<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 14, 1997
REGISTRATION NO. 333-________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________
FORM S-8
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
______________________
EGGHEAD, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
WASHINGTON 91-1296187
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
22705 EAST MISSION
LIBERTY LAKE, WASHINGTON 99019
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
SURPLUS SOFTWARE, INC. 1996 STOCK OPTION PLAN
(FULL TITLE OF THE PLANS)
BRIAN W. BENDER
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
EGGHEAD, INC.
22705 EAST MISSION
LIBERTY LAKE, WASHINGTON 99019
(509) 922-7031
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
______________________
COPY TO:
CHARLES J. KATZ, JR.
PERKINS COIE
1201 THIRD AVENUE, 40TH FLOOR
SEATTLE, WASHINGTON 98101-3099
______________________
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF SECURITIES AMOUNT TO BE PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TO BE REGISTERED REGISTERED OFFERING PRICE PER SHARE(3) AGGREGATE OFFERING PRICE(3) REGISTRATION FEE
<S> <C> <C> <C> <C>
COMMON STOCK,
$.01 PAR VALUE (1) 289,104 Shares(2) $1.0133861 $292,974 $88.78
</TABLE>
(1) Pursuant to an Agreement and Plan of Merger, dated as of April 30, 1997 and
amended as of may 23, 1997 (the "Merger Agreement"), among the Registrant,
North Face Merger Sub, Inc. and Surplus Software, Inc. ("Surplus Direct"),
the Registrant assumed all of the outstanding options to purchase common
stock of Surplus Direct under the Surplus Software, Inc. 1996 stock option
plan (the "Surplus Direct Assumed Options"), with appropriate adjustments
to the number of shares and exercise price of each Surplus Direct Assumed
option to reflect the ratio at which the Surplus Direct common stock was
converted into common stock of the Registrant under the Merger Agreement.
(2) Together with an indeterminate number of additional shares which may be
necessary to adjust the number of shares reserved for issuance pursuant to
the Surplus Software, Inc. 1996 Stock Option Plan as the result of any
future stock split, stock dividend or similar adjustment of the outstanding
Common Stock of the Registrant.
(3) Such shares are issuable upon exercise of outstanding options with fixed
exercise prices. Pursuant to Rule 457(h) under the Securities Act of 1933,
as amended (the "Securities Act"), the aggregate offering price and the
registration fee have been computed upon the basis of the price at which
the options may be exercised.
<PAGE>
PART II
INFORMATION REQUIRED IN REGISTRATION STATEMENT
ITEM 3. INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents are hereby incorporated by reference into this
Registration Statement:
(a) The Registrant's Annual Report on Form 10-K for the year ended
March 29, 1997, filed with the Securities and Exchange Commission (the
"Commission") on June 27, 1997, which contains audited consolidated financial
statements for the most recent fiscal year for which such statements have
been filed;
(b) All other reports filed by the Registrant pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), since the end of the fiscal year covered by the Annual
Report on Form 10-K referred to in (a) above; and
(c) The description of the Registrant's Common Stock contained in
the Registration Statement on Form 8-A filed with the Commission on May 13,
1988 under Section 12 of the Exchange Act, including any amendments or
reports filed for the purpose of updating such descriptions.
All documents filed by the Registrant pursuant to Sections 13(a), 13(c),
14 and 15(d) of the Exchange Act after the date hereof and prior to the
filing of a post-effective amendment which indicates that the securities
offered hereby have been sold or which deregisters the securities covered
hereby then remaining unsold shall also be deemed to be incorporated by
reference into this Registration Statement and to be a part hereof commencing
on the respective dates on which such documents are filed.
ITEM 6. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by Section 23B.08.320 of the Washington Business
Corporation Act, Article X of the Registrant's Articles of Incorporation
limits a director's liability to the Registrant or its shareholders for
monetary damages arising from his or her conduct as a director, except for
acts or omissions that involve intentional misconduct or a knowing violation
of law, approval of distributions or loans in violation of Section 23B.06.400
of the Washington Business Corporation Act or any transaction from which the
director will personally receive a benefit in money, property or services to
which the director is not legally entitled.
Sections 23B.08.500 through 23B.08.600 of the Washington Business
Corporation Act authorize a court to award, or a corporation's board of
directors to grant, indemnification to directors and officers on terms
sufficiently broad to permit indemnification under certain circumstances for
liabilities arising under the Securities Act. As permitted by Section
23B.08.560 of the Washington Business Corporation Act, Article IX of the
Registrant's Bylaws (as currently amended) provides that the Registrant shall
indemnify its officers and directors and may indemnify its employees and
other agents against any and all loss, liability, expenses (including
attorneys' fees), judgments, fines, ERISA excise taxes or penalties and
amounts to be paid in settlement (each, a "Loss") actually and reasonably
incurred or suffered in connection with any actual or threatened claim, suit
or proceeding, whether civil, criminal, administrative or investigative,
except for a Loss arising out of acts or omissions finally adjudged to be
intentional misconduct or a known violation of law, approval of distributions
or loans that are finally adjudged to be in violation of RCW 23B.06.400 or
any transaction in which it is finally adjudged that the indemnitee
personally received a benefit in money, property or services to which the
indemnitee was not legally entitled. The Registrant's Bylaws also permit it
to secure insurance on behalf of any officer, director, employee or other
agent for any liability arising out of his or her actions in such capacity,
regardless of whether the Bylaws would permit indemnification, and to enter
into agreements to indemnify its officers and directors in furtherance of
Article IX of the Registrant's Bylaws. The Registrant has entered into such
agreements with certain of its officers and directors.
