<PAGE>
As filed with the Securities and Exchange Commission on August 7, 1996
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-8
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
----------------------
CORNERSTONE IMAGING, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 77-0104275
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
1710 FORTUNE DRIVE, SAN JOSE, CA 95131
(Address of principal executive offices) (Zip Code)
----------------------
CORNERSTONE IMAGING, INC.
1993 STOCK OPTION/STOCK ISSUANCE PLAN
(Full title of Plan)
-----------------------
THOMAS T. VAN OVERBEEK
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CORNERSTONE IMAGING, INC.
1710 FORTUNE DRIVE, SAN JOSE, CA 95131
(Name and address of agent for service)
(408) 435-8900
(Telephone number, including area code, of agent for service)
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CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
TITLE OF AMOUNT TO MAXIMUM MAXIMUM AMOUNT OF
SECURITIES BE OFFERING AGGREGATE REGISTRATION
TO BE REGISTERED PRICE OFFERING FEE
REGISTERED (1) PER SHARE PRICE
(2) (2)
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Options 500,000 N/A N/A N/A
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Common Stock,
$.01 par value 500,000 $5.50 $2,750,000 $949
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(1) This Registration Statement shall also cover any additional shares of
Common Stock which become issuable under the 1993 Stock Option/Stock
Issuance Plan by reason of any stock dividend, stock split,
recapitalization or other similar transaction effected without the receipt
of consideration which results in an increase in the number of the
Registrant's outstanding shares of Common Stock.
(2) Calculated solely for purposes of this offering under Rule 457(h) of the
Securities Act of 1933, as amended, on the basis of the average of the high
and low prices per share of Common Stock of Cornerstone Imaging, Inc. on
August 2, 1996 as reported by the Nasdaq National Market.
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<PAGE>
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
Item 3. INCORPORATION OF DOCUMENTS BY REFERENCE
Cornerstone Imaging, Inc. (the "Registrant") hereby incorporates
by reference into this Registration Statement the following documents previously
filed with the Securities and Exchange Commission (the "Commission"):
a. The Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995;
b. The Registrant's Quarterly Report on Form 10-Q for the fiscal
quarter ended March 31, 1996;
c. (1) The Registrant's Registration Statement No. 0-22292 on Form
8-A filed with the Commission on August 23, 1993 pursuant to
Section 12 of the Securities and Exchange Act of 1934 (the
"1934 Act") in which there is described the terms, rights
and provisions applicable to the Registrant's outstanding
Common Stock.
(2) Amendment Number 1 on Form 8-A to the Registrant's
Registration Statement No. 0-22292 on Form 8-A filed with
the SEC on September 7, 1993 in which there is described the
terms, rights and provisions applicable to the Registrant's
Common Stock.
All reports and definitive proxy or information statements filed
pursuant to Section 13(a), 13(c), 14 or 15(d) of the 1934 Act after the date of
this Registration Statement and prior to the filing of a post-effective
amendment which indicates that all securities offered hereby have been sold or
which deregisters all securities then remaining unsold shall be deemed to be
incorporated by reference into this Registration Statement and to be a part
hereof from the date of filing of such documents.
Item 4. DESCRIPTION OF SECURITIES
Not applicable.
Item 5. INTERESTS OF NAMED EXPERTS AND COUNSEL
Not applicable.
Item 6. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes a court
to award or a corporation's Board of Directors to grant indemnification to
directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended (the "Act"). The Registrant's Bylaws provide for mandatory
indemnification of its directors and officers and permissible indemnification of
employees and other agents to the maximum extent permitted by the Delaware
General Corporation Law. The Registrant's Certificate of Incorporation provides
that, pursuant to Delaware law, its directors shall not be liable for monetary
damages for breach of the directors' fiduciary duty as a director to the Company
and its stockholders. This provision in the Certificate of Incorporation does
not eliminate the directors' fiduciary duty, and in appropriate circumstances
equitable remedies such as injunctive or other forms of non-monetary relief will
remain available under Delaware law. In addition, each director will continue to
be subject to liability for breach of the director's duty of loyalty to the
Company for acts or omissions not in good faith or involving intentional
misconduct, for knowing violations of
<PAGE>
law, for actions leading to improper personal benefit to the director, and for
payment of dividends or approval of stock repurchases or redemptions that are
unlawful under Delaware law. The provision also does not affect a director's
responsibilities under any other law, such as the federal securities laws or
state or federal environmental laws. The Registrant has entered into
Indemnification Agreements with its officers and directors which provide the
Registrant's officers and directors with further indemnification to the maximum
extent permitted by the Delaware General Corporation Law.
Item 7. EXEMPTION FROM REGISTRATION CLAIMED
Not Applicable.
Item 8. Exhibits
Exhibit Number Exhibit
- -------------- -------
5 Opinion and Consent of Gunderson Dettmer Stough Villenueve
Franklin & Hachigian, LLP.
23.1 Consent of Independent Auditors - Coopers & Lybrand L.L.P.
23.2 Consent of Gunderson Dettmer Stough Villenueve Franklin &
Hachigian, LLP is contained in Exhibit 5.
24 Power of Attorney. Reference is made to page II-4 of this
Registration Statement.
99.1 1993 Stock Option/Stock Issuance Plan.
99.2 Notice of Grant of Stock Option and Stock Option Agreement
(incorporated by reference from Registration Statement No.
33-94808 on Form S-8 filed with the SEC on July 20, 1995).
99.3 Addendum to Stock Option Agreement (Special Tax Elections)
(incorporated by reference from Registration Statement No.
33-94808 on Form S-8 filed with the SEC on July 20, 1995).
99.4 Addendum to Stock Option Agreement (Limited Stock
Appreciation Right) (incorporated by reference from
Registration Statement No. 33-94808 on Form S-8 filed with
the SEC on July 20, 1995).
99.5 Addendum to Stock Option Agreement (Financial Assistance)
(incorporated by reference from Registration Statement No.
33-94808 on Form S-8 filed with the SEC on July 20, 1995).
99.6 Stock Issuance Agreement (incorporated by reference from
Registration Statement No. 33-94808 on Form S-8 filed with
the SEC on July 20, 1995).
Item 9. UNDERTAKINGS.
A. The undersigned Registrant hereby undertakes: (1) to file,
during any period in which offers or sales are being made, a post-effective
amendment to this Registration Statement (i) to include any prospectus required
by Section 10(a)(3) of the 1933 Act, (ii) to reflect in the prospectus any facts
or events arising after the effective date of 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, and (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 clauses (1)(i) and (1)(ii) shall not apply if
the information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Registrant pursuant to
Section 13 or Section 15(d) of the 1934 Act that are incorporated by reference
into the Registration Statement;
II-2
<PAGE>
(2) that for the purpose of determining any liability under the 1933 Act, each
such post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof; and
(3) to remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
Registrant's 1993 Stock Option/Stock Issuance Plan.
B. The undersigned Registrant hereby undertakes that, for
purposes of determining any liability under the 1933 Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
1934 Act that is incorporated by reference into 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.
C. Insofar as indemnification for liabilities arising under the
1933 Act may be permitted to directors, officers or controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been informed that, in the opinion of the Commission, such indemnification
is against public policy as expressed in the 1933 Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the 1933 Act, and will be governed by the final
adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the 1933 Act, 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 San Jose, State of California, on this 5th day of
August, 1996.
Cornerstone Imaging, Inc.
By /s/ Thomas T. van Overbeek
-----------------------------------
Thomas T. van Overbeek
President, Chief Executive Officer
and Director
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned officers and directors of Cornerstone
Imaging, Inc., a Delaware corporation, do hereby constitute and appoint Thomas
T. van Overbeek and John Finegan, and each of them, the lawful attorneys and
agents, with full power and authority to do any and all acts and things and to
execute any and all instruments which said attorneys and agents, and any one of
them, determine may be necessary or advisable or required to enable said
corporation to comply with the 1933 Act, and any rules or regulations or
requirements of the Commission in connection with this Registration Statement.
Without limiting the generality of the foregoing power and authority, the powers
granted include the power and authority to sign the names of the undersigned
officers and directors in the capacities indicated below to this Registration
Statement, to any and all amendments, both pre-effective and post-effective, and
supplements to this Registration Statement, and to any and all instruments or
documents filed as part of or in conjunction with this Registration Statement or
amendments or supplements thereof, and each of the undersigned hereby ratifies
and confirms all that said attorneys and agents, or any of them, shall do or
cause to be done by virtue hereof. This Power of Attorney may be signed in
several counterparts.
