Stock purchasable under each such option will be equal to the
exercise price of the Company Option divided by the Applicable Fraction. All
other terms of the Company Option will remain unchanged.
1.5 FRACTIONAL SHARES. No fraction of a Conversion Share will be issued
by virtue of the Merger, but in lieu thereof each holder of Company Shares who
would otherwise be entitled to a fraction of a Conversion Share (after
aggregating all fractional Conversion Shares to be received by such holder)
shall receive from Buyer an amount of cash (rounded to the nearest whole cent)
equal to the product of (i) the price of a share of Buyer's Common Stock
determined pursuant to Section 1.1.1 of the Plan, multiplied by (ii) the
fraction of a Conversion Share to which each such holder would otherwise be
entitled.
1.6 NO FURTHER TRANSFER. At the Effective Time, the stock transfer
books of the Company shall be closed and no transfer of Company Shares shall
thereafter be made.
1.7 ESCROW. Of the aggregate number of Conversion Shares issuable by
virtue of the Merger to a shareholder, Buyer shall deposit in escrow a number of
Conversion Shares equal to ten percent (10%) of the total number of Conversion
Shares issuable by virtue of the Merger to such shareholder (the "Escrowed
Shares"), pursuant to the terms of a separate Escrow Agreement. In addition, ten
percent (10%) of the shares of Buyer's Common Stock issued upon exercise of
assumed Company Options will be deposited into escrow.
1.8 DISSENTERS' RIGHTS. Holders of Dissenting Shares who have
complied with all requirements for perfecting the rights of dissenting
shareholders as set forth in Section 1300 et. seq. of the California Law shall
be entitled to their rights under the California Law.
1.9 CANCELLATION OF SHARES OF NEWCO. At the Effetive Time, all of the
previously issued and outstanding shares of Newco Common Stock that were issued
and outstanding immediately prior to the Effective Time shall be automatically
retired and cancelled.
2. SURRENDER OF CERTIFICATES
2.1 SURRENDER AND EXCHANGE OF OUTSTANDING CERTIFICATES. As soon as
practicable after the Effective Time, each holder of a certificate or
certificates representing Company Shares issued and outstanding immediately
prior to the Effective Time (other than Dissenting Shares) shall surrender such
certificate(s) to Buyer's transfer agent. Thereupon, each such holder shall be
entitled to receive in exchange therefor the number of shares of Buyer's Common
Stock represented by such certificate(s), less the Escrowed Shares. Buyer's
transfer agent shall issue to the Company's shareholders certificates for the
shares of Buyer's Common Stock issuable to the Company's shareholders in the
Merger as soon as practicable following such surrender. Each certificate which
immediately before the Effective Time evidenced Company Shares shall, from and
after the Effective Time until such certificate is surrendered to Buyer, or its
transfer agent, be deemed, for all corporate purposes, to evidence the right to
receive the consideration described above; provided, however, that until such
certificate is so surrendered by the holder thereof, no dividend or other
distribution payable to such holder after the Effective Time shall be paid in
respect of such certificates.
3. TERMINATION AND AMENDMENT
3.1 TERMINATION. Notwithstanding the approval of this Agreement by the
shareholders of Newco and Company, this Agreement may be terminated at any time
prior to the Effective Time by the mutual written agreement of Newco and
Company, and will terminate in the event the Plan is terminated in accordance
with its terms. In the event of the termination of this Agreement as provided
above, this Agreement will forthwith become void and there will be no liability
on the part of either Buyer, Newco and Company or their respective officers and
directors, except as otherwise provided in the Plan.
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<PAGE>
3.2 AMENDMENT. This Agreement may be amended by the parties
hereto at any time by execution of an instrument in writing signed on behalf of
each of the parties hereto.
4. MISCELLANEOUS
4.1 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement.
4.2 PLAN. The Plan and this Agreement are intended to be construed
together in order to effectuate their purposes.
4.3 ASSIGNMENT; BINDING UPON SUCCESSORS AND ASSIGNS. Neither party
hereto may assign any of its rights or obligations under this Agreement without
the prior written consent of the other party hereto. This Agreement will be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
4.4 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of California
(irrespective of its choice of law principles).
4.5 FURTHER ASSIGNMENTS. After the Effective Time, Company and its
officers and directors may execute and deliver such deeds, assignments and
assurances and do all other things necessary or desirable to vest, perfect or
confirm title to Newco's property or rights in Company and otherwise to carry
out the purposes of the Plan, in the name of Newco or otherwise.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date and year first above written.
DR. DESIGN, INC.
By: /s/ Laura Thompson By: /s/ Marco Thompson
------------------------- -------------------------
Laura Thompson, Secretary Marco Thompson, President
ISI PURCHASING CORPORATION
By: /s/ Narendra Gupta By: /s/ David St. Charles
------------------------- ----------------------------
Narendra Gupta, Secretary David St. Charles, President
SIGNATURE PAGE TO AGREEMENT OF MERGER
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<PAGE>
CERTIFICATE OF APPROVAL
OF
AGREEMENT OF MERGER
Sharon Pinto and Laura Thompson hereby certify that:
1. They are the Vice President and Secretary, respectively,
of DR. DESIGN, INC., a California corporation (the "Company").
2. The Agreement of Merger in the form attached was duly
approved by the Board of Directors of the Company.
3. The Company has three (3) authorized classes of
shares, designated as Class A Common Stock, Class B Common Stock and Preferred
Stock. There are no issued and outstanding shares of Class B Common Stock or
Preferred Stock of the Company entitled to vote on the Agreement of Merger. The
total number of issued and outstanding shares of the Class A Common Stock of the
Corporation entitled to vote on the Agreement of Merger was 2,555,720.
4. The percentage vote required for Common Stock was more
than 50% of the outstanding shares of the Common Stock.