<PAGE>
ITEM 8. EXHIBITS
Exhibit
Number Description
- ------- ---------------------------------------------------------------------
5.1 Opinion of Perkins Coie regarding legality of the common stock being
registered
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Perkins Coie (included in its Opinion filed as Exhibit 5.1)
24.1 Power of Attorney (see Signature Page)
99.1 Surplus Software, Inc. 1996 Stock Option Plan
ITEM 9. UNDERTAKINGS
A. The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of this Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this
Registration Statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in this Registration Statement or
any material change to such information in this Registration Statement;
PROVIDED, HOWEVER, that 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 this Registration
Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered that remain unsold at the termination
of the offering.
B. The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Exchange
Act (and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Exchange Act) that is incorporated by
reference in this Registration Statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
C. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions or otherwise, the Registrant
has been advised that, in the opinion of the Commission, such indemnification
is against public policy as expressed in the Securities Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of
expenses incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion
of its counsel the matter has been
<PAGE>
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-8 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Liberty Lake, State of Washington,
on the 13th day of August, 1997.
EGGHEAD, INC.
By /s/ George P. Orban
-----------------------------------------
George P. Orban
Chairman of the Board and Chief Executive
Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints
George P. Orban and Brian W. Bender, and each of them, as true and lawful
attorneys-in-fact and agents with full power of substitution and
resubstitution, to sign in the name and on behalf of such person,
individually and in each capacity stated below, any or all amendments
(including pre-effective and post-effective amendments) to this Registration
Statement, and to file the same with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange
Commission.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons on
the 13th day of August, 1997 in the capacities indicated.
Signature Title
/s/ George P. Orban
- ----------------------------- President, Chief Executive Officer and
George P. Orban Director (Principal Executive Officer)
/s/ Brian W. Bender
- ----------------------------- Vice President and Chief Financial
Brian W. Bender Officer (Principal Financial and
Accounting Officer)
- ----------------------------- Director
Richard P. Cooley
/s/ Eric P. Robison
- ----------------------------- Director
Eric P. Robison
/s/ Terence M. Strom
- ----------------------------- Director
Terence M. Strom
- ----------------------------- Director
Samuel N. Stroum
/s/ Melvin A. Wilmore
- ----------------------------- Director
Melvin A. Wilmore
<PAGE>
INDEX TO EXHIBITS
Exhibit Sequentially
Number Description Numbered Page
- ------- -------------------------------------------------- -------------
5.1 Opinion of Perkins Coie regarding legality of the
common stock being registered
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Perkins Coie (included in its
Opinion filed as Exhibit 5.1)
24.1 Power of Attorney (see Signature Page)
99.1 Surplus Software, Inc. 1996 Stock Option Plan
<PAGE>
PERKINS COIE
A LAW PARTNERSHIP INCLUDING PROFESSIONAL CORPORATIONS
1201 THIRD AVENUE, 40TH FLOOR, SEATTLE, WASHINGTON 98101-3099
TELEPHONE: 206 583-8888 - FACSIMILE: 206 583-8500
August 14, 1997
Egghead, Inc.
22705 E. Mission
Liberty Lake, WA 99019
RE: 289,104 SHARES OF COMMON STOCK ($.01 PAR VALUE PER SHARE)
OF EGGHEAD, INC. (THE "COMPANY")
Ladies and Gentlemen:
We have acted as counsel to you in connection with the preparation of a
Registration Statement on Form S-8 (the "Registration Statement") pursuant to
the Securities Act of 1933, as amended (the "Act"), which you are filing with
the Securities and Exchange Commission with respect to 289,104 shares of
Common Stock, $.01 par value per share (the "Shares"), which are to be issued
pursuant to the Surplus Software, Inc. 1996 Stock Option Plan (the "Plan").
We understand that the Company has agreed, pursuant to an Agreement and Plan
of Merger, dated as of April 30, 1997 and amended as of May 23, 1997 (the
"Merger Agreement"), among the Company, North Face Merger Sub, Inc. and
Surplus Software, Inc. ("Surplus Direct"), to assume all of the outstanding
options to purchase the common stock of Surplus Direct that have been issued
pursuant to the Plan. We have examined the Registration Statement, the
Merger Agreement and such other documents and records of the Company as we
have deemed relevant and necessary for the purposes of this opinion.
Based upon and subject to the foregoing, we are of the opinion that the
Shares that will be issued pursuant to the Plan, upon the due execution by
the Company and the registration by its registrar of the Shares and the
issuance thereof by the Company in accordance with the terms of the Plan, and
the receipt of consideration therefor in accordance with the terms of the
Plan, will be validly issued, fully paid and nonassessable.