IN WITNESS WHEREOF, each of the undersigned has executed this
Power of Attorney as of the date indicated. Pursuant to the requirements of the
1933 Act, this Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
Signatures Title Date
- ---------- ----- ----
/s/ Thomas T. van Overbeek President, Chief Executive August 5, 1996
- -------------------------- Officer and Director
Thomas T. van Overbeek (Principal Executive Officer)
/s/ John Finegan Chief Financial Officer and August 5, 1996
- -------------------------- Secretary (Principal Financial
John Finegan and Accounting Officer)
II-4
<PAGE>
SIGNATURES TITLE DATE
- ---------- ----- ----
/s/ E. David Crockett Chairman of the Board August 5, 1996
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E. David Crockett
/s/ James E. Crawford, III Director June 7, 1996
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James E. Crawford, III
/s/ Margaret G. Fisher Director August 5, 1996
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Margaret G. Fisher
/s/ Stephen J. Sheafor Director August 5, 1996
- ---------------------------
Stephen J. Sheafor
/s/ Bruce Silver Director August 5, 1996
- ---------------------------
Bruce Silver
/s/ Daniel D. Tompkins Director August 5, 1996
- ---------------------------
Daniel D. Tompkins
II-5
<PAGE>
EXHIBIT INDEX
Sequentially
Exhibit Number Exhibit Numbered Page
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5 Opinion and Consent of Gunderson Dettmer Stough
Villenueve Franklin & Hachigian, LLP.
23.1 Consent of Independent Auditors - Coopers &
Lybrand L.L.P.
23.2 Consent of Gunderson Dettmer Stough Villenueve
Franklin & Hachigian, LLP is contained in
Exhibit 5.
24 Power of Attorney. Reference is made to page
II-4 of this Registration Statement.
99.1 1993 Stock Option/Stock Issuance Plan.
99.2 Notice of Grant of Stock Option and Stock Option
Agreement (incorporated by reference from
Registration Statement No. 33-94808 on Form S-8
filed with the SEC on July 20, 1995).
99.3 Addendum to Stock Option Agreement (Special Tax
Elections) (incorporated by reference from
Registration Statement No. 33-94808 on Form S-8
filed with the SEC on July 20, 1995).
99.4 Addendum to Stock Option Agreement (Limited Stock
Appreciation Right) (incorporated by reference from
Registration Statement No. 33-94808 on Form S-8
filed with the SEC on July 20, 1995).
99.5 Addendum to Stock Option Agreement (Financial
Assistance) (incorporated by reference from
Registration Statement No. 33-94808 on Form S-8
filed with the SEC on July 20, 1995).
99.6 Stock Issuance Agreement (incorporated by
reference from Registration Statement No. 33-94808
on Form S-8 filed with the SEC on July 20, 1995).
<PAGE>
EXHIBIT 5
August 5, 1996
Cornerstone Imaging, Inc.
1710 Fortune Drive
San Jose, CA 95131
Re: CORNERSTONE IMAGING, INC. REGISTRATION STATEMENT FOR
OFFERING OF 500,000 SHARES OF COMMON STOCK
Ladies and Gentlemen:
We refer to your registration on Form S-8 (the "Registration Statement")
under the Securities Act of 1933, as amended, of 500,000 shares of Common Stock
under the Company's 1993 Stock Option/Stock Issuance Plan. We advise you that,
in our opinion, when such shares have been issued and sold pursuant to the
applicable provisions of the 1993 Stock Option/Stock Issuance Plan and in
accordance with the Registration Statement, such shares will be validly issued,
fully paid and nonassessable shares of the Company's Common Stock.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
GUNDERSON DETTMER STOUGH VILLENEUVE FRANKLIN &
HACHIGIAN, LLP.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration statement of
Cornerstone Imaging, Inc., on Form S-8 of our report dated January 30, 1996 and
on our audit of the financial statements of Cornerstone Imaging, Inc. as of
December 31, 1995 and 1994 and for each of the three years in the period ended
December 31, 1995, appearing in the 1995 Annual Report on Form 10K.
COOPERS & LYBRAND, L.L.P.
San Jose, California
August 2, 1996
<PAGE>
CORNERSTONE IMAGING, INC.
1993 STOCK OPTION/STOCK ISSUANCE PLAN
(as amended and restated through May 29, 1996)
ARTICLE ONE
GENERAL
I. PURPOSE OF THE PLAN
A. This 1993 Stock Option/Stock Issuance Plan ("Plan") is intended
to promote the interests of Cornerstone Imaging, Inc., a Delaware corporation
(the "Corporation"), by providing eligible individuals with the opportunity to
acquire a proprietary interest, or otherwise increase their proprietary
interest, in the Corporation as an incentive for them to remain in the service
of the Corporation (or its parent or subsidiary corporations).
B. The Plan became effective on September 8, 1993, the first date on
which the shares of the Corporation's common stock were registered under Section
12(g) of the Securities Exchange Act of 1934, as amended (the "1934 Act"). Such
date is hereby designated as the IPO Effective Date.
C. This Plan serves as the successor to the Corporation's existing
Employee Stock Option Plan and Key Employee Stock Purchase Plan (the
"Predecessor Plans"), and no further option grants or share issuances shall be
made under the Predecessor Plans from and after the IPO Effective Date. All
outstanding stock options and unvested share issuances under the Predecessor
Plans on the IPO Effective Date are hereby incorporated into this Plan and shall
accordingly be treated as outstanding stock options and unvested share issuances
under this Plan. However, each outstanding option grant and unvested share
issuance so incorporated shall continue to be governed solely by the express
terms and conditions of the instrument evidencing such grant or issuance, and no
provision of this Plan shall be deemed to affect or otherwise modify the rights
or obligations of the holders of such incorporated options with respect to their
acquisition of shares of the Corporation's common stock thereunder. All unvested
shares of the Corporation's common stock outstanding under the Predecessor Plans
on the IPO Effective Date shall continue to be governed solely by the express
terms and conditions of the instruments evidencing such issuances, and no
provision of this Plan shall be deemed to affect or modify the rights or
obligations of the holders of such unvested shares.
II. DEFINITIONS
A. For purposes of the Plan, the following definitions shall be in
effect:
BOARD: the Corporation's Board of Directors.
CODE: the Internal Revenue Code of 1986, as amended.
<PAGE>
COMMON STOCK: shares of the Corporation's common stock.
CHANGE IN CONTROL: a change in ownership or control of the
Corporation effected through either of the following transactions:
a. the acquisition directly or indirectly by any person or
related group of persons (other than the Corporation or a person that
directly or indirectly controls, is controlled by, or is under common
control with, the Corporation) of beneficial ownership (within the meaning
of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty
percent (50%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer made directly
to the Corporation's stockholders which the Board does not recommend such
stockholders to accept; or
b. a change in the composition of the Board over a period of
thirty-six (36) consecutive months or less such that a majority of the
Board members (rounded up to the next whole number) ceases, by reason of
one or more proxy contests for the election of Board members, to be
comprised of individuals who either (A) have been Board members
continuously since the beginning of such period or (B) have been elected or
nominated for election as Board members during such period by at least a
majority of the Board members described in clause (A) who were still in
office at the time such election or nomination was approved by the Board.
CORPORATE TRANSACTION: any of the following stockholder-approved
transactions to which the Corporation is a party:
a. a merger or consolidation in which the Corporation is not
the surviving entity, except for a transaction the principal purpose of
which is to change the state in which the Corporation is incorporated,
b. the sale, transfer or other disposition of all or
substantially all of the assets of the Corporation in complete liquidation
or dissolution of the Corporation, or
c. any reverse merger in which the Corporation is the surviving
entity but in which securities possessing more than fifty percent (50%) of
the total combined voting power of the Corporation's outstanding securities
are transferred to a person or persons different from those who held such
securities immediately prior to such merger.
EMPLOYEE: an individual who performs services while in the employ of
the Corporation or one or more parent or subsidiary corporations, subject to the
control and direction of the employer entity not only as to the work to be
performed but also as to the manner and method of performance.
2
<PAGE>
FAIR MARKET VALUE: the Fair Market Value per share of Common Stock
determined in accordance with the following provisions:
a. If the Common Stock is not at the time listed or admitted to
trading on any national stock exchange but is traded on the Nasdaq National
Market, the Fair Market Value shall be the closing price per share on the
date in question, as such price is reported on the Nasdaq National Market
or any successor system. If there is no reported closing price for the
Common Stock on the date in question, then the closing price on the last
preceding date for which such quotation exists shall be determinative of
Fair Market Value.
b. If the Common Stock is at the time listed or admitted to
trading on any national stock exchange, then the Fair Market Value shall be
the closing selling price per share on the date in question on the exchange
determined by the Plan Administrator to be the primary market for the
Common Stock, as such price is officially quoted in the composite tape of
transactions on such exchange. If there is no reported sale of Common Stock
on such exchange on the date in question, then the Fair Market Value shall
be the closing selling price on the exchange on the last preceding date for
which such quotation exists.