5. The Agreement of Merger was approved by the vote of a
number of shares of Common Stock of the Company which equaled or exceeded the
vote required.
We further declare under penalty of perjury under the laws of
the State of California that the matters set forth in this Certificate are true
and correct of our own knowledge.
Executed at San Diego, California, this 25th day of January,
1996.
/s/ Sharon Pinto /s/ Laura Thompson
- ---------------------------- -------------------------
Sharon Pinto, Vice President Laura Thompson, Secretary
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<PAGE>
CERTIFICATE OF APPROVAL
OF
AGREEMENT OF MERGER
David St. Charles and Narendra Gupta hereby certify that:
1. They are the President and Secretary, respectively,
of ISI Purchasing Corporation, a Delaware corporation ("Newco").
2. The Agreement of Merger in the form attached was
duly approved by the Board of Directors of Newco.
3. Newco has one class of shares authorized, designated
as Common Stock. The total number of issued and outstanding shares of the Common
Stock of the Corporation entitled to vote on the Agreement of Merger was 1,000.
4. The percentage vote required for Common Stock was
more than 50% of the outstanding shares of the Common Stock.
5. The Agreement of Merger was approved by the vote of a
number of shares of Common Stock of Newco which equaled or exceeded the vote
required.
6. No vote of the shareholders of Integrated Systems,
Inc., the parent corporation of Newco and the corporation whose equity
securities are being issued in the merger, is required.
We further declare under penalty of perjury under the laws of
the State of California that the matters set forth in this Certificate are true
and correct of our own knowledge.
Executed at Santa Clara, California, this 25th day of January,
1996.
/s/ David St. Charles /s/ Narendra Gupta
- ---------------------------- --------------------------
David St. Charles, President Narendra Gupta, Secretary
-14-
EXHIBIT 4.03
DR. DESIGN, INC.
1991 STOCK OPTION PLAN
1. DESCRIPTION OF PLAN. This is the 1991 Stock Option Plan, dated
August 10, 1991 (the "Plan"), of Dr. Design, Inc., a California corporation (the
"Company"). Under this Plan, certain key employees, non-employee directors and
consultants with important business relationships with the Company, or any
present or future subsidiary of the Company, may be granted Options ("Options")
to purchase shares of the common stock of the Company ("Common Stock") . A
person who is granted an Option is referred to as an "Optionee". For purposes of
this Plan, the term "subsidiary" shall have the same meaning as "subsidiary
corporation" as such term is defined in Section 425(f) of the Internal Revenue
Code of 1986, as amended (the "Code"), where the Company is the "employer
corporation". It is intended that the Options under this Plan will either
qualify for treatment as incentive stock Options under Section 422A of the Code
and be designated "Qualified Stock Options" or not qualify for such treatment
and be designated "Non-Qualified Stock Options."
2. PURPOSE OF PLAN. The purpose of the Plan is to provide additional
incentives to certain key employees and other persons that will enable them to
purchase Common Stock of the Company and thereby share and directly benefit from
the Company's growth, development and financial success. In this way, the Plan
will allow the Company to attract and retain key employees and other persons and
encourage them to remain in the Company's service.
3. ADMINISTRATION. The Plan shall be administered by a committee (the
"Committee") to be composed of not less than 2 members of the Board of Directors
of the Company ("Board"), who are not eligible for selection as Optionees under
the Plan. Members of the Committee shall be appointed, both initially and as
vacancies occur, by the Board, to serve at the pleasure of the Board. The entire
Board may serve as the Committee, if by the terms of this Plan all Board members
are otherwise eligible to serve on the Committee. The Committee shall meet at
such times and places as it determines, but at least once a year after the
Company's fiscal year end. A majority of its members shall constitute a quorum,
and the decision of a majority of those present at any meeting at which a quorum
is present shall constitute the decision of the Committee. A memorandum signed
by all of its members shall constitute the decision of the Committee without the
necessity of holding an actual meeting.
The Committee is authorized and empowered to administer the Plan and,
subject to the Plan (i) to select the Optionees, to specify the number of shares
of Common Stock with respect to which Options are granted to each Optionee, to
specify the Option Price (as defined in Section 8) and the terms of the Options
and in general to grant Options; (ii) to specify whether the Options granted
will be for Class A - Voting or Class B - Non-voting Stock; (iii) to determine
the dates upon which Options shall be granted and the terms and conditions
thereof in a manner consistent with this Plan, which terms and conditions need
not be identical as to the various Options granted; (iv) to determine which
Options are to be Qualified Stock Options and Non-Qualified Stock Options; (v)
to interpret the Plan; (vi) to prescribe, amend and rescind rules relating to
the Plan; (vii) to determine the rights and obligations of Optionees under the
Plan; and (viii) to accelerate the Vesting Schedule and/or the time during which
an Option may be exercised, notwithstanding the provisions in the Option
Agreement (as defined in Section 7) stating the time during which it may be
exercised.
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<PAGE>
The above matters are not exclusive, and the Committee and/or the Board
shall have the authority to determine any other matters incident to the
administration of this Plan. The Board, and not the Committee, is authorized and
empowered to determine whether any shares of Common Stock subject to repurchase
by the Company or its nominees as provided in Section 16 will be actually
repurchased by the Company. The interpretation and construction by the Committee
of any provision of the Plan or of any Option granted under it shall be final.
No member of the Committee or the Board shall be liable for any action or
determination made in good faith with respect to this Plan or any Option granted
under this Plan.
4. SHARES SUBJECT TO THE PLAN. The aggregate amount of Common Stock
which may be purchased pursuant to Options granted under this Plan shall be One
Million (1,000,000) shares of the Company's authorized but unissued or
reacquired Common Stock, subject to adjustment as provided in Section 18 to
reflect all stock splits, stock dividends or similar capital changes. If any
Option shall expire or terminate for any reason without having been exercised in
full, and/or if the Company repurchases any shares of Common Stock as provided
herein, such unexercised shares and reacquired shares shall be available for
granting additional Options under the Plan.