<PAGE>
Egghead, Inc.
August 14, 1997
Page 2
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. In giving such consent, we do not admit that we are
in the category of persons whose consent is required under Section 7 of the
Act.
Very truly yours,
PERKINS COIE
<PAGE>
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement on Form S-8 of our report dated May
13, 1997 included in Egghead, Inc.'s Form 10-K for the year ended March 29,
1997 and to all references to our Form included in this registration
statement.
ARTHUR ANDERSEN LLP
Seattle, Washington
August 13, 1997
<PAGE>
SURPLUS SOFTWARE, INC.
1996 STOCK OPTION PLAN
SECTION 1. PURPOSE
The purpose of the Surplus Software, Inc. 1996 Stock Option Plan (this
"Plan") is to provide a means whereby selected employees, directors,
officers, agents, consultants, advisors and independent contractors of
Surplus Software, Inc. (the "Company"), or of any parent or subsidiary (as
defined in subsection 5.8 and referred to hereinafter as "related
corporations") thereof, may be granted incentive stock options and/or
nonqualified stock options to purchase the Common Stock (as defined in
Section 3) of the Company, in order to attract and retain the services or
advice of such employees, directors, officers, agents, consultants, advisors
and independent contractors and to provide added incentive to such persons by
encouraging stock ownership in the Company.
SECTION 2. ADMINISTRATION
This Plan shall be administered by the Board of Directors of the Company
(the "Board") or, in the event the Board shall appoint and/or authorize a
committee to administer this Plan, by such committee. The administrator of
this Plan shall hereinafter be referred to as the "Plan Administrator."
In the event a member of the Plan Administrator may be eligible, subject
to the restrictions set forth in Section 4, to participate in this Plan, no
member of the Plan Administrator shall vote with respect to the granting of
an option hereunder to himself or herself, as the case may be, and, if state
corporate law does not permit a committee to grant options to directors, then
any option granted under this Plan to a director for his or her services as
such shall be approved by the full Board.
The members of any committee serving as Plan Administrator shall be
appointed by the Board for such term as the Board may determine. The Board
may from time to time remove members from, or add members to, the committee.
Vacancies on the committee, however caused, shall be filled by the Board.
With respect to grants made under this Plan to individuals who are
subject to Section 16 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), the Plan Administrator shall be constituted at all times so
as to meet the requirements of Rule 16b-3 promulgated under Section 16(b) of
the Exchange Act if any of the Company's equity securities are registered
pursuant to Section 12(b) or 12(g) of the Exchange Act.
Page 1
<PAGE>
2.1 PROCEDURES
The Board shall designate one of the members of the Plan Administrator as
chairman. The Plan Administrator may hold meetings at such times and places
as it shall determine. The acts of a majority of the members of the Plan
Administrator present at meetings at which a quorum exists, or acts reduced
to or approved in writing by all Plan Administrator members, shall be valid
acts of the Plan Administrator.
2.2 RESPONSIBILITIES
Except for the terms and conditions explicitly set forth in this Plan,
the Plan Administrator shall have the authority, in its discretion, to
determine all matters relating to the options to be granted under this Plan,
including selection of the individuals to be granted options, the number of
shares to be subject to each option, the exercise price, and all other terms
and conditions of the options. Grants under this Plan need not be identical
in any respect, even when made simultaneously. The interpretation and
construction by the Plan Administrator of any terms or provisions of this
Plan or any option issued hereunder, or of any rule or regulation promulgated
in connection herewith, shall be conclusive and binding on all interested
parties, so long as such interpretation and construction with respect to
incentive stock options correspond to the requirements of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), the regulations
thereunder and any amendments thereto.
2.3 RULE 16b-3 COMPLIANCE AND BIFURCATION OF PLAN
It is the intention of the Company that, if any of the Company's equity
securities are registered pursuant to Section 12(b) or 12(g) of the Exchange
Act, this Plan shall comply in all respects with Rule 16b-3 under the
Exchange Act. If any Plan provision is later found not to be in compliance
with such Section, the provision shall be deemed null and void, and in all
events this Plan shall be construed in favor of its meeting the requirements
of Rule 16b-3. Notwithstanding anything in this Plan to the contrary, the
Board, in its absolute discretion, may bifurcate this Plan so as to restrict,
limit or condition the application of any provision of this Plan to
participants who are subject to Section 16 of the Exchange Act without so
restricting, limiting or conditioning this Plan with respect to other
participants.
SECTION 3. SHARES SUBJECT TO THIS PLAN
The shares subject to this Plan shall be the Company's Common Stock, no
par value (the "Common Stock"), currently authorized but unissued or
subsequently acquired by the Company. Subject to adjustment as provided in
Section 7, the aggregate amount of Common Stock to be delivered upon the
exercise of all options
Page 2
<PAGE>
granted under this Plan shall not exceed 376,000 shares as such Common Stock
was constituted on the effective date of this Plan. If any option granted
under this Plan shall expire or be surrendered, exchanged for another option,
canceled or terminated for any reason without having been exercised in full,
the unpurchased shares subject thereto shall thereupon again be available for
purposes of this Plan, including for replacement options which may be granted
in exchange for such expired, surrendered, exchanged, canceled or terminated
options.