HOSTILE TAKE-OVER: a change in ownership of the Corporation effected
through the following transaction:
a. any person or related group of persons (other than the
Corporation or a person that directly or indirectly controls, is controlled
by, or is under common control with, the Corporation) directly or
indirectly acquires beneficial ownership (within the meaning of Rule 13d-3
of the 1934 Act) of securities possessing more than fifty percent (50%) of
the total combined voting power of the Corporation's outstanding securities
pursuant to a tender or exchange offer made directly to the Corporation's
stockholders which the Board does not recommend such stockholders to
accept, and
b. more than fifty percent (50%) of the securities so acquired
in such tender or exchange offer are accepted from holders other than the
officers and directors of the Corporation subject to the short-swing profit
restrictions of Section 16 of the 1934 Act.
OPTIONEE: a person to whom an option is granted under the
Discretionary Option Grant Program or the Automatic Option Grant Program.
PARTICIPANT: a person who is issued Common Stock under the Stock
Issuance Program.
3
<PAGE>
PERMANENT DISABILITY OR PERMANENTLY DISABLED: the inability of the
Optionee or the Participant to engage in any substantial gainful activity by
reason of any medically determinable physical or mental impairment expected to
result in death or to be of continuous duration of twelve (12) months or more.
SERVICE: the performance of services on a periodic basis to the
Corporation (or any parent or subsidiary corporation) in the capacity of an
Employee, a non-employee member of the board of directors or an independent
consultant or advisor, except to the extent otherwise specifically provided in
the applicable stock option agreement.
TAKE-OVER PRICE: the GREATER of (a) the Fair Market Value per share
of Common Stock on the date the option is surrendered to the Corporation in
connection with a Hostile Take-Over or (b) the highest reported price per share
of Common Stock paid by the tender offeror in effecting such Hostile Take-Over.
However, if the surrendered option is an Incentive Option, the Take-Over Price
shall not exceed the clause (a) price per share.
B. The following provisions shall be applicable in determining the
parent and subsidiary corporations of the Corporation:
Any corporation (other than the Corporation) in an unbroken chain
of corporations ending with the Corporation shall be considered to be a
PARENT of the Corporation, provided each such corporation in the unbroken
chain (other than the Corporation) owns, at the time of the determination,
stock possessing fifty percent (50%) or more of the total combined voting
power of all classes of stock in one of the other corporations in such
chain.
Each corporation (other than the Corporation) in an unbroken
chain of corporations beginning with the Corporation shall be considered to
be a SUBSIDIARY of the Corporation, provided each such corporation (other
than the last corporation) in the unbroken chain owns, at the time of the
determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other
corporations in such chain.
III. STRUCTURE OF THE PLAN
A. STOCK PROGRAMS. The Plan shall be divided into three (3) separate
components: the Discretionary Option Grant Program specified in Article Two, the
Automatic Option Grant Program specified in Article Three and the Stock Issuance
Program specified in Article Four. Under the Discretionary Option Grant Program,
eligible individuals may, at the discretion of the Plan Administrator, be
granted options to purchase shares of Common Stock in accordance with the
provisions of Article Two. Under the Automatic Option Grant Program,
4
<PAGE>
(i) each individual who first joins the Board as a non-employee director on or
after November 5, 1993 will receive an option grant at that time and (ii) each
non-employee director will receive an annual option grant to purchase shares of
Common Stock, both in accordance with the provisions of Article Three. Under the
Stock Issuance Program, eligible individuals may be issued shares of Common
Stock directly, either through the immediate purchase of such shares at a price
not less than eighty-five percent (85%) of the Fair Market Value of the shares
at the time of issuance or as a bonus tied to the performance of services or the
Corporation's attainment of financial objectives, without any cash payment
required of the recipient.
B. GENERAL PROVISIONS. Unless the context clearly indicates
otherwise, the provisions of Articles One and Five shall apply to the
Discretionary Option Grant Program, the Automatic Option Grant Program and the
Stock Issuance Program and shall accordingly govern the interests of all
individuals under the Plan.
IV. ADMINISTRATION OF THE PLAN
The Plan shall be administered in accordance with the following
standards:
A. The Board shall appoint a committee consisting of not less than
two (2) non-employee Board members to administer the Discretionary Option Grant
and Stock Issuance Programs of the Plan, including (without limitation) the
power to grant options under the Discretionary Option Grant Program and approve
stock issuances under the Stock Issuance Program, the power to accelerate the
exercisability of options granted under the Discretionary Option Grant Program
and the vesting of shares issued under the Stock Issuance Program and the power
to administer the option surrender provisions of the Discretionary Option Grant
Program. This committee shall function as the "Primary Committee" under the Plan
and shall have sole and exclusive authority to grant stock options to officers
of the Corporation who are Board members. No non-employee Board member shall be
eligible to serve on the Primary Committee if such individual has, within the
relevant period designated below, received an option grant or direct stock
issuance under this Plan or any other stock plan of the Corporation (or any
parent or subsidiary corporation) other than pursuant to the Automatic Option
Grant Program:
(1) for each of the initial members of the Primary Committee, the
period commencing with the IPO Effective Date and ending with the date of his or
her appointment to the Primary Committee, or
(2) for any successor or substitute member, the twelve (12)-month
period immediately preceding the date of his or her appointment to the Primary
Committee or (if shorter) the period commencing with the Effective Date and
ending with the date of his or her appointment to the Primary Committee.
5
<PAGE>
B. Administration of the Discretionary Option Grant and Stock
Issuance Programs with respect to the officers of the Corporation who are not
Board members and all other key employees eligible to participate in the Plan
may, at the Board's discretion, be vested in the Primary Committee or in a
secondary committee of two (2) or more Board members appointed by the Board, or
the Board may retain the power to administer the Plan with respect to all
individuals who are not Board members. Should a secondary committee be
appointed, the membership may include Board members who are employees of the
Corporation eligible to receive option grants or stock issuances under this Plan
or under any other stock option, stock appreciation, stock bonus or other stock
plan of the Corporation (or any parent or subsidiary corporation).
C. Members of the Primary Committee or any secondary committee shall
serve for such term as the Board may determine and shall be subject to removal
by the Board at any time.
D. The term "Plan Administrator" as used from time to time in this
plan document shall mean the particular entity, whether the Primary Committee or
any secondary committee, which is authorized to administer the Discretionary
Option Grant and Stock Issuance Programs with respect to one or more classes of
eligible individuals, to the extent such entity is carrying out its
administrative functions under the Plan with respect to those individuals.
E. The Plan Administrator shall have full power and authority
(subject to the express provisions of the Plan) to establish rules and
regulations for the proper administration of the Discretionary Option Grant and
Stock Issuance Programs and to make such determinations under, and issue such
interpretations of, the provisions of such programs and any outstanding option
grants or stock issuances thereunder as it may deem necessary or advisable.
Decisions of the Plan Administrator shall be final and binding on all parties
who have an interest in the Discretionary Option Grant or Stock Issuance
Programs or any outstanding option or share issuance thereunder.
\
F. Administration of the Automatic Option Grant Program shall be
self-executing in accordance with the express terms and conditions of Article
Three, and the Plan Administrator shall exercise no discretionary functions with
respect to option grants made pursuant to that program.
V. ELIGIBILITY FOR OPTION GRANTS AND STOCK ISSUANCES
A. The persons eligible to participate in the Discretionary Option
Grant Program under Article Two or the Stock Issuance Program under Article Four
shall be limited to the following:
(i) officers and other key employees of the Corporation (or its
parent
6
<PAGE>
or subsidiary corporations) who render services which contribute to the
management, growth and financial success of the Corporation (or its parent
or subsidiary corporations); and
(ii) those consultants or other independent contractors who
provide valuable services to the Corporation (or its parent or subsidiary
corporations).
B. The non-employee members of the Board, other than members of the
Primary Committee, shall be eligible to participate in the Discretionary Option
Grant and Stock Issuance Programs. No member of the Primary Committee shall be
eligible to participate in the Discretionary Option Grant or Stock Issuance
Program or in any other stock option, stock purchase, stock bonus or other stock
plan of the Corporation (or its parent or subsidiary corporations). Non-employee
members of the Board, including members of the Primary Committee, shall be
eligible to receive automatic option grants pursuant to the provisions of
Article Three.
C. The Plan Administrator shall have full authority, within the
scope of its administrative functions under the Plan, to determine, (I) with
respect to the option grants made under the Discretionary Option Grant Program,
which eligible individuals are to receive option grants, the number of shares to
be covered by each such grant, the status of the granted option as either an
incentive stock option ("Incentive Option") which satisfies the requirements of
Section 422 of the Code or a non-statutory option not intended to meet such
requirements, the time or times at which each granted option is to become
exercisable and the maximum term for which the option may remain outstanding and
(II), with respect to stock issuances under the Stock Issuance Program, the
number of shares to be issued to each Participant, the vesting schedule (if any)
to be applicable to the issued shares, and the consideration to be paid by the
individual for such shares.