5. ELIGIBILITY. The persons who shall be eligible to receive grants of
Qualified Stock Options under this Plan shall be the key employees of the
Company or any of its subsidiaries, and those directors of the Company who are
also key employees, but who are not members of the Committee. The persons who
shall be eligible to receive grants of Non-Qualified Stock Options under this
Plan shall be the key employees of the Company or any of its subsidiaries, any
director of the Company, whether or not he or she is an employee of the Company
(provided that he or she is not a member of the Committee), and consultants or
advisers with important business relationships with the Company (provided that
substantial bona fide services shall have been rendered to the Company by such
advisers or consultants and such services shall not have been in connection with
the offer and sale of securities in a capital raising transaction).
The Committee shall have the right in its sole discretion to determine
who is a "key employee" of the Company. The selection of Optionees and the
criteria used to select Optionees shall also be within the sole discretion of
the Committee. An Optionee who is granted in writing a leave of absence by the
Board shall be deemed to have remained in the employ of the Company during such
leave of absence for purposes of this Plan.
Notwithstanding the foregoing, members of the Committee shall be
ineligible for selection as participants in the Plan during their service on the
Committee. More than one Option may be granted to any one Optionee. However,
pursuant to Section 422A(d) of the Code, for Qualified Stock Options, no more
than $100,000 of market value Common Stock (determined at time of granting the
Option) plus a carryover amount, if applicable, can be granted to an Optionee in
any one calendar year. Any portion of an Option that exceeds such amount shall
be treated and deemed a Non-Qualified Stock Option.
6 . TIME OF GRANTING OPTIONS. The date of grant of an Option shall, for
all purposes, be the date when the Committee determines to grant an Option.
Notice of the determination shall be given to each Optionee to whom an Option is
granted within a reasonable time after the date of such grant.
7. OPTION AGREEMENT. Each Option granted under this Plan shall be
evidenced by a written stock Option agreement ("Option Agreement") executed by
the Company and the Optionee. Each Option Agreement shall, among other things,
(a) specify the number of shares of Common Stock granted to an Optionee and the
purchase price per share, (b) designate whether the Options will be for Class A
- - Voting or
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<PAGE>
Class B - Non-voting Common Stock, (c) contain each of the provisions and
agreements of this Plan specifically required to be contained therein, (d)
indicate whether such Option is to be a Qualified Stock Option or a
Non-Qualified Stock Option, and if a Qualified Stock Option shall contain terms
and conditions permitting such Option to qualify for treatment as an incentive
stock Option under Section 422A of the Code, (e) contain the agreement of the
Optionee to resell to the Company any Common Stock issued pursuant to the
exercise of Options granted under this Plan pursuant to the Company's repurchase
rights and/or rights of first refusal as provided in Sections 16 and 17 below,
(f) specify the Vesting Schedule and Vesting Start Date (as described in Section
9 below), and (g) contain such other terms and conditions as the Committee deems
desirable and which are not inconsistent with this Plan. The granting of an
Option or the execution of an Option Agreement shall not require the Optionee to
exercise such Option.
8. OPTION PRICE. Except as provided in Section 18 or Section 19, the
purchase price per share (the "Option Price") of Common Stock underlying each
Option shall be determined by the Committee, but shall not be less than 85% of
the fair market value of such shares on the date the Option is granted. With
respect to any Qualified Stock Option, the Option Price shall not be less than
100% of the fair market value of such shares on the date the Qualified Stock
Option is granted; provided, however, that if the Optionee is a 10-percent
shareholder of the Company (as defined in Section 422A(b) (6) of the Code) at
the time such Qualified Stock Option is granted, the Option Price shall not be
less than 110% of the fair market value. The fair market value shall be
determined in good faith by the Committee or the Board in its sole discretion.
9. VESTING REQUIREMENTS. There shall be a vesting schedule ("Vesting
Schedule") for all Options granted under this Plan. The Committee shall
determine, in its sole discretion, the Vesting Schedule that shall apply to each
Option granted under this Plan. The Vesting Schedule shall be based on a
specified time period, certain performance or milestone goals, or such other
criteria or factors selected by the Committee in its sole discretion.
The Vesting Schedules may differ among the Options granted under this
Plan; in other words, the Committee shall have the right, in its sole
discretion, to designate different Vesting Schedules for different Optionees,
and different Vesting Schedules for various Options granted to the same
Optionee. In addition, the Committee has the right, in its sole discretion, to
specify Vesting Schedules for certain Optionees consistent with or to
accommodate vesting commitments that have been previously made and authorized by
the Board subject to the adOption of this Plan, as embodied in the corporate
minutes and records of the Company.
The Vesting Schedule applied to each Option shall be set forth in the
Option Agreement. Each Option Agreement shall specify a Vesting Start Date,
which shall be determined by the Committee in its sole discretion. The Vesting
Start Date is the beginning date from which the Vesting Schedule shall be
calculated.
The Vesting Schedule is basically a time period or other criteria
during which Options and shares of Common Stock issued to Optionees shall vest.
An Optionee shall have the right to exercise all or any portion of an Option at
any time after it is granted. However, the Vesting Schedule shall determine the
manner in which the unexercised portion of an Option and/or shares of Common
Stock issued to an Optionee upon exercise of an Option shall vest.
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The basic purpose of the Vesting Schedule is to determine the rights of
an Optionee and the Company as to Options and/or issued shares of Common Stock
upon an Optionee's termination or cessation of work for the Company.