SECTION 4. ELIGIBILITY
An incentive stock option may be granted only to an individual who, at
the time the option is granted, is an employee of the Company or a related
corporation. A nonqualified stock option may be granted to any employee,
director, officer, agent, consultant, advisor or independent contractor of
the Company or any related corporation, whether an individual or an entity.
Any party to whom an option is granted under this Plan shall be referred to
hereinafter as an "Optionee."
SECTION 5. TERMS AND CONDITIONS OF OPTIONS
Options granted under this Plan shall be evidenced by written agreements
which shall contain such terms, conditions, limitations and restrictions as
the Plan Administrator shall deem advisable and which are not inconsistent
with this Plan. Notwithstanding the foregoing, options shall include or
incorporate by reference the following terms and conditions:
5.1 NUMBER OF SHARES AND PRICE
The maximum number of shares that may be purchased pursuant to the
exercise of each option and the price per share at which such option is
exercisable (the "exercise price") shall be as established by the Plan
Administrator; provided, however that the Plan Administrator shall act in
good faith to establish an exercise price which shall be not less than the
fair market value per share of the Common Stock at the time the option is
granted with respect to incentive stock options and not less than 85% of the
fair market value of the Common Stock at the time the option is granted with
respect to nonqualified stock options, and not less than the par value per
share of the Common Stock at the time the option is granted with respect to
nonqualified stock options and also provided that, with respect to incentive
stock options granted to greater than 10% shareholders, the exercise price
shall be as required by subsection 6.1.
Page 3
<PAGE>
5.2 TERM AND MATURITY
Subject to the restrictions contained in Section 6 with respect to
granting incentive stock options to greater than 10% shareholders, the term
of each incentive stock option shall be as established by the Plan
Administrator and, if not so established, shall be 10 years from the date it
is granted but in no event shall it exceed 10 years. The term of each
nonqualified stock option shall be as established by the Plan Administrator
and, if not so established, shall be 10 years. To ensure that the Company or
a related corporation will achieve the purpose and receive the benefits
contemplated by this Plan, any option granted to any Optionee hereunder
shall, unless the condition of this sentence is waived or modified in the
agreement evidencing the option or by resolution adopted at any time by the
Plan Administrator, be exercisable according to the following schedule:
Period of Optionee's Continuous
Relationship With the Company or
Related Corporation From Portion of Total Option Which Is
the Date the Option Is Granted Exercisable
---------------------------------- --------------------------------
after twelve months 25%
on or after each full calendar month 2.083% additional
thereafter for each such full month
5.3 EXERCISE
Subject to the vesting schedule described in subsection 5.2, each option
may be exercised in whole or in part at any time and from time to time;
provided, however, that no fewer than 100 shares (or the remaining shares
then purchasable under the option, if less than 100 shares) may be purchased
upon any exercise of option hereunder and that only whole shares will be
issued pursuant to the exercise of any option and that the exercise price
shall not be less than the par value per share of the Common Stock at the
time the option is exercised. An Option shall be exercised by delivery to the
Company of notice of the number of shares with respect to which the option is
exercised, together with payment of the exercise price. The Company may
require as a condition of exercise that optionee enter into a stock transfer
agreement imposing restrictions on the transfer of shares of the Company's
stock.
5.4 PAYMENT OF EXERCISE PRICE
Payment of the option exercise price shall be made in full at the time the
notice of exercise of the option is delivered to the Company and shall be in
cash, bank
Page 4
<PAGE>
certified or cashier's check, or personal check (unless at the time of
exercise the Plan Administrator in a particular case determines not to accept
a personal check) for the shares being purchased.
The Plan Administrator can determine at any time before exercise that
additional forms of payment will be permitted. To the extent permitted by
the Plan Administrator and applicable laws and regulations (including, but
not limited to, federal tax and securities laws and regulations and state
corporate law), an option may be exercised by:
(a) delivery of shares of Common Stock of the Company held by an
Optionee having a fair market value equal to the exercise price, such fair
market value to be determined in good faith by the Plan Administrator;
provided, however, that payment in stock held by an Optionee shall not be
made unless the stock shall have been owned by the Optionee for a period of
at least six months; and
(b) delivery of a full-recourse promissory note executed by the
Optionee in an amount which shall not exceed that portion of the exercise
price which is in excess of the amount determined to be stated capital
pursuant to the Oregon Business Corporation Act; provided that (i) such note
delivered in connection with an incentive stock option shall, and such note
delivered in connection with a nonqualified stock option may, in the sole
discretion of the Plan Administrator, bear interest at a rate specified by
the Plan Administrator but in no case less than the rate required to avoid
imputation of interest (taking into account any exceptions to the imputed
interest rules) for federal income tax purposes, (ii) the Plan Administrator
in its sole discretion shall specify the term and other provisions of such
note at the time an incentive stock option is granted or at any time prior to
exercise of a nonqualified stock option, (iii) the Plan Administrator may
require that the Optionee pledge to the Company for the purpose of securing
the payment of such note the shares of Common Stock to be issued to the
Optionee upon exercise of the option and may require that the certificate
representing such shares be held in escrow in order to perfect the Company's
security interest, and (iv) the Plan Administrator in its sole discretion may
at any time restrict or rescind this right upon notification to the Optionee.