VI. STOCK SUBJECT TO THE PLAN
A. Shares of Common Stock shall be available for issuance under the
Plan and shall be drawn from either the Corporation's authorized but unissued
shares of Common Stock or from reacquired shares of Common Stock, including
shares repurchased by the Corporation on the open market. The maximum number of
shares of Common Stock which may be issued over the term of the Plan shall not
exceed 2,074,852(1) shares, subject to adjustment from time to time in
accordance with the provisions of this Section VI. In no event may any one
individual participating in the Plan acquire shares of Common Stock under the
Plan in excess of 500,000 shares of Common Stock in the aggregate over the term
of the Plan. For purposes of this
- -----------------------
1 Reflects the additional 500,000-share increase authorized by the Board on
January 30, 1996, and approved by the Corporation's stockholders at the 1996
Annual Stockholders Meeting.
7
<PAGE>
limitation, any option grants or stock awards made prior to January 1, 1996 will
not be taken into account.
B. Should one or more outstanding options under this Plan (including
outstanding options under the Predecessor Plans incorporated into this Plan)
expire or terminate for any reason prior to exercise in full (including any
option cancelled in accordance with the cancellation-regrant provisions of
Section IV of Article Two of the Plan), then the shares subject to the portion
of each option not so exercised shall be available for subsequent option grants
under the Plan. Shares subject to any option or portion thereof surrendered or
cancelled in accordance with Section V of Article Two and all share issuances
under the Plan (including unvested share issuances under the Predecessor Plans
which have been incorporated into this Plan), whether or not the shares are
subsequently repurchased by the Corporation pursuant to its repurchase rights
under the Plan, shall reduce on a share-for-share basis the number of shares of
Common Stock available for subsequent option grants under the Plan. In addition,
should the option price of an outstanding option under the Plan (including any
option incorporated from the Predecessor Plans) be paid with shares of Common
Stock or should shares of Common Stock otherwise issuable under the Plan be
withheld by the Corporation in satisfaction of the withholding taxes incurred in
connection with the exercise of an outstanding option under the Plan or the
vesting of a direct share issuance made under the Plan, then the number of
shares of Common Stock available for issuance under the Plan shall be reduced by
the gross number of shares for which the option is exercised or which vest under
the share issuance, and not by the net number of shares of Common Stock actually
issued to the holder of such option or share issuance.
C. Should any change be made to the Common Stock issuable under the
Plan by reason of any stock split, stock dividend, recapitalization, combination
of shares, exchange of shares or other change affecting the outstanding Common
Stock as a class without the Corporation's receipt of consideration, then
appropriate adjustments shall be made to (i) the maximum number and/or class of
securities issuable under the Plan, (ii) the number and/or class of securities
for which automatic option grants are to be subsequently made per eligible
non-employee Board member under the Automatic Option Grant Program, (iii) the
number and/or class of securities and price per share in effect under each
outstanding option and (iv) the number and/or class of securities and price per
share in effect under each outstanding option incorporated into this Plan from
the Predecessor Plans. Such adjustments to the outstanding options are to be
effected in a manner which shall preclude the enlargement or dilution of rights
and benefits under such options. The adjustments determined by the Primary
Committee shall be final, binding and conclusive.
<PAGE>
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. TERMS AND CONDITIONS OF OPTIONS
Options granted pursuant to the Discretionary Option Grant Program
shall be authorized by action of the Plan Administrator and may, at the Plan
Administrator's discretion, be either Incentive Options or non-statutory
options. Individuals who are not Employees of the Corporation or its parent or
subsidiary corporations may only be granted non-statutory options. Each granted
option shall be evidenced by one or more instruments in the form approved by the
Plan Administrator; PROVIDED, however, that each such instrument shall comply
with the terms and conditions specified below. Each instrument evidencing an
Incentive Option shall, in addition, be subject to the applicable provisions of
Section II of this Article Two.
A. OPTION PRICE.
(1) The option price per share shall be fixed by the Plan
Administrator in accordance with the following provisions:
(i) The option price per share of the Common Stock subject
to an Incentive Option shall in no event be less than one hundred percent (100%)
of the Fair Market Value of such Common Stock on the grant date.
(ii) The option price per share of the Common Stock subject
to a non-statutory stock option shall in no event be less than eighty-five
percent (85%) of the Fair Market Value of such Common Stock on the grant date.
(2) The option price shall become immediately due upon exercise of
the option and, subject to the provisions of Section I of Article Five and the
instrument evidencing the grant, shall be payable in one of the following
alternative forms specified below:
- full payment in cash or check drawn to the Corporation's
order;
- full payment in shares of Common Stock held for the
requisite period necessary to avoid a charge to the Corporation's earnings for
financial reporting purposes and valued at Fair Market Value on the Exercise
Date (as such term is defined below);
- full payment in a combination of shares of Common Stock held
for the requisite period necessary to avoid a charge to the Corporation's
earnings for financial
9
<PAGE>
reporting purposes and valued at Fair Market Value on the Exercise Date and cash
or check drawn to the Corporation's order; or
- full payment through a broker-dealer sale and remittance
procedure pursuant to which the Optionee shall provide irrevocable written
instructions to (I) a Corporation-designated brokerage firm to effect the
immediate sale of the purchased shares and remit to the Corporation, out of the
sale proceeds available on the settlement date, sufficient funds to cover the
aggregate option price payable for the purchased shares plus all applicable
Federal and state income and employment taxes required to be withheld by the
Corporation in connection with such purchase and (II) to the Corporation to
deliver the certificates for the purchased shares directly to such brokerage
firm in order to complete the sale transaction.
For purposes of this subparagraph (2), the Exercise Date shall be the
date on which written notice of the option exercise is delivered to the
Corporation. Except to the extent the sale and remittance procedure is used in
connection with the exercise of the option, payment of the option price for the
purchased shares must accompany such notice.
B. TERM AND EXERCISE OF OPTIONS. Each option granted under this
Discretionary Option Grant Program shall be exercisable at such time or times
and during such period as is determined by the Plan Administrator and set forth
in the instrument evidencing the grant. No such option, however, shall have a
maximum term in excess of ten (10) years from the grant date. During the
lifetime of the Optionee, the option, together with any stock appreciation
rights pertaining to such option, shall `be exercisable only by the Optionee and
shall not be assignable or transferable by the Optionee except for a transfer of
the option effected by will or by the laws of descent and distribution following
the Optionee's death.
C. TERMINATION OF SERVICE.
(1) The following provisions shall govern the exercise period
applicable to any outstanding options held by the Optionee at the time of
cessation of Service or death.
- Should an Optionee cease Service for any reason
(including death or Permanent Disability) while holding one or more outstanding
options under this Article Two, then none of those options shall (except to the
extent otherwise provided pursuant to subparagraph C(3) below) remain
exercisable for more than a thirty-six (36)-month period (or such shorter period
determined by the Plan Administrator and set forth in the instrument evidencing
the grant) measured from the date of such cessation of Service.
- Any option held by the Optionee under this Article Two
and exercisable in whole or in part on the date of his or her death may be
subsequently exercised by the personal representative of the Optionee's estate
or by the person or persons to whom the
10
<PAGE>
option is transferred pursuant to the Optionee's will or in accordance with the
laws of descent and distribution. Such exercise, however, must occur prior to
the EARLIER of (i) the first anniversary of the date of the Optionee's death or
(ii) the specified expiration date of the option term. Upon the occurrence of
the earlier event, the option shall terminate.
- Under no circumstances shall any such option be
exercisable after the specified expiration date of the option term.
- During the applicable post-Service exercise period, the
option may not be exercised in the aggregate for more than the number of shares
(if any) in which the Optionee is vested at the time of his or her cessation of
Service. Upon the expiration of the limited post-Service exercise period or (if
earlier) upon the specified expiration date of the option term, each such option
shall terminate and cease to be outstanding with respect to any vested shares
for which the option has not otherwise been exercised. However, each outstanding
option shall immediately terminate and cease to be outstanding, at the time of
the Optionee's cessation of Service, with respect to any shares for which the
option is not otherwise at that time exercisable or in which the Optionee is not
otherwise vested.
- Should (i) the Optionee's Service be terminated for
misconduct (including, but not limited to, any act of dishonesty, willful
misconduct, fraud or embezzlement) or (ii) the Optionee make any unauthorized
use or disclosure of confidential information or trade secrets of the
Corporation or its parent or subsidiary corporations, then in any such event all
outstanding options held by the Optionee under this Article Two shall terminate
immediately and cease to be outstanding.