Specifically, upon an Optionee's termination or cessation of work for the
Company as described in Section 12 below and in the Option Agreement, the
Vesting Schedule shall apply as follows: any unexercised and unvested Options
shall lapse and be forfeited by the Optionee upon the termination date. As to
any vested Options, an Optionee shall have the right to exercise the remaining
unexercised portion of a vested Option during the applicable Window Period
(defined in Section 12 below). With respect to any issued and vested shares held
by an Optionee at the termination date, that Optionee cannot sell or otherwise
transfer the vested shares without first giving the Company the opportunity to
exercise its Right of First Refusal under Section 17 of this Plan. In addition,
as to any issued but unvested shares held by an Optionee at the termination
date, the Company shall have the right to repurchase the unvested shares from
the Optionee pursuant to Section 16 below.
For example, assume that an Option for 1,000 shares is granted on
October 1, 1991. The Committee determines that the Vesting Schedule for this
Option shall be as follows: the Option or shares will fully vest in four (4)
years from the Vesting Start Date. The Vesting Start Date is January 1, 1990,
the date the Optionee was hired by the Company. According to this Vesting
Schedule, no portion of an Option or shares issued under an Option shall vest
before the one (1) year anniversary of the Vesting Start Date ("Holding Period).
Upon the one (1) year anniversary of the Vesting Start Date (or expiration of
the Holding Period), twenty-five percent (25%) of the Option or shares shall be
deemed vested. Thereafter, the Option or shares shall vest at twenty-five
percent (25%) for every subsequent year. In addition, after the first year, a
pro rata portion of the annual twenty-five percent (25%) vesting shall be deemed
to vest each month.
Under the above example, on October 1, 1991, the date the Option was
granted, the Optionee may exercise all or any portion of the Option since an
Optionee has the right to purchase any shares under an Option at any time. An
Optionee's ability to exercise an Option is not conditioned on whether the
Option is vested or nonvested. Assume that Optionee purchases two hundred fifty
(250) shares under the Option in 1991, and is terminated by the Company on
December 31, 1992. On December 31, 1992, only fifty percent (50%) of the Option
or shares shall be deemed vested, since twenty-five percent (25%) vested as of
January 1, 1991 (the expiration of the Holding Period), and twenty-five percent
(25%) vested for the year 1991.
As a result, upon such termination, the two hundred fifty (250) shares
previously purchased and issued to Optionee are vested shares, subject to the
Company's Right of First Refusal in the event Optionee proposes to transfer or
sell such shares. Since fifty percent (50%) or five hundred (500) shares of the
Option are deemed vested as of the termination date, and two hundred fifty (250)
shares have already been issued, Optionee has the right during the sixty (60)
day Window Period specified in Section 12(b) of this Plan to purchase the
remaining two hundred fifty (250) vested shares. If Optionee does not purchase
the vested portion of the Option (250 shares) within the Window Period, then the
Option shall automatically terminate upon the expiration of the Window Period.
Using the same example above, assume that Optionee had purchased seven
hundred fifty (750) shares under the Option before he/she was terminated. Since
only fifty percent (50%) or five hundred (500) shares will be deemed vested as
of the termination date, five hundred (500) of the issued shares shall be vested
and two hundred fifty (250) of the issued shares shall be non-vested. In such
event, the Company has the right to repurchase the two hundred fifty (250)
unvested shares at the Option Price pursuant to Section 16 of this Plan, and the
other five hundred (500) vested shares may be transferred by the Optionee
subject to the Company's Right of First Refusal under Section 17 of this Plan.
Since there is no remaining unexercised portion of the Option that is deemed
vested as of the termination date, Optionee may not purchase any additional
shares during a Window Period or after termination.
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The above examples are only for informational purposes. The application
of each Option will depend upon the specific provisions of the Vesting Schedule
for each Option.
10. EXERCISE OF OPTIONS. Subject to all other provisions of this Plan,
each Option shall be exercisable for the full number of shares of Common Stock
specified in the grant and in the Option Agreement, or any part thereof, at any
time after the Option is granted. However, an Optionee shall not exercise any
Option, or part thereof, more frequently than once per calendar quarter; the
preceding limitation shall not apply if the Common Stock becomes publicly traded
upon an initial public offering of its securities pursuant to a registration
statement filed by the Company under the Securities Act of 1933, as amended.
No Option can be exercised after its termination date or after it is
terminated pursuant to Section 12. Each Option shall terminate and expire, and
shall no longer be subject to exercise, as the Committee may determine in
granting such Option, but in no event later than ten (10) calendar years from
the date the Option is granted. An Option can be exercised only by the Optionee
to whom it is granted during his/her lifetime. After the death of an Optionee,
the vested portion of the Option may be exercised, prior to its termination as
provided in Section 12 below, only by his/her legal representative, legatee or
heir who acquired the right to exercise the Option.
11. METHOD OF EXERCISING OPTIONS. An Option shall be exercised by the
Optionee by delivering to the Company before the Option expires or terminates a
written notice specifying the number of shares to be purchased. The Optionee's
written notice must be accompanied by (a) payment of the full Option Price for
the number of shares to be purchased in cash, by check or such other lawful
consideration (including promissory notes or the assignment and transfer by the
Optionee to the Company of outstanding shares of Common Stock previously held by
the Optionee in a manner intended to comply with the provisions of Rule 16b-3
under the Securities and Exchange Act of 1934) as the Committee may approve in
its sole discretion, (b) upon the Company's request, a letter or written
statement from the Optionee in form and substance acceptable to the Company
setting forth the investment intent and other representations of the Optionee,
and (c) upon the Company's request, payment in cash or check of any taxes that
the Company is required to withhold or collect as further discussed in Section
21.