(c) delivery of a properly executed exercise notice, together with
irrevocable instructions to a broker, all in accordance with the regulations
of the Federal Reserve Board, to promptly deliver to the Company the amount
of sale or loan proceeds to pay the exercise price and any federal, state or
local withholding tax obligations that may arise in connection with the
exercise.
Page 5
<PAGE>
5.5 WITHHOLDING TAX REQUIREMENT
The Company or any related corporation shall have the right to retain and
withhold from any payment of cash or shares of Common Stock under this Plan
the amount of taxes required by any government to be withheld or otherwise
deducted and paid with respect to such payment. At its discretion, the
Company may require an Optionee receiving shares of Common Stock to reimburse
the Company for any such taxes required to be withheld by the Company and
withhold any distribution in whole or in part until the Company is so
reimbursed. In lieu thereof, the Company shall have the right to withhold
from any other cash amounts due or to become due from the Company to the
Optionee an amount equal to such taxes. The Company may also retain and
withhold or the Optionee may elect, subject to approval by the Company at its
sole discretion, to have the Company retain and withhold a number of shares
having a market value not less than the amount of such taxes required to be
withheld by the Company to reimburse the Company for any such taxes and
cancel (in whole or in part) any such shares so withheld. In order to
qualify such election for exemption under Rule 16b-3 promulgated under
Section 16(b) of the Exchange Act, any individual who is subject to Section
16 under the Exchange Act must exercise the option during the quarterly
10-day window period required under Section 16(b) of the Exchange Act for
exercises of stock appreciation rights, and the election relating to such
option exercise must be (i) an irrevocable election made six months prior to
the date the option exercise becomes taxable; (ii) an election that is made
during a window period; or (iii) an election that is made prior to a window
period, provided the election becomes effective as of the next window period.
5.6 HOLDING PERIODS
5.6.1 SECURITIES AND EXCHANGE ACT SECTION 16
Shares of Common Stock obtained upon the exercise of a stock option may
not be sold by a person subject to Section 16 of the Exchange Act until six
months after the date the option was granted.
5.6.2 TAXATION OF STOCK OPTIONS
In order to obtain certain tax benefits afforded to incentive stock
options under Section 422 of the Code, an Optionee must hold the shares
issued upon the exercise of an incentive stock option for two years after the
date of grant of the option and one year from the date of exercise. An
Optionee may be subject to the alternative minimum tax at the time of
exercise of an incentive stock option.
Page 6
<PAGE>
The Plan Administrator may require an Optionee to give the Company prompt
notice of any disposition of shares acquired by the exercise of an incentive
stock option prior to the expiration of such holding periods.
Tax advice should be obtained by an Optionee when exercising any option
and prior to the disposition of the shares issued upon the exercise of any
option.
5.7 TRANSFERABILITY OF OPTIONS
Options granted under this Plan and the rights and privileges conferred
hereby may not be transferred, assigned, pledged or hypothecated in any
manner (whether by operation of law or otherwise) other than by will or by
the applicable laws of descent and distribution and shall not be subject to
execution, attachment or similar process. During an Optionee's lifetime, any
options granted under this Plan are personal to him or her and are
exercisable solely by such Optionee. Any attempt to transfer, assign,
pledge, hypothecate or otherwise dispose of any option under this Plan or of
any right or privilege conferred hereby, contrary to the Code or to the
provisions of this Plan, or the sale or levy or any attachment or similar
process upon the rights and privileges conferred hereby shall be null and
void. Notwithstanding the foregoing, to the extent permitted by Rule 16b-3
under the Exchange Act and other applicable law and regulation, the Plan
Administrator may permit an Optionee to (i) during the Optionee's lifetime,
designate a person who may exercise the option after the Optionee's death by
giving written notice of such designation to the Company (such designation
may be changed from time to time by the Optionee by giving written notice to
the Company revoking any earlier designation and making a new designation) or
(ii) with respect to nonqualified stock options, transfer the option and the
rights and privileges conferred hereby.
5.8 TERMINATION OF RELATIONSHIP
If the Optionee's relationship with the Company or any related
corporation ceases for any reason other than termination for cause, death or
total disability, and unless by its terms the option sooner terminates or
expires, then the Optionee may exercise, for a three-month period, that
portion of the Optionee's option which is exercisable at the time of such
cessation, but the Optionee's option shall terminate at the end of such
period following such cessation as to all shares for which it has not
theretofore been exercised, unless such provision is waived in the agreement
evidencing the option. If, in the case of an incentive stock option, an
Optionee's relationship with the Company or any related corporation changes
(i.e., from employee to nonemployee, such as a consultant), such change shall
constitute a termination of an Optionee's employment with the Company or any
related corporation and the Optionee's incentive stock option shall terminate
in accordance
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with this subsection 5.8. Upon the expiration of the three-month period
following cessation of employment in the case of an incentive stock option,
or at any time prior to the expiration of the option in the case of a
nonqualified stock option, the Plan Administrator shall have sole discretion
in a particular circumstance to extend the exercise period following such
cessation to any date up to the termination or expiration of the option. If,
however, in the case of an incentive stock option, the Optionee does not
exercise the Optionee's option within three months after cessation of
employment, the option will no longer qualify as an incentive stock option
under the Code.