(2) The Plan Administrator shall have complete discretion,
exercisable either at the time the option is granted or at any time while the
option remains outstanding, to permit one or more options held by the Optionee
under this Article Two to be exercised, during the limited post-Service exercise
period applicable under subparagraph (1) above, not only with respect to the
number of vested shares of Common Stock for which each such option is
exercisable at the time of the Optionee's cessation of Service but also with
respect to one or more subsequent installments of vested shares for which the
option would otherwise have become exercisable had such cessation of Service not
occurred.
(3) The Plan Administrator shall also have full power and authority
to extend the period of time for which the option is to remain exercisable
following the Optionee's cessation of Service (or death or Permanent Disability)
from the limited period in effect under subparagraph (1) above to such greater
period of time as the Plan Administrator shall deem appropriate. In no event,
however, shall such option be exercisable after the specified expiration date of
the option term.
11
<PAGE>
D. STOCKHOLDER RIGHTS. An Optionee shall have no stockholder rights
with respect to any shares covered by the option until such individual shall
have exercised the option and paid the option price for the purchased shares.
E. REPURCHASE RIGHTS.
The shares of Common Stock acquired upon the exercise of any Article
Two option grant may be subject to repurchase by the Corporation in accordance
with the following provisions:
(a) The Plan Administrator shall have the discretion to
authorize the issuance of unvested shares of Common Stock under this
Article Two. Should the Optionee cease Service while holding such unvested
shares, the Corporation shall have the right to repurchase any or all of
those unvested shares at the option price paid per share. The terms and
conditions upon which such repurchase right shall be exercisable (including
the period and procedure for exercise and the appropriate vesting schedule
for the purchased shares) shall be established by the Plan Administrator
and set forth in the instrument evidencing such repurchase right.
(b) All of the Corporation's outstanding repurchase rights under
this Article Two shall automatically terminate, and all shares subject to
such terminated rights shall immediately vest in full, upon the occurrence
of a Corporate Transaction.
(c) The Plan Administrator shall have the discretionary
authority, exercisable either before or after the Optionee's cessation of
Service, to cancel the Corporation's outstanding repurchase rights with
respect to one or more shares purchased or purchasable by the Optionee
under this Discretionary Option Grant Program and thereby accelerate the
vesting of such shares in whole or in part at any time.
II. INCENTIVE OPTIONS
The terms and conditions specified below shall be applicable to all
Incentive Options granted under this Article Two. Incentive Options may only be
granted to individuals who are Employees of the Corporation. Options which are
specifically designated as non-statutory options when issued under the Plan
shall NOT be subject to such terms and conditions.
A. DOLLAR LIMITATION. The aggregate Fair Market Value (determined as
of the respective date or dates of grant) of the Common Stock for which one or
more options granted to any Employee under this Plan (or any other option plan
of the Corporation or its parent or subsidiary corporations) may for the first
time become exercisable as incentive stock options under the Federal tax laws
during any one calendar year shall not exceed the sum of One
12
<PAGE>
Hundred Thousand Dollars ($100,000). To the extent the Employee holds two (2) or
more such options which become exercisable for the first time in the same
calendar year, the foregoing limitation on the exercisability of such options as
incentive stock options under the Federal tax laws shall be applied on the basis
of the order in which such options are granted. Should the number of shares of
Common Stock for which any Incentive Option first becomes exercisable in any
calendar year exceed the applicable One Hundred Thousand Dollar ($100,000)
limitation, then that option may nevertheless be exercised in that calendar year
for the excess number of shares as a non-statutory option under the Federal tax
laws.
B. 10% STOCKHOLDER. If any individual to whom an Incentive Option is
granted is the owner of stock (as determined under Section 424(d) of the Code)
possessing more than ten percent (10%) of the total combined voting power of all
classes of stock of the Corporation or any one of its parent or subsidiary
corporations, then the option price per share shall not be less than one hundred
and ten percent (110%) of the Fair Market Value per share of Common Stock on the
grant date, and the option term shall not exceed five (5) years measured from
the grant date.
Except as modified by the preceding provisions of this Section II, the
provisions of Articles One, Two and Five of the Plan shall apply to all
Incentive Options granted hereunder.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction or Change in Control,
each option which is at the time outstanding under this Article Two shall
automatically accelerate so that each such option shall, immediately prior to
the specified effective date for the Corporate Transaction or Change in Control,
respectively, become fully exercisable with respect to the total number of
shares of Common Stock at the time subject to such option and may be exercised
for all or any portion of such shares.
B. Upon the consummation of the Corporate Transaction, all
outstanding options under this Article Two shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation or its
parent company. Any options accelerated in connection with the Change in Control
shall remain fully exercisable until the expiration or sooner termination of the
option term.
C. Each outstanding option under this Article Two which is assumed
in connection with the Corporate Transaction or is otherwise to continue in
effect shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply and pertain to the number and class of securities which
would have been issued to the option holder, in consummation of such Corporate
Transaction, had such person exercised the option immediately prior to such
Corporate Transaction. Appropriate adjustments shall also be made to the option
price payable per share, PROVIDED the aggregate option price payable for such
securities shall
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<PAGE>
remain the same. In addition, the class and number of securities available for
issuance under the Plan following the consummation of the Corporate Transaction
shall be appropriately adjusted.
D. The grant of options under this Article Two shall in no way
affect the right of the Corporation to adjust, reclassify, reorganize or
otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
E. The exercisability as incentive stock options under the Federal
tax laws of any options accelerated under this Section III in connection with a
Corporate Transaction or Change in Control shall remain subject to the dollar
limitation of Section II of this Article Two. To the extent such dollar
limitation is exceeded, the accelerated option shall be exercisable as a
non-statutory option under the Federal tax laws.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any time
and from time to time, with the consent of the affected optionees, the
cancellation of any or all outstanding options under this Article Two (including
outstanding options under the Predecessor Plans incorporated into this Plan) and
to grant in substitution new options under the Plan covering the same or
different numbers of shares of Common Stock but with an option price per share
not less than (i) eighty-five percent (85%) of the Fair Market Value of the
Common Stock on the new grant date or (ii) one hundred percent (100%) of such
Fair Market Value in the case of an Incentive Option or (iii) one hundred and
ten percent (110%) of such Fair Market Value in the case of an Incentive Option
granted to a 10% Stockholder.
V. STOCK APPRECIATION RIGHTS
A. Provided and only if the Primary Committee determines in its
discretion to implement the stock appreciation right provisions of this Section
V, one or more Optionees may be granted the right, exercisable upon such terms
and conditions as the Primary Committee may establish, to surrender all or part
of an unexercised option under this Article Two in exchange for a distribution
from the Corporation in an amount equal to the excess of (i) the Fair Market
Value (on the option surrender date) of the number of shares in which the
Optionee is at the time vested under the surrendered option (or surrendered
portion thereof) over (ii) the aggregate option price payable for such vested
shares.
B. No surrender of an option shall be effective hereunder unless it
is approved by the Primary Committee. If the surrender is so approved, then the
distribution to which the Optionee shall accordingly become entitled under this
Section V may be made in shares of Common Stock valued at Fair Market Value on
the option surrender date, in cash,or
14
<PAGE>
partly in shares and partly in cash, as the Primary Committee shall in its
sole discretion deem appropriate.
C. If the surrender of an option is rejected by the Primary
Committee, then the Optionee shall retain whatever rights the Optionee had under
the surrendered option (or surrendered portion thereof) on the option surrender
date and may exercise such rights at any time prior to the LATER of (i) five (5)
business days after the receipt of the rejection notice or (ii) the last day on
which the option is otherwise exercisable in accordance with the terms of the
instrument evidencing such option, but in no event may such rights be exercised
more than ten (10) years after the date of the option grant.
D. One or more officers of the Corporation subject to the
short-swing profit restrictions of the Federal securities laws may, in the
Primary Committee's sole discretion, be granted limited stock appreciation
rights in tandem with their outstanding options under the Plan. Upon the
occurrence of a Hostile Take-Over effected at any time when the corporation's
outstanding Common Stock is registered under Section 12(g) of the 1934 Act, the
officer shall have a thirty (30)-day period in which he or she may surrender any
outstanding options with such a limited stock appreciation right in effect for
at least six (6) months to the Corporation, to the extent such option is at the
time exercisable for fully-vested shares of Common Stock. The officer shall in
return be entitled to a cash distribution from the Corporation in an amount
equal to the excess of (i) the Take-Over Price of the vested shares of Common
Stock at the time subject to each surrendered option (or surrendered portion of
such option) over (ii) the aggregate option price payable for such shares. The
cash distribution payable upon such option surrender shall be made within five
(5) days following the consummation of the Hostile Take-Over. Neither the
approval of the Primary Committee nor the consent of the Board shall be required
in connection with such option surrender and cash distribution. Any
unsurrendered portion of the option shall continue to remain outstanding and
become exercisable in accordance with the terms of the instrument evidencing
such grant.