12. TERMINATION OF OPTIONS. Any portion of an Option that has
vested pursuant to the terms of an Option Agreement shall immediately terminate
upon the first to occur of any of the following events:
(a) the expiration or termination date specified in the Option
Agreement;
(b) the expiration of sixty (60) days from the date of an
Optionee's termination or resignation of employment or voluntary leaving the
employ of the Company ("Window Period") (other than by reason of death or
disability), except if the Optionee is terminated for "Cause', as defined in
Section 16 of this Plan, then the Option terminates upon the termination date;
(c) the expiration of six (6) months from the date of an
Optionee's termination or other cessation of employment ("Window Period") due to
that Optionee having become disabled within the meaning of Section 22(e)(3) of
the Code;
(d) the expiration of twelve (12) months from the date of an
Optionee's death ("Window Period") if his/her death occurs while being employed
with the Company;
(e) for Options granted to consultants or other non-employees
who become members of the Board, if the Optionee is no longer a member of the
Board;
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(f) for Options granted to consultants or third parties who
perform substantial bona fide services to the Company, if the Optionee has not
provided services to the Company as an independent contractor, consultant or
advisor for a period of time determined by the Committee or the Board in their
sole discretion, at the time of granting the Option; and/or
(g) the termination of an Option pursuant to Section 18.
In addition to the above events, all Qualified Stock Options shall
terminate no later than ten (10) years from the date the Option is granted, or
no later than five (5) years from the date the Option is granted for Options
granted to Optionees who own more than ten percent (10%) of the total combined
voting power of all classes of the Company's stock at the time the Option is
granted (as defined in Section 422A(b)(6) of the Code).
Upon the termination of an Optionee for any reason or upon the
happening of any of the events in subparagraphs (e), (f) or (g) above, all
unexercised and unvested portions of an Option shall automatically lapse and
shall not be entitled to be exercised at any further time. All unexercised and
vested Options, or parts thereof, that are not exercised during a Window Period
or prior to termination as provided above shall be forfeited by an Optionee and
shall not be exercised after the Window Period or termination date, as the case
may be. Upon such termination, all issued but unvested shares of Common Stock
owned by an Optionee shall be subject to being repurchased by the Company at the
Option Price pursuant to Section 16 of this Plan. In addition, upon such
termination, all issued and vested shares of Common Stock owned by an Optionee
shall only be subject to the Company's Right of First Refusal set forth in
Section 17 of this Plan.
13. ADDITIONAL REQUIREMENTS FOR QUALIFIED STOCK OPTIONS. Subject to the
other provisions of this Plan, all Optionees who are granted Qualified Stock
Options must satisfy all the following requirements in order to receive the tax
benefits of an incentive stock Option under the Code:
(a) the Optionee must be continuously employed by the Company
from the time the Option is granted until at least three (3) months before it is
exercised (twelve (12) months if the Optionee is disabled within the meaning of
Section 22(e)(3) of the Code);
(b) the Optionee must hold the Common Stock until at least two
(2) years after the Option is granted and one (1) year after it is exercised;
and
(c) the Optionee cannot exercise a current Qualified Stock Option
while there is outstanding another Qualified Stock Option that was previously
granted to the Optionee that has not been fully exercised.
A Qualified Stock Option issued to an Optionee who fails to meet all of
the three (3) requirements above is subject to being treated and taxed as a
Non-Qualified Stock Option.
14. ISSUANCE OF COMMON STOCK. Notwithstanding anything to the contrary
contained herein, the Company shall not be obligated to grant any Option under
this Plan or to sell or issue any Common Stock pursuant to any Option or Option
Agreement, unless the grant or sale is effectively registered or qualified, or
exempt from registration or qualification under all applicable state and/or
federal laws or rulings and regulations of any governmental regulatory body.
Prior to the execution of an Option Agreement and/or issuance of the Common
Stock, the Company shall have the right to require an Optionee to deliver to the
Company written investment representations or other warranties deemed necessary
or advisable by the Company to comply with the requirements of any exemption
from such registration or other qualification of such shares.
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The required representations and warranties may include without
limitation representations and agreements that each Optionee (a) is purchasing
such shares for investment and for his/her own account, and not with any present
intention of selling or otherwise disposing of such shares; (b) has a
pre-existing personal or business relationship with the Company or its officers
or directors, or has sufficient business or financial experience to evaluate the
risks involved in purchasing the Common Stock; (c) agrees to have a legend
placed upon the face or reverse of any certificates evidencing such shares that
restrict the transfer of such shares; and/or (d) agrees to such other matters as
the Company requires or deems advisable.
15. NONTRANSFERABILITY. Unless otherwise provided in the Option
Agreement, an Optionee shall not sell, assign, encumber, transfer or permit a
levy or attachment on all or any part of his/her Qualified Stock Options or
Non-Qualified Stock Options and/or any shares of Common Stock purchased
thereunder to any person or entity at any time. The Option Agreement may, in
some instances, provide that certain Options granted hereunder and/or shares of
Common Stock previously issued to Optionee may be transferable by will or by the
laws of descent and distribution upon the death of an Optionee/shareholder,
and/or any Non-Qualified Stock Options may be transferable or assignable subject
to the Company's Right of First Refusal to purchase the Common Stock prior to
such transfer or assignment as provided in Section 17 below.
The Option Agreement may also provide that an Optionee or shareholder
holding Non-Qualified Stock Options or shares of Common Stock purchased under
Non-Qualified Stock Options may have the right, with prior written notice to the
Company, to transfer or assign such Options or shares of Common Stock to his/her
spouse, children or a living trust for the benefit of their family, provided the
Optionee/shareholder or his or her spouse is the sole trustee of the trust and
the sole beneficiaries of the trust shall be the Optionee/shareholder, his or
her spouse and/or their children, and further provided that any such transferee
shall agree in writing to be bound by all the provisions of this Plan and the
Option Agreement as a condition precedent to the transfer and receipt of the
shares of Common Stock. In addition, in the event the Company's Common Stock is
publicly traded, there will be additional restrictions imposed on the sale or
transfer of Common Stock pursuant to Rule 144 of the Securities and Exchange
Commission and other applicable laws, rules or regulations.