If an Optionee is terminated for cause, each option granted hereunder
shall automatically terminate as of the first discovery by the Company of any
reason for termination for cause, and such Optionee shall thereupon have no
right to purchase any shares pursuant to such option. "Termination for
cause" shall mean dismissal for dishonesty, conviction or confession of a
crime (except minor violations), fraud, misconduct or disclosure of
confidential information. If an Optionee's relationship with the Company or
any related corporation is suspended pending an investigation of whether or
not the Optionee shall be terminated for cause, the Optionee's rights under
each option granted hereunder likewise shall be suspended during the period
of investigation.
If an Optionee's relationship with the Company or any related corporation
ceases because of a total disability, the Optionee's option shall not
terminate or, in the case of an incentive stock option, cease to be treated
as an incentive stock option until the end of the 12-month period following
such cessation (unless by its terms it sooner terminates or expires). As
used in this Plan, the term "total disability" refers to a mental or physical
impairment of the Optionee which is expected to result in death or which has
lasted or is expected to last for a continuous period of 12 months or more
and which causes the Optionee to be unable, in the opinion of the Company and
two independent physicians, to perform his or her duties for the Company and
to be engaged in any substantial gainful activity. Total disability shall be
deemed to have occurred on the first day after the Company and the two
independent physicians have furnished their opinion of total disability to
the Plan Administrator.
Options granted under the Plan shall not be affected by any change of
relationship with the Company so long as the Optionee continues to be an
employee, director, officer, agent, consultant, advisor or independent
contractor of the Company or of a related corporation; however, a change in
an Optionee's status from an employee to a nonemployee (e.g., consultant or
independent contractor) shall result in the termination of an outstanding
incentive stock option held by such Optionee. The Plan Administrator, in its
absolute discretion, may determine all questions of whether particular leaves
of absence constitute a termination of services; provided, however,
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that with respect to incentive stock options, such determination shall be
subject to any requirements contained in the Code. The foregoing
notwithstanding, with respect to incentive stock options, employment shall
not be deemed to continue beyond the first 90 days of such leave, unless the
Optionee's reemployment rights are guaranteed by statute or by contract.
As used herein, the term "related corporation," when referring to a
subsidiary corporation, shall mean any corporation (other than the Company)
in, at the time of the granting of the option, an unbroken chain of
corporations ending with the Company, if stock possessing 50% or more of the
total combined voting power of all classes of stock of each of the
corporations other than the Company is owned by one of the other corporations
in such chain. When referring to a parent corporation, the term "related
corporation" shall mean any corporation in an unbroken chain of corporations
ending with the Company if, at the time of the granting of the option, each
of the corporations other than the Company owns stock possessing 50% or more
of the total combined voting power of all classes of stock in one of the
other corporations in such chain.
5.9 DEATH OF OPTIONEE
If an Optionee dies while he or she has a relationship with the Company
or any related corporation or within the three-month period (or 12-month
period in the case of totally disabled Optionees) following cessation of such
relationship, any option held by such Optionee to the extent that the
Optionee would have been entitled to exercise such option, may be exercised
within one year after his or her death by the personal representative of his
or her estate or by the person or persons to whom the Optionee's rights under
the option shall pass (i) by will or by the applicable laws of descent and
distribution or (ii) by a designation or transfer pursuant to Section 5.7.
5.10 NO STATUS AS SHAREHOLDER
Neither the Optionee nor any party to which the Optionee's rights and
privileges under the option may pass shall be, or have any of the rights or
privileges of, a shareholder of the Company with respect to any of the shares
issuable upon the exercise of any option granted under this Plan unless and
until such option has been exercised.
5.11 CONTINUATION OF RELATIONSHIP
Nothing in this Plan or in any option shall confer upon any Optionee any
right to continue in the employ or other relationship of the Company or of a
related corporation, or to interfere in any way with the right of the Company
or of any such
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related corporation to terminate his or her employment or other relationship
with the Company at any time.
5.12 MODIFICATION AND AMENDMENT OF OPTION
Subject to the requirements of Code Section 422 with respect to incentive
stock options and to the terms and conditions and within the limitations of
this Plan, the Plan Administrator may modify or amend any outstanding option
granted under this Plan. The modification or amendment of an outstanding
option shall not, without the consent of the Optionee, impair or diminish any
of his or her rights or any of the obligations of the Company under such
option. Except as otherwise provided in this Plan, no outstanding option
shall be terminated without the consent of the Optionee.