E. The shares of Common Stock subject to any option surrendered for
an appreciation distribution pursuant to this Section V shall NOT be available
for subsequent option grant under the Plan.
15
<PAGE>
ARTICLE THREE
AUTOMATIC OPTION GRANT PROGRAM
I. ELIGIBILITY
The individuals eligible to receive automatic option grants pursuant
to the provisions of this Article Three shall be limited to the individuals who
are first elected or appointed as non-employee Board members on or after
November 5, 1993, whether through appointment by the Board or election by the
Corporation's stockholders, and each individual who serves as a non-employee
Board member thereafter. In no event, however, shall a non-employee Board member
be eligible to participate in the Automatic Option Grant Program if such
individual has at any time been in the prior employ of the Corporation (or any
parent or subsidiary corporation). Each non-employee Board member eligible to
participate in the Automatic Option Grant Program pursuant to the foregoing
criteria shall be designated an Eligible Director for purposes of the Plan.
II. TERMS AND CONDITIONS OF AUTOMATIC OPTION GRANTS
A. GRANT DATES. Option grants will be made under this Article Three
on the dates specified below:
(i) Each Eligible Director who first becomes a non-employee
Board member at any time after November 5, 1993, whether through election
at an Annual Stockholders Meeting or through appointment by the Board,
shall automatically be granted, at the time of such initial election or
appointment, a non-statutory stock option to purchase 10,000 shares of
Common Stock upon the terms and conditions of this Article Three.
(ii) Each Eligible Director who is serving as a nonemployee Board
member on November 5, 1993 shall automatically be granted, on such date, a
non-statutory stock option to purchase 10,000 shares of Common Stock upon
the terms and conditions of this Article Three.
(iii) On the date of each Annual Stockholders Meeting,
beginning with the 1995 Annual Stockholders Meeting, each Eligible Director
who is at the time serving as a non-employee member of the Board shall
automatically be granted at that meeting, whether or not such individual is
standing for re-election as a Board Member at that particular meeting, a
non-statutory stock option under the Plan to purchase 2,500 shares of
Common Stock, provided such individual has served as a non-employee Board
member for at least six (6) months prior to the date of such meeting.
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<PAGE>
The 10,000-share limitation on the initial automatic option grants and
the 2,500-share limitation on the subsequent automatic option grants to be made
to each Eligible Director shall be subject to periodic adjustment pursuant to
the applicable provisions of paragraph VI.C of Article One.
B. Option price. The option price per share of Common Stock subject
to each automatic option grant made under this Article Three shall be equal to
one hundred percent (100%) of the Fair Market Value per share of Common Stock on
the automatic grant date.
C. PAYMENT.
The option price shall be payable in one of the alternative forms
specified below:
(i) full payment in cash or check drawn to the Corporation's
order;
(ii) full payment in shares of Common Stock held for the
requisite period necessary to avoid a charge to the Corporation's earnings
for financial reporting purposes and valued at Fair Market Value on the
Exercise Date (as such term is defined below);
(iii) full payment in a combination of shares of Common Stock
held for the requisite period necessary to avoid a charge to the
Corporation's earnings for financial reporting purposes and valued at Fair
Market Value on the Exercise Date and cash or check drawn to the
Corporation's order; or
(iv) full payment through a broker-dealer sale and remittance
procedure pursuant to which the Optionee shall provide irrevocable written
instructions to (I) a Corporation-designated brokerage firm to effect the
immediate sale of the purchased shares and remit to the Corporation, out of
the sale proceeds available on the settlement date, sufficient funds to
cover the aggregate option price payable for the purchased shares plus all
applicable Federal and state income and employment taxes required to be
withheld by the Corporation in connection with such purchase and (II) to
the Corporation to deliver the certificates for the purchased shares
directly to such brokerage firm in order to complete the sale transaction.
For purposes of this subparagraph C, the Exercise Date shall be
the date on which written notice of the option exercise is delivered to the
Corporation. Except to the extent the sale and remittance procedure
specified above is used for the exercise of the option, payment of the
option price for the purchased shares must accompany the exercise notice.
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<PAGE>
D. OPTION TERM. Each automatic grant under this Article Three shall
have a maximum term of ten (10) years measured from the automatic grant date.
E. EXERCISABILITY. Each 10,000-share initial automatic grant shall
become exercisable in a series of four (4) equal and successive annual
installments over the Optionee's period of service on the Board, with the first
such installment to become exercisable one year after the automatic grant date.
Each 2,500-share subsequent automatic grant shall become exercisable in full on
the fourth (4th) anniversary of the automatic grant date, provided the Optionee
remains in service on the Board. The exercisability of each automatic grant
outstanding under this Article Three shall be accelerated as provided in Section
II.G and Section III of this Article Three.
F. NON-TRANSFERABILITY. During the lifetime of the Optionee, each
automatic option grant, together with the limited stock appreciation right
pertaining to such option, shall be exercisable only by the Optionee and shall
not be assignable or transferable by the Optionee other than a transfer of the
option effected by will or by the laws of descent and distribution following
Optionee's death.
G. EFFECT OF TERMINATION OF BOARD MEMBERSHIP.
1. Should the Optionee cease to serve as a Board member for any
reason (other than death) while holding an automatic option grant under this
Article Three, then such individual shall have a three (3)-month period
following the date of such cessation of Board membership in which to exercise
such option for any or all of the shares of Common Stock for which the option is
exercisable at the time of such cessation of Board service. Such option shall
immediately terminate and cease to be outstanding, at the time of such cessation
of Board service, with respect to any shares for which the option is not
otherwise at that time exercisable.
2. Should the Optionee die within three (3) months after
cessation of Board service, then any automatic option grant held by the Optionee
at the time of death may subsequently be exercised, for any or all of the shares
of Common Stock for which such option is exercisable at the time of the
Optionee's cessation of Board service (less any option shares subsequently
purchased by the Optionee prior to death), by the personal representative of the
Optionee's estate or by the person or persons to whom the option is transferred
pursuant to the Optionee's will or in accordance with the laws of descent and
distribution. Any such exercise must occur within twelve (12) months after the
date of the Optionee's death.
3. Should the Optionee die while serving as a Board member,
then any automatic option grant held by such Optionee under this Article Three
shall accelerate in full, and the representative of the Optionee's estate or the
person or persons to whom the option is transferred upon the Optionee's death
shall have a twelve (12)-month period following the date of the Optionee's
cessation of Board membership in which to exercise such option for any or all
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<PAGE>
of the shares of Common Stock subject to that option at the time of such death,
provided the option has been outstanding for at least one (1) year at the time
of death.
4. In no event shall any automatic grant under this Article
Three remain exercisable after the expiration date of the ten (10)-year option
term. Upon the expiration of the applicable post-service exercise period under
subparagraph 1, 2 or 3 above or (if earlier) upon the expiration of the ten
(10)-year option term, the automatic grant shall terminate and cease to be
outstanding for any unexercised shares for which the option was otherwise
exercisable at the time of the Optionee's cessation of Board service.
H. STOCKHOLDER RIGHTS. The holder of an automatic option grant under
this Article Three shall have none of the rights of a stockholder with respect
to any shares subject to such option until such individual shall have exercised
the option and paid the option price for the purchased shares.
I. REMAINING TERMS. The remaining terms and conditions of each
automatic option grant shall be as set forth in the form Director Automatic
Grant Agreement attached as Exhibit A.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction and in connection with
any Change in Control of the Corporation, each automatic option grant at the
time outstanding under this Article Three shall automatically accelerate so that
each such option shall, immediately prior to the specified effective date for
the Corporate Transaction or Change in Control, as applicable, become fully
exercisable with respect to the total number of shares of Common Stock at the
time subject to such option and may be exercised for all or any portion of such
shares. Upon the consummation of the Corporate Transaction, all automatic option
grants under this Article Three shall terminate and cease to be outstanding. Any
options accelerated in connection with the Change in Control shall remain fully
exercisable until the expiration or sooner termination of the option term.
B. Upon the occurrence of a Hostile Take-Over, the Optionee shall
have a thirty (30)-day period in which to surrender each option held by him or
her under this Article Three to the Corporation, to the extent such option has
been outstanding for a period of at least six (6) months to the Corporation. The
Optionee shall in return be entitled to a cash distribution from the Corporation
in an amount equal to the excess of (i) the Take-Over Price of the shares of
Common Stock at the time subject to the surrendered option (whether or not the
option is otherwise at the time exercisable for such shares) over (ii) the
aggregate option price payable for such shares. Such cash distribution shall be
paid within five (5) days following the
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<PAGE>
consummation of the Hostile Take-Over. Neither the approval of the Committee nor
the consent of the Board shall be required in connection with such option
surrender and cash distribution.