16. REPURCHASE OF STOCK. Upon the termination of an Optionee as an
employee, independent contractor or consultant of the Company for "Cause" (as
defined below), the Company and its assignees shall have the right, in their
sole discretion, to repurchase ("Repurchase Right") some or all of any vested
and/or unvested shares of Common Stock previously issued to an Optionee upon
exercise of any Option ("Repurchase Shares"). Pursuant to Section 12 of this
Plan, all unexercised portions of an Option, vested or non-vested, shall
automatically lapse upon termination of an Optionee for "Cause". The Company
shall exercise its Repurchase Right within sixty (60) days after the date the
Optionee is terminated for "Cause" by paying to the Optionee in cash an amount
per share equal to the Option Price.
In addition to the above the Repurchase Right upon termination for
"Cause", the Company shall also have a repurchase right as to all or any portion
of issued shares that are unvested as of the termination date. In other words,
if an Optionee is terminated or ceases to work for the Company for any reason,
and has previously purchased shares of Common Stock that have not vested as of
the termination date, then the Company shall have the right to repurchase
("Repurchase Right") some or all of the issued and unvested shares of Common
Stock ("Unvested Shares") at the Option Price. The Company shall exercise its
Repurchase Right for the Unvested Shares within sixty (60) days after the
termination date by paying to the Optionee in cash an amount per share equal to
the Option Price.
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Upon termination for "Cause", or other termination whereby Optionee has
Unvested Shares, the Optionee shall surrender and deliver to the Company the
stock certificates for the Repurchase Shares and the Unvested Shares. Any new,
substituted or additional securities or other property distributed with respect
to the Repurchase Shares or Unvested Shares as a result of any stock split,
recapitalization or adjustment under Section 18 below shall also be held by the
Company until it decides whether to exercise its Repurchase Right. Any regular
cash dividends on the Repurchase Shares or Unvested Shares shall be paid
directly to the Optionee and shall not be held by the Company. The Repurchase
Shares or Unvested Shares and any other assets or securities associated
therewith shall be released to and retained by the Company and its assignees
upon exercise of the Repurchase Right, or shall be released to the Optionee upon
expiration of the sixty (60) day period if the Company has not exercised its
Repurchase Right as to all of the Repurchase Shares or Unvested Shares.
The Company shall exercise its Repurchase Right by delivering to the
Optionee a written notice and paying the Option Price for the Repurchase Shares
or Unvested Shares within the sixty (60) day period. In the event the Company
does not exercise its Repurchase Right as provided herein, or exercises its
Repurchase Right as to some but not all of the Repurchase Shares or Unvested
Shares, the remaining Repurchase Shares and/or Unvested Shares shall still be
subject to the Company's Right of First Refusal pursuant to Section 17 of this
Plan.
The term "Cause" shall mean (a) willful misconduct, gross negligence,
theft, fraud or embezzlement; (b) alcoholism or illegal drug addiction, that the
Board or Committee has reasonably determined causes the Optionee to be unable to
perform his/her duties and responsibilities for the Company; and/or (c) the
unauthorized use, disclosure or misappropriation, or attempt thereof, of any
confidential information or trade secrets of the Company or any subsidiary
thereof.
17. RIGHT OF FIRST REFUSAL. The Company shall have a right of first
refusal over all Options and all Common Stock issued upon the exercise of
Options ("Right of First Refusal"). If an Optionee desires at any time to sell
or otherwise transfer all or any part of vested Options, vested shares of Common
Stock previously issued to Optionee, and/or Unvested Shares that the Company
does not elect to repurchase under Section 16, as the case may be, then prior to
any such sale or transfer, the Optionee shall give the Company the right to
purchase the vested Options, the vested shares of Common Stock and/or the
Unvested Shares that have not been repurchased pursuant to the same terms and
conditions specified in a bona fide written offer from a third party or entity
that wishes to purchase the same from Optionee. The Company shall exercise its
Right of First Refusal pursuant to the terms contained in the Option Agreement.
The Company's Right of First Refusal shall terminate upon the consummation of
the sale of securities pursuant to a registration statement filed by the Company
under the Securities Act of 1933, as amended, in connection with an initial
underwritten offering of its securities to the general public.
18. RECAPITALIZATION, REORGANIZATION, MERGER OR CONSOLIDATION. Subject
to any required shareholder action or approval, if the outstanding shares of
Common Stock of the Company are increased, decreased or exchanged for different
securities through a reorganization, merger, consolidation, recapitalization,
reclassification, stock split, stock dividend or like capital adjustment, a
proportionate adjustment shall be made (a) in the aggregate number of shares of
Common Stock which may be purchased pursuant to the exercise of Options as
provided in Section 4 hereof, and (b) in the number, price, and kind of shares
subject to any outstanding Option granted under this Plan. Subject to any
required shareholder action or approval, if the Company is the surviving
corporation in any merger or consolidation, each outstanding Option shall
survive and is exercisable pursuant to the terms of this Plan.