5.13 LIMITATION ON VALUE FOR INCENTIVE STOCK OPTIONS
As to all incentive stock options granted under the terms of this Plan,
to the extent that the aggregate fair market value of the shares (determined
at the time the incentive stock option is granted) with respect to which
incentive stock options are exercisable for the first time by the Optionee
during any calendar year (under this Plan and all other incentive stock
option plans of the Company, a related corporation or a predecessor
corporation) exceeds $100,000, such options shall be treated as nonqualified
stock options. The previous sentence shall not apply if the Internal Revenue
Service issues a public rule, issues a private ruling to the Company, any
Optionee or any legatee, personal representative or distributee of an
Optionee or issues regulations changing or eliminating such annual limit.
SECTION 6. GREATER THAN 10% SHAREHOLDERS
6.1 EXERCISE PRICE AND TERM OF INCENTIVE STOCK OPTIONS
If an incentive stock option is granted under this Plan to any employee
who owns more than 10% of the total combined voting power of all classes of
stock of the Company or any related corporation, the term of such incentive
stock options shall not exceed five years and the exercise price shall be not
less than 110% of the fair market value of the shares at the time the
incentive stock option is granted. This provision shall control
notwithstanding any contrary terms contained in an option agreement or any
other document.
6.2 ATTRIBUTION RULE
For purposes of subsection 6.1, in determining stock ownership, an
employee shall be deemed to own the shares owned, directly or indirectly, by
or for his or her brothers, sisters, spouse, ancestors and lineal
descendants. Shares owned, directly or
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indirectly, by or for a corporation, partnership, estate or trust shall be
deemed to be owned proportionately by or for its shareholders, partners or
beneficiaries. If an employee or a person related to the employee owns an
unexercised option or warrant to purchase shares of the Company, the shares
subject to that portion of the option or warrant which is unexercised shall
not be counted in determining stock ownership. For purposes of this Section
6, shares owned by an employee shall include all shares actually issued and
outstanding immediately before the grant of the incentive stock option to the
employee.
SECTION 7. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
The aggregate number and class of shares for which options may be granted
under this Plan, the number and class of shares covered by each outstanding
option and the exercise price per share thereof (but not the total price),
and each such option, shall all be proportionately adjusted for any increase
or decrease in the number of issued shares of Common Stock of the Company
resulting from a split-up or consolidation of shares or any like capital
adjustment, or the payment of any stock dividend.
7.1 EFFECT OF LIQUIDATION OR REORGANIZATION
7.1.1 CASH, STOCK OR OTHER PROPERTY FOR STOCK
Except as provided in subsection 7.1.2, upon a merger (other than a
merger of the Company in which the holders of shares of Common Stock
immediately prior to the merger have the same proportionate ownership of
shares of Common Stock in the surviving corporation immediately after the
merger), consolidation, acquisition of property or stock, separation,
reorganization (other than a mere reincorporation or the creation of a
holding company) or liquidation of the Company, as a result of which the
shareholders of the Company receive cash, stock or other property in exchange
for or in connection with their shares of Common Stock, any option granted
hereunder shall terminate, but the Optionee shall have the right immediately
prior to any such merger, consolidation, acquisition of property or stock,
separation, reorganization or liquidation to exercise such Optionee's option
in whole or in part whether or not the vesting requirements set forth herein
or in the option agreement have been satisfied; provided that such
acceleration will not occur (i) unless such Optionee has been a full-time
employee of the Company for the period of at least one year or, (ii) if, in
the opinion of the Company's outside accountants, such acceleration would
render unavailable "pooling of interests" accounting treatment for any
reorganization, merger or consolidation of the Company for which pooling of
interests accounting treatment is sought by the Company.
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7.1.2 CONVERSION OF OPTIONS ON STOCK FOR STOCK EXCHANGE
If the shareholders of the Company receive capital stock of another
corporation ("Exchange Stock") in exchange for their shares of Common Stock
in any transaction involving a merger (other than a merger of the Company in
which the holders of Common Stock immediately prior to the merger have the
same proportionate ownership of Common Stock in the surviving corporation
immediately after the merger), consolidation, acquisition of property or
stock, separation or reorganization (other than a mere reincorporation or the
creation of a holding company), all options granted hereunder shall be
converted into options to purchase shares of Exchange Stock unless the
Company and the corporation issuing the Exchange Stock, in their sole
discretion, determine that any or all such options granted hereunder shall
not be converted into options to purchase shares of Exchange Stock but
instead shall terminate in accordance with the provisions of subsection
7.1.1. The amount and price of converted options shall be determined by
adjusting the amount and price of the options granted hereunder in the same
proportion as used for determining the number of shares of Exchange Stock the
holders of the shares of Common Stock receive in such merger, consolidation,
acquisition of property or stock, separation or reorganization. Unless
accelerated by the Board, the vesting schedule set forth in the option
agreement shall continue to apply to the options granted for the Exchange
Stock.
7.2 FRACTIONAL SHARES
In the event of any adjustment in the number of shares covered by any
option, any fractional shares resulting from such adjustment shall be
disregarded and each such option shall cover only the number of full shares
resulting from such adjustment.