C. The shares of Common Stock subject to each option surrendered in
connection with the Hostile Take-Over shall NOT be available for subsequent
option grant under this Plan
D. The automatic option grants outstanding under this Article Three
shall in no way affect the right of the Corporation to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
IV. AMENDMENT OF THE AUTOMATIC GRANT PROVISIONS
The provisions of this Automatic Option Grant Program, together with
the automatic option grants outstanding under this Article Three, may not be
amended at intervals more frequently than once every six (6) months, other than
to the extent necessary to comply with applicable Federal income tax laws and
regulations.
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ARTICLE FOUR
STOCK ISSUANCE PROGRAM
I. TERMS AND CONDITIONS OF STOCK ISSUANCES
Shares may be issued under the Stock Issuance Program through direct
and immediate purchases without any intervening stock option grants. The issued
shares shall be evidenced by a Stock Issuance Agreement ("Issuance Agreement")
that complies with the terms and conditions of this Article Four.
A. CONSIDERATION.
1. Shares of Common Stock drawn from the Corporation's
authorized but unissued shares of Common Stock ("Newly Issued Shares") shall be
issued under the Stock Issuance Program for one or more of the following items
of consideration which the Plan Administrator may deem appropriate in each
individual instance:
(i) cash or check drawn to the Corporation's order;
(ii) a promissory note payable to the Corporation's
order in one or more installments, which may be subject to
cancellation in whole or in part upon terms and conditions established
by the Plan Administrator; or
(iii) past services rendered to the Corporation or any
parent or subsidiary corporation.
2. Newly Issued Shares may, in the absolute discretion of the
Plan Administrator, be issued for consideration with a value less than one
hundred percent (100%) of the Fair Market Value of such shares at the time of
issuance, but in no event less than eighty-five percent (85%) of such Fair
Market Value.
3. Shares of Common Stock reacquired by the Corporation and
held as treasury shares ("Treasury Shares") may be issued under the Stock
Issuance Program for such consideration (including one or more of the items of
consideration specified in subparagraph 1 above) as the Plan Administrator may
deem appropriate, whether such consideration is in an amount less than, equal
to, or greater than the Fair Market Value of the Treasury Shares at the time of
issuance. Treasury Shares may, in lieu of any cash consideration, be issued
subject to such vesting requirements tied to the Participant's period of future
Service or the Corporation's attainment of specified performance objectives as
the Plan Administrator may establish at the time of issuance.
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B. VESTING PROVISIONS.
1. Shares of Common Stock issued under the Stock Issuance
Program may, in the absolute discretion of the Plan Administrator, be fully and
immediately vested upon issuance or may vest in one or more installments over
the Participant's period of Service. The elements of the vesting schedule
applicable to any unvested shares of Common Stock issued under the Stock
Issuance Program, namely:
(i) the Service period to be completed by the Participant or the
performance objectives to be achieved by the Corporation,
(ii) the number of installments in which the shares are to vest,
(iii) the interval or intervals (if any) which are to lapse
between installments, and
(iv) the effect which death, Permanent Disability or other event
designated by the Plan Administrator is to have upon the vesting schedule,
shall be determined by the Plan Administrator and incorporated into the Issuance
Agreement executed by the Corporation and the Participant at the time such
unvested shares are issued.
2. The Participant shall have full stockholder rights with
respect to any shares of Common Stock issued to him or her under the Plan,
whether or not his or her interest in those shares is vested. Accordingly, the
Participant shall have the right to vote such shares and to receive any regular
cash dividends paid on such shares. Any new, additional or different shares of
stock or other property (including money paid other than as a regular cash
dividend) which the Participant may have the right to receive with respect to
his or her unvested shares by reason of any stock dividend, stock split,
reclassification of Common Stock or other similar change in the Corporation's
capital structure or by reason of any Corporate Transaction shall be issued,
subject to (i) the same vesting requirements applicable to his or her unvested
shares and (ii) such escrow arrangements as the Plan Administrator shall deem
appropriate.
3. Should the Participant cease to remain in Service while
holding one or more unvested shares of Common Stock under the Plan, then those
shares shall be immediately surrendered to the Corporation for cancellation, and
the Participant shall have no further stockholder rights with respect to those
shares. To the extent the surrendered shares were previously issued to the
Participant for consideration paid in cash or cash equivalent (including the
Participant's purchase-money promissory note), the Corporation shall repay to
the Participant the cash consideration paid for the surrendered shares and shall
cancel the unpaid principal balance of any outstanding purchase-money note of
the Participant attributable to such surrendered shares. The surrendered shares
may, at the Plan Administrator's discretion, be
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retained by the Corporation as Treasury Shares or may be retired to authorized
but unissued share status.
4. The Plan Administrator may in its discretion elect to waive
the surrender and cancellation of one or more unvested shares of Common Stock
(or other assets attributable thereto) which would otherwise occur upon the
non-completion of the vesting schedule applicable to such shares. Such waiver
shall result in the immediate vesting of the Participant's interest in the
shares of Common Stock as to which the waiver applies. Such waiver may be
effected at any time, whether before or after the Participant's cessation of
Service or the attainment or non-attainment of the applicable performance
objectives.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL
Upon the occurrence of any Corporate Transaction or Change in Control,
all unvested shares of Common Stock at the time outstanding under the Stock
Issuance Program shall immediately vest in full.
III. TRANSFER RESTRICTIONS/SHARE ESCROW
A. Unvested shares may, in the Plan Administrator's discretion, be
held in escrow by the Corporation until the Participant's interest in such
shares vests or may be issued directly to the Participant with restrictive
legends on the certificates evidencing such unvested shares. To the extent an
escrow arrangement is utilized, the unvested shares and any securities or other
assets issued with respect to such shares (other than regular cash dividends)
shall be delivered in escrow to the Corporation to be held until the
Participant's interest in such shares (or other securities or assets) vests.
Alternatively, if the unvested shares are issued directly to the Participant,
the restrictive legend on the certificates for such shares shall read
substantially as follows:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE UNVESTED AND ARE
ACCORDINGLY SUBJECT TO (I) CERTAIN TRANSFER RESTRICTIONS AND (II)
CANCELLATION OR REPURCHASE IN THE EVENT THE REGISTERED HOLDER (OR
HIS/HER PREDECESSOR IN INTEREST) CEASES TO REMAIN IN THE CORPORATION'S
SERVICE. SUCH TRANSFER RESTRICTIONS AND THE TERMS AND CONDITIONS OF
SUCH CANCELLATION OR REPURCHASE ARE SET FORTH IN A STOCK ISSUANCE
AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED HOLDER (OR
HIS/HER PREDECESSOR IN INTEREST) DATED ____________, 199____, A COPY
OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THE CORPORATION."
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B. The Participant shall have no right to transfer any unvested
shares of Common Stock issued to him or her under the Stock Issuance Program.
For purposes of this restriction, the term "transfer" shall include (without
limitation) any sale, pledge, assignment, encumbrance, gift, or other
disposition of such shares, whether voluntary or involuntary. Upon any such
attempted transfer, the unvested shares shall immediately be cancelled, and
neither the Participant nor the proposed transferee shall have any rights with
respect to those shares. However, the Participant shall have the right to make a
gift of unvested shares acquired under the Stock Issuance Program to his or her
spouse or issue, including adopted children, or to a trust established for such
spouse or issue, provided the donee of such shares delivers to the Corporation a
written agreement to be bound by all the provisions of the Stock Issuance
Program and the Issuance Agreement applicable to the gifted shares.
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ARTICLE FIVE
MISCELLANEOUS
I. LOANS OR INSTALLMENT PAYMENTS
A. The Plan Administrator may, in its discretion, assist any
Optionee or Participant (including an Optionee or Participant who is an officer
or director of the Corporation, but not an Optionee who is a member of the
Primary Committee) in the exercise of one or more options granted to such
Optionee under the Discretionary Option Grant Program or the purchase of one or
more shares issued to such Participant under the Stock Issuance Program,
including the satisfaction of any Federal and state income and employment tax
obligations arising therefrom, by (i) authorizing the extension of a loan from
the Corporation to such Optionee or Participant or (ii) permitting the Optionee
or Participant to pay the option price or purchase price for the purchased
Common Stock in installments over a period of years. The terms of any loan or
installment method of payment (including the interest rate and terms of
repayment) shall be upon such terms as the Plan Administrator specifies in the
applicable option or issuance agreement or otherwise deems appropriate under the
circumstances. Loans or installment payments may be authorized with or without
security or collateral. However, the maximum credit available to the Optionee or
Participant may not exceed the option or purchase price of the acquired shares
(less the par value of such shares) plus any Federal and state income and
employment tax liability incurred by the Optionee or Participant in connection
with the acquisition of such shares.