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Upon the dissolution or liquidation of the Company or upon any
reorganization, merger or consolidation in which the Company does not survive,
this Plan and each outstanding Option shall terminate subject to the following
provisions. In such event: (a) each Optionee who is not tendered an Option by
the surviving corporation in accordance with all of the terms of provision (b)
immediately below or who does not accept any such substituted Option which is so
tendered, shall have the right until 30 days before the effective date of such
dissolution, liquidation, reorganization, merger or consolidation in which the
Company is not the surviving corporation, to exercise, in whole or in part, any
unexpired and vested Option or Options issued to him/her which the Optionee is
then capable of exercising pursuant to the provisions of the Option and of
Sections 10 and 11 above; provided, however, that should the Board so elect in
its sole and absolute discretion all Optionees may be given upon at least 30
days notice (x) the Option to exercise, in whole or in part, any unexpired
Option, without regard to the Vesting Schedule requirements if the Board
accelerates the vesting period, or (y) the Option to surrender such Option or
Options to the Company for a price (which may be payable, in the sole discretion
of the Committee, in cash or in securities of the Company or in a combination of
both, and at times or in installments determined by the Company in its sole
discretion), equal to the difference between the aggregate Option Price of the
Option or Options without regard to the installment provisions and the aggregate
fair market value (as determined in the manner provided in Section 8 above) of
the shares subject to such Option or Options on the date one day before the
effective date of such dissolution, liquidation, reorganization, merger or
consolidation; or (b) upon at least 30 days notice in its sole and absolute
discretion, the surviving corporation may, but shall not be so obligated, tender
to any Optionee an Option or Options to purchase shares of the surviving
corporation, and such new Option or Options shall contain such terms and
provisions as shall be required to substantially preserve the rights and
benefits of any Option then outstanding under the Plan.
To the extent that the foregoing adjustments relate to stock or
securities of the Company, such adjustments shall be made by the Board, whose
determination in that respect shall be final, binding and conclusive. There
shall be no pre-emptive rights regarding the Common Stock and/or any other
privileges granting to Optionees/shareholders the right to maintain their
percentage ownership in the Company upon the issuance of additional shares of
Common Stock or any other change in capital structure. In other words, except as
expressly provided above in this Section 18, an Optionee shall have no rights by
reason of any subdivision or consolidation of shares of stock of any class or
the payment of any stock dividend or any other increase or decrease in the
number of shares of stock of any class, and the number or price of shares of
Common Stock subject to any Option shall not be affected by, and no adjustment
shall be made by reason of, any dissolution, liquidation, reorganization, merger
or consolidation, or any issuance by the Company of shares of stock of any
class, or rights to purchase or subscribe for stock of any class, or securities
convertible into shares of stock of any class.
The grant of an Option under this Plan shall not affect in any way the
right or power of the Company to make adjustments, reclassifications or changes
in its capital or business structures or to merge, consolidate, dissolve,
liquidate, sell or transfer all or any part of its business or assets.
19. SUBSTITUTE OPTIONS. If the Company at any time should succeed to
the business of another corporation through a merger or consolidation, or
through the acquisition or stock or assets of such corporation, Options may be
granted under this Plan to Option holders of such corporation or its
subsidiaries, in substitution for Options to purchase stock of such corporation
held by them at the time of succession. The Board, in its sole and absolute
discretion, shall determine the extent to which such substitute Options shall be
granted (if at all), the person or persons to receive such substitute Options
(who need not be all Option holders of such corporation), the number of Options
to be received by each such person, the Option Price of such Option (which may
be determined without regard to Section 8 hereof) and the terms and conditions
of such substitute Options.
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Provided, however, that the Option Price of each such substituted
Option which is a Qualified Stock Option shall be an amount such that, in the
sole and absolute judgment of the Board (and in compliance with Section 425(a)
of the Code), the economic benefit provided by such Option is not greater than
the economic benefit represented by the Option in the acquired corporation as of
the date of the Company's acquisition of such corporation. Notwithstanding
anything to the contrary herein, no Option shall be granted, nor any action
taken, permitted or omitted, which would cause this Plan, or any Options granted
hereunder as to which Rule 16b-3 under the Securities Exchange Act of 1934, as
amended, may apply, not to comply with such Rule.
20. RIGHTS AS A SHAREHOLDER. An Optionee shall have no rights as a
shareholder of the Company with respect to any shares covered by an Option until
the Option Price is fully paid for the shares that are exercised under an
Option. Within thirty (30) days of receipt of the Option Price, the Company
shall issue and deliver to the Optionee the stock certificate for the shares
purchased. No adjustment shall be made for dividends (ordinary or extraordinary,
whether in cash, securities or other property) or distributions or other rights
for which the record date is prior to the date the Option Price is received by
the Company, except as expressly provided in Section 18.
21. WITHHOLDING OF TAXES. The Company or any applicable subsidiary or
parent may deduct and withhold from the wages, salary, bonus or other income
paid by the Company or such subsidiary or parent to the Optionee the requisite
tax upon the amount of taxable income, if any, recognized by the Optionee due to
the exercise of any part of an Option or the permitted sale of Common Stock
issued to an Optionee under this Plan, all as may be required from time to time
under any federal or state tax laws and regulations. This withholding of tax
shall be made from the Company's (or such subsidiary's or parent's) concurrent
or next payment of wages, salary, bonus or other income to the Optionee or by
payment to the Company (or such subsidiary or parent) by the Optionee of the
required withholding tax, as determined by the Committee.
22. EFFECTIVENESS AND TERMINATION OF PLAN. This Plan shall be effective
on the date set forth on Page 1 above ("Effective Date") since that is the date
when this Plan was adopted by the Board and approved by the shareholders of the
Company. No Option shall be granted under this Plan on or after that date which
is ten (10) years from the Effective Date. This Plan shall terminate when all
shares of Common Stock which may be issued hereunder have been so issued or ten
(10) years from the Effective Date, whichever is earlier. The Board, however,
may in its sole discretion terminate this Plan at any time. No such termination,
other than as provided for in Section 18, shall in any way affect any
outstanding Option.
23. AMENDMENT OF PLAN. The Board shall have the right to amend this
Plan in its sole discretion, subject to approval of the shareholders. With the
consent of each Optionee affected, the Board may also make such changes in the
terms and conditions of granted Options as it deems advisable. Such amendments
and changes shall include without limitation acceleration of the time at which
an Option may be vested.