7.3 DETERMINATION OF BOARD TO BE FINAL
All Section 7 adjustments shall be made by the Board, and its
determination as to what adjustments shall be made, and the extent thereof,
shall be final, binding and conclusive. Unless an Optionee agrees otherwise,
any change or adjustment to an incentive stock option shall be made in such a
manner so as not to constitute a "modification" as defined in Code Section
425(h) and so as not to cause his or her incentive stock option issued
hereunder to fail to continue to qualify as an incentive stock option as
defined in Code Section 422(b).
SECTION 8. SECURITIES REGULATION
Shares shall not be issued with respect to an option granted under this
Plan unless the exercise of such option and the issuance and delivery of such
shares pursuant thereto shall comply with all relevant provisions of law,
including, without
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limitation, any applicable state securities laws, the Securities Act of 1933,
as amended, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the shares
may then be listed, and shall be further subject to the approval of counsel
for the Company with respect to such compliance, including the availability,
if applicable, of an exemption from registration for the issuance and sale of
any shares hereunder. Inability of the Company to obtain, from any
regulatory body having jurisdiction, the authority deemed by the Company's
counsel to be necessary for the lawful issuance and sale of any shares
hereunder or the unavailability of an exemption from registration for the
issuance and sale of any shares hereunder shall relieve the Company of any
liability in respect of the nonissuance or sale of such shares as to which
such requisite authority shall not have been obtained.
As a condition to the exercise of an option, the Company may require the
Optionee to represent and warrant at the time of any such exercise that the
shares are being purchased only for investment and without any present
intention to sell or distribute such shares if, in the opinion of counsel for
the Company, such a representation is required by any relevant provision of
the aforementioned laws. At the option of the Company, a stop-transfer order
against any shares of stock may be placed on the official stock books and
records of the Company, and a legend indicating that the stock may not be
pledged, sold or otherwise transferred, unless an opinion of counsel is
provided (concurred in by counsel for the Company) stating that such transfer
is not in violation of any applicable law or regulation, may be stamped on
stock certificates in order to assure exemption from registration. The Plan
Administrator may also require such other action or agreement by the
Optionees as may from time to time be necessary to comply with the federal
and state securities laws. THIS PROVISION SHALL NOT OBLIGATE THE COMPANY TO
UNDERTAKE REGISTRATION OF THE OPTIONS OR STOCK HEREUNDER.
Should any of the Company's capital stock of the same class as the stock
subject to options granted hereunder be listed on a national securities
exchange, all stock issued hereunder if not previously listed on such
exchange shall be authorized by that exchange for listing thereon prior to
the issuance thereof.
SECTION 9. AMENDMENT AND TERMINATION
9.1 BOARD ACTION
The Board may at any time suspend, amend or terminate this Plan, provided
that, to the extent required for compliance with Rule 16b-3 promulgated under
Section 16(b) of the Exchange Act, Section 422 of the Code or by any
applicable law or regulation, the Company's shareholders must approve any
amendment which will:
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(a) increase the number of shares that may be issued under this
Plan;
(b) with respect to nonqualified stock options, materially modify
the requirements as to eligibility for participation in this Plan or, with
respect to incentive stock options, change the designation of the
participants or class of participants eligible for participation in this Plan;
(c) materially increase the benefits accruing to the participants
under this Plan; or
(d) otherwise require shareholder approval under any applicable law
or regulation.
Such shareholder approval must be obtained (i) within 12 months of the
adoption by the Board of such amendment or (ii) if earlier, and to the extent
required for compliance with Rule 16b-3 promulgated under Section 16(b) of
the Exchange Act, at the next annual meeting of shareholders after such
adoption by the Board.
Any amendment made to this Plan which would constitute a "modification"
to incentive stock options outstanding on the date of such amendment, shall
not be applicable to such outstanding incentive stock options, but shall have
prospective effect only, unless the Optionee agrees otherwise.
9.2 AUTOMATIC TERMINATION
Unless sooner terminated by the Board, this Plan shall terminate ten
years from the earlier of (a) the date on which this Plan is adopted by the
Board or (b) the date on which this Plan is approved by the shareholders of
the Company. No option may be granted after such termination or during any
suspension of this Plan. The amendment or termination of this Plan shall
not, without the consent of the option holder, alter or impair any rights or
obligations under any option theretofore granted under this Plan.
SECTION 10. EFFECTIVENESS OF THIS PLAN
This Plan shall become effective upon adoption by the Board so long as it
is approved by the Company's shareholders at any time within 12 months of
such adoption of this Plan or, if earlier, and to the extent required for
compliance with Rule 16b-3 under the Exchange Act, at the next annual meeting
of shareholders after adoption by the Board.
THE PLAN WAS ADOPTED BY THE BOARD OF DIRECTORS ON APRIL 25, 1996 AND APPROVED
BY THE SHAREHOLDERS ON APRIL 26, 1996; IT WAS AMENDED TO INCREASE THE NUMBER
OF SHARES
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AVAILABLE UNDER THE PLAN TO 376,000 BY BOARD ACTION EFFECTIVE SEPTEMBER 26,
1996 AND APPROVED BY THE SHAREHOLDERS EFFECTIVE AS OF OCTOBER 31, 1996.
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