B. The Plan Administrator may, in its absolute discretion, determine
that one or more loans extended under this financial assistance program shall be
subject to forgiveness by the Corporation in whole or in part upon such terms
and conditions as the Plan Administrator may deem appropriate.
II. AMENDMENT OF THE PLAN AND AWARDS
A. The Board has complete and exclusive power and authority to amend
or modify the Plan (or any component thereof) in any or all respects whatsoever.
However, no such amendment or modification shall adversely affect rights and
obligations with respect to options at the time outstanding under the Plan, nor
adversely affect the rights of any Participant with respect to Common Stock
issued under the Stock Issuance Program prior to such action, unless the
Optionee or Participant consents to such amendment, and (ii) any amendment made
to the Automatic Option Grant Program (or any options outstanding thereunder)
shall be in compliance with the limitation of Section IV of Article Three. In
addition, the Board may not, without the approval of the Corporation's
stockholders, amend the Plan to (i) materially increase the maximum number of
shares issuable under the Plan, except for permissible adjustments under Section
VI.C of Article One, (ii) materially modify the eligibility requirements for
Plan participation or (iii) materially increase the benefits accruing to Plan
participants.
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B. (i) Options to purchase shares of Common Stock may be granted
under the Plan and (ii) shares of Common Stock may be issued under the Stock
Issuance Program, which are in both instances in excess of the number of shares
then available for issuance under the Plan, provided any excess shares actually
issued are held in escrow until stockholder approval is obtained for a
sufficient increase in the number of shares available for issuance under the
Plan. If such stockholder approval is not obtained within twelve (12) months
after the date the first such excess option grants or excess share issuances are
made, then (I) any unexercised excess options shall terminate and cease to be
exercisable and (II) the Corporation shall promptly refund the purchase price
paid for any excess shares actually issued under the Plan and held in escrow,
together with interest (at the applicable Short Term Federal Rate) for the
period the shares were held in escrow.
III. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common Stock
upon the exercise of stock options for such shares or the vesting of such shares
under the Plan shall be subject to the satisfaction of all applicable Federal,
state and local income tax and employment tax withholding requirements.
B. The Plan Administrator may, in its discretion and in accordance
with the provisions of this Section III of Article Five and such supplemental
rules as the Plan Administrator may from time to time adopt (including the
applicable safe-harbor provisions of Rule 16b-3 of the Securities and Exchange
Commission), provide any or all holders of non-statutory options granted under
the Discretionary Option Grant Program or unvested shares under the Plan with
the right to use shares of Common Stock in satisfaction of all or part of the
Federal, state and local income and employment tax liabilities incurred by such
holders in connection with the exercise of their options or the vesting of their
shares (the "Taxes"). Such right may be provided to any such holder in either or
both of the following formats:
1. STOCK WITHHOLDING: The holder of the non-statutory option or
unvested shares may be provided with the election to have the Corporation
withhold, from the shares of Common Stock otherwise issuable upon the exercise
of such non-statutory option or the vesting of such shares, a portion of those
shares with an aggregate Fair Market Value equal to the percentage of the
applicable Taxes (not to exceed one hundred percent (100%)) designated by the
holder.
2. STOCK DELIVERY: The Plan Administrator may, in its
discretion, provide the holder of the non-statutory option or the unvested
shares with the election to deliver to the Corporation, at the time the
non-statutory option is exercised or the shares vest, one or more shares of
Common Stock previously acquired by such individual (other than in connection
with the option exercise or share vesting triggering the Taxes) with an
aggregate Fair Market
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Value equal to the percentage of the Taxes incurred in connection with such
option exercise or share vesting (not to exceed one hundred percent (100%))
designated by the holder.
IV. EFFECTIVE DATE AND TERM OF PLAN
A. The Plan was adopted by the Board on August 11, 1993 as the
successor to the Predecessor Plans and was approved by Cornerstone Technology,
Inc., the sole stockholder of the Corporation, on September 1, 1993. The Plan
became effective on September 8, 1993, the date on which the shares of the
Corporation's common stock were first registered under Section 12(g) of the 1934
Act.
B. Each stock option grant outstanding under the Predecessor Plans
immediately prior to the Effective Date shall be incorporated into this Plan and
treated as an outstanding option under this Plan, but each such option shall
continue to be governed solely by the terms and conditions of the instrument
evidencing such grant, and nothing in this Plan shall be deemed to affect or
otherwise modify the rights or obligations of the holders of such options with
respect to their acquisition of shares of Common Stock thereunder. Each unvested
share of Common Stock outstanding under the Predecessor Plans on the Effective
Date shall continue to be governed solely by the terms and conditions of the
instrument evidencing such share issuance, and nothing in this Plan shall be
deemed to affect or otherwise modify the rights or obligations of the holder of
such unvested shares.
C. On February 2, 1994, the Board adopted a restatement of the Plan
to (i) increase the number of shares issuable thereunder by 400,000 shares and
(ii) impose a limitation on the maximum number of shares for which any one
individual participating in the Plan may be granted stock options and separately
exercisable stock appreciation rights after December 31, 1993. The 1994
restatement was approved by the Corporation's stockholders at the 1994 Annual
Stockholders Meeting. On January 31, 1995, the Board approved an increase in the
number of shares issuable under the Plan by 350,000 shares. The 1995 restatement
was approved by the Corporation's stockholders at the 1995 Annual Stockholders
Meeting. On January 30, 1996, the Board approved (i) an increase in the number
of shares issuable under the Plan by 500,000 shares and (ii) a 500,000-share
limitation on the maximum number of shares that any Optionee or Participant may
receive in the aggregate over the term of the Plan, exclusive of option grants
or stock awards made prior to January 1, 1996. The 500,000-share increase
became effective when adopted by the Board, but no option granted on the basis
of such increase shall become exercisable in whole or in part, unless and until
the increase shall have been approved by the Corporation's stockholders. The
1996 restatement was approved by the Corporation's stockholders at the 1996
Annual Stockholders Meeting.
D. The option/vesting acceleration provisions of Section III of
Article Two and Section III of Article Three and Section II of Article Four
relating to Corporate Transactions and Changes in Control may, in the Plan
Administrator's discretion, be extended to one or more
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stock options or unvested share issuances which are outstanding under the
Predecessor Plans on the Effective Date but which do not otherwise provide for
such acceleration.
E. The Plan shall terminate upon the EARLIER of (i) August 10, 2003
or (ii) the date on which all shares available for issuance under the Plan shall
have been issued or cancelled pursuant to the exercise, surrender or cash-out of
the options granted under the Plan or the issuance of shares (whether vested or
unvested) under the Stock Issuance Program. If the date of termination is
determined under clause (i) above, then all option grants and unvested share
issuances outstanding on such date shall thereafter continue to have force and
effect in accordance with the provisions of the instruments evidencing such
grants or issuances.
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of shares
pursuant to option grants or share issuances under the Plan shall be used for
general corporate purposes.
VI. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any option under
the Plan, the issuance of any shares under the Stock Issuance Program, and the
issuance of Common Stock upon the exercise or surrender of the option grants
made hereunder shall be subject to the Corporation's procurement of all
approvals and permits required by regulatory authorities having jurisdiction
over the Plan, the options granted under it, and the Common Stock issued
pursuant to it
B. No shares of Common Stock or other assets shall be issued or
delivered under this Plan unless and until there shall have been compliance with
all applicable requirements of Federal and state securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Common Stock issuable under the Plan, and all applicable listing requirements
of any securities exchange on which stock of the same class is then listed.
VII. NO EMPLOYMENT/SERVICE RIGHTS
Neither the action of the Corporation in establishing the Plan, nor
any action taken by the Plan Administrator hereunder, nor any provision of the
Plan shall be construed so as to grant any individual the right to remain in the
employ or Service of the Corporation (or any parent or subsidiary corporation)
for any period of specific duration, and the Corporation (or any parent or
subsidiary corporation retaining the services of such individual) may terminate
such individual's employment or Service at any time and for any reason, with or
without cause.
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VII. MISCELLANEOUS PROVISIONS
A. The right to acquire Common Stock or other assets under the Plan
may not be assigned, encumbered or otherwise transferred by any Optionee or
Participant.
B. The provisions of the Plan relating to the exercise of options
and the vesting of shares shall be governed by the laws of the State of
California, as such laws are applied to contracts entered into and performed in
such State.
C. The provisions of the Plan shall inure to the benefit of, and be
binding upon, the Corporation and its successors or assigns, whether by
Corporate Transaction or otherwise, and the Participants and Optionees, the
legal representatives of their respective estates, their respective heirs or
legatees and their permitted assignees.
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