The Board, however, may not, without the approval of the shareholders
(a) increase the maximum number of shares subject to Qualified Stock Options,
except pursuant to Section 18, (b) decrease the Option Price requirement
contained in Section 8 (except as contemplated by Section 19), (c) change the
designation of the class of employees eligible to receive Qualified Stock
Options, (d) modify the limits set forth in Section 5 regarding the value of
Common Stock for which any Optionee may be granted Qualified Stock Options,
unless the provisions of Section 422A(d) of the Code are likewise modified, or
(e) in any manner materially increase the benefits accruing to participants
under this Plan, or otherwise modify this Plan such that it fails to meet the
requirements of Rule 16b-3 of the Securities and Exchange Commission for the
exemption of the acquisition, cancellation, expiration or surrender of Options
from the operation of Section 16(b) of the Securities Exchange Act of 1934.
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24. NOT AN EMPLOYMENT AGREEMENT. Nothing contained in this Plan or in
any Option Agreement shall confer on any Optionee any guaranty, right or vested
interest to be continued in the employ of the Company or one of its subsidiaries
or limit the ability of the Company or any of its subsidiaries to terminate,
with or without cause, in its sole discretion, the employment of any Optionee.
25. GOVERNING LAW. This Plan and any Option granted pursuant to this
Plan shall be construed and enforced under the laws of the State of California.
26. ARBITRATION. All Optionees, shareholders and the Company shall
attempt to resolve any dispute regarding this Plan in an amicable fashion. Any
unresolved disputes regarding this Plan or the administration thereof shall be
submitted to binding arbitration in San Diego, California, to be conducted in
accordance with the rules of the American Arbitration Association ("AAA").
Any dispute shall be submitted to an arbitration panel consisting of
three (3) members, one of whom shall be selected by the Company, one of whom
shall be selected by the Optionee/shareholder, and one of whom shall be selected
by the other two arbitrators. All arbitrators must have at least five (5) years
experience in the computer electronic industry and/or the legal aspects
pertaining to such industry. The parties shall be entitled to all rights and
privileges to conduct discovery (i.e. interrogatories, production of documents,
depositions, exchange of witnesses, and subpoenas), the right to have oral
testimony at the arbitration hearing, and other rights as provided in the
California Code of Civil Procedure. After discovery is concluded, the
arbitrators shall hold a hearing in accordance with the AAA rules. The
arbitration shall be governed under California law. The decision of a majority
of the arbitrators shall control. The order or award of the arbitrators shall be
final and shall be enforced in any court of competent jurisdiction. The
prevailing party in the arbitration shall be entitled to recover from the other
party its attorney's fees and costs incurred.
27. APPLICATION OF FUNDS. The proceeds received by the Company
from the sale of Common Stock pursuant to Options may be used for any corporate
purpose. The Board shall determine, in its sole discretion, how to use or apply
such funds or proceeds.
28. ENTIRE PLAN. This is the entire Stock Option Plan of the
Company and supersedes all prior or contemporaneous discussions, representations
or agreements, whether oral or written. This Plan cannot be modified or amended
except by the Board and/or the shareholders as provided above.
29. VALIDITY. If any provision of this Plan is held by a court of
competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions shall remain in full force and effect, and the invalid provisions
shall be revised to reflect the intent of the Company regarding the subject
matter thereof.
-11-
EXHIBIT 5.01
February 20, 1996
Integrated Systems, Inc.
3260 Jay Street
Santa Clara, California 95054-3309
Gentlemen/Ladies:
At your request, we have examined the Registration Statement on Form
S-8 (the "Registration Statement") to be filed by you with the Securities and
Exchange Commission on or about February 20, 1996 in connection with the
registration under the Securities Act of 1933, as amended, of an aggregate of
131,862 shares of your Common Stock (the "Common Stock") to be sold by you
pursuant to stock options granted under the Doctor Design, Inc. 1991 Stock
Option Plan and assumed by you (the "Options"). The Options were assumed
pursuant to the terms of an Agreement and Plan of Reorganization dated as of
December 14, 1995 and amended January 26, 1996 (the "Reorganization Agreement")
by and among you, ISI Purchasing Corporation, a Delaware corporation and your
wholly owned subsidiary, and Doctor Design, Inc., a California corporation, and
the related Agreement of Merger dated January 26, 1996, which together with the
Reorganization Agreement effectuated a merger of ISI Purchasing Corporation with
and into Doctor Design, Inc.
As your counsel, we have examined the proceedings taken by you in
connection with the assumption of the Options to purchase your Common Stock.
It is our opinion that the number of shares of Common Stock that may be
issued and sold by you pursuant to the Options as indicated above, when issued
and sold in the manner referred to in the Prospectus associated with the
Registration Statement, the Doctor Design, Inc. 1991 Stock Option Plan and the
Options, will be legally issued, fully paid and non-assessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to all references to us, if any, in the
Registration Statement and any amendments thereto.
Very truly yours,
/s/ Fenwick and West
-----------------------------
Fenwick and West
EXHIBIT 23.01
Included in Exhibit 5.01
EXHIBIT 23.02
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration statement on
Form S-8 of Integrated Systems, Inc., of our reports dated March 27, 1995,
except for Note 7, as to which the date is March 31, 1995 on our audits of the
financial statements and financial statement schedule of Integrated Systems,
Inc. as of February 28, 1995 and 1994 and for the three years in the period
ended February 28, 1995, which reports are included in Integrated Systems, Inc.,
1995 Annual Report on Form 10-K. We also consent to the reference to our firm
under the caption "Experts."
/s/ Coopers & Lybrand L.L.P.
- ----------------------------
Coopers & Lybrand L.L.P.
San Jose, California
February 20, 1996
EXHIBIT 24.01
See Page 4 of S-8 Registration Statement
