<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 23, 1997
REGISTRATION STATEMENT NO. 333-________
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-8
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
----------------
NETSCAPE COMMUNICATIONS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
DELAWARE 94-3200270
- ------------------------------- -----------------------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
501 EAST MIDDLEFIELD ROAD, MOUNTAIN VIEW, CALIFORNIA 94043
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
DIGITALSTYLE CORPORATION PORTOLA COMMUNICATIONS, INC.
1995 STOCK OPTION/STOCK ISSUANCE PLAN 1996 STOCK OPTION PLAN
(FULL TITLE OF THE PLANS)
----------------
ROBERTA R. KATZ
SENIOR VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
NETSCAPE COMMUNICATIONS CORPORATION
501 EAST MIDDLEFIELD ROAD
MOUNTAIN VIEW, CALIFORNIA 94043
(415) 254-1900
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
----------------
Copy to:
LARRY W. SONSINI, ESQ.
JAMES N. STRAWBRIDGE, ESQ.
JON C. GONZALES, ESQ.
WILSON SONSINI GOODRICH & ROSATI
PROFESSIONAL CORPORATION
650 PAGE MILL ROAD
PALO ALTO, CA 94304-1050
(415) 493-9300
----------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED PER SHARE (3) PRICE FEE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DigitalStyle Corporation 1995 Stock
Option/Stock Issuance Plan (1) 7,408 shares $ .11 $ 850 $ .26
Common Stock, $.0001 par value 75,565 shares $ .92 $ 69,356 $ 21.02
Portola Communications, Inc. (2) 82,599 shares $ .60 $ 49,559 $ 15.02
1996 Stock Option Plan Common Stock 17,693 shares $ 1.49 $ 26,363 $ 7.99
$.0001 par value 10,584 shares $26.71 $282,699 $ 85.67
TOTAL: 193,849 shares $129.96
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================================================================================================================
</TABLE>
(1) Pursuant to an Agreement and Plan of Reorganization dated as of April 25,
1997 (the "DigitalStyle Reorganization Agreement"), among the Registrant,
DSC Acquisition Corporation and DigitalStyle Corporation
("DigitalStyle"), the Registrant assumed all of the outstanding options
to purchase common stock of DigitalStyle under the 1995 Stock
Option/Stock Issuance Plan (the "DigitalStyle Assumed Options"), with
appropriate adjustments to the number of shares and exercise price of
each DigitalStyle Assumed Option to reflect the ratio at which the common
stock of DigitalStyle was converted into common stock of the Registrant
under the DigitalStyle Reorganization Agreement.
(2) Pursuant to an Agreement and Plan of Reorganization dated as of April 30,
1997 (the "Portola Reorganization Agreement"), among the Registrant, PCI
Acquisition Corporation and Portola Communications, Inc. ("Portola"), the
Registrant assumed all of the outstanding options to purchase common
stock of Portola under the 1996 Stock Option Plan (the "Portola Assumed
Options"), with appropriate adjustments to the number of shares and
exercise price of each Portola Assumed Option to reflect the ratio at
which the common stock of Portola was converted into common stock of the
Registrant under the Portola Reorganization Agreement.
(3) Such shares are issuable upon exercise of outstanding options with fixed
exercise prices. Pursuant to Rule 457(h), the aggregate offering price
and the fee have been computed upon the basis of the price at which the
options may be exercised. The offering price per share set forth for
such shares is the weighted average exercise price per share at which
such options are exercisable.
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<PAGE>
PART I
INFORMATION REQUIRED IN THE PROSPECTUS
ITEM 1. PLAN INFORMATION.
The documents containing the information specified in this Item 1 will
be sent or given to employees, officers, directors or others as specified by
Rule 428(b)(1). In accordance with the rules and regulations of the
Securities and Exchange Commission (the "Commission") and the instructions to
Form S-8, such documents are not being filed with the Commission either as
part of this Registration Statement or as prospectuses or prospectus
supplements pursuant to Rule 424.
ITEM 2. REGISTRATION INFORMATION AND EMPLOYEE PLAN ANNUAL INFORMATION.
The documents containing the information specified in this Item 2 will
be sent or given to employees, officers, directors or others as specified by
Rule 428(b)(1). In accordance with the rules and regulations of the
Commission and the instructions to Form S-8, such documents are not being
filed with the Commission either as part of this Registration Statement or as
prospectuses or prospectus supplements pursuant to Rule 424.
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
ITEM 3. INCORPORATION OF DOCUMENTS BY REFERENCE.
The following documents and information heretofore filed with the
Securities and Exchange Commission (the "Commission") by the Company (File
No. 0-26310) are incorporated herein by reference:
(a) The Company's Annual Report on Form 10-K, filed with the Commission
on March 28, 1997 pursuant to Section 13 (a) promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act");
(b) The Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 1997 filed pursuant to the Exchange Act;
(c) The Company's Proxy Statement for its Annual Meeting of Stockholders
held on May 30, 1997;
(d) All other documents filed by the Company pursuant to Section 13(a) or
15(d) of the Exchange Act since the end of the fiscal year covered by
the annual report referred to in (a) above; and
(e) The description of the Company's Common Stock contained in the
Company's Registration Statement on Form 8-A, filed with the
Commission on June 23, 1995, as amended by the Company's Registration
Statement on Form 8-A/A filed on August 4, 1995.
All documents subsequently filed with the Commission by Registrant
pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act, prior to
the filing of a post-effective amendment which indicates that all securities
offered hereunder have been sold or which deregisters all securities then
remaining unsold under this registration
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<PAGE>
statement, shall be deemed to be incorporated by reference in this
registration statement and to be 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.
None.
ITEM 6. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As permitted by Section 145 of the Delaware General Corporation Law, the
Registrant's Amended and Restated Certificate of Incorporation includes a
provision that eliminates the personal liability of its directors for
monetary damages for breach or alleged breach of their duty of care. In
addition, as permitted by Section 145 of the Delaware General Corporation
Law, the Amended and Restated Bylaws of the Registrant provide that: (i) the
Registrant is required to indemnify its directors and officers and persons
serving in such capacities in other business enterprises (including, for
example, subsidiaries of the Registrant) at the Registrant's request, to the
fullest extent permitted by Delaware law, including in those circumstances in
which indemnification would otherwise be discretionary; (ii) the Registrant
may, in its discretion, indemnify employees and agents in those circumstances
where indemnification is not required by law; (iii) the Registrant is
required to advance expenses, as incurred, to its directors and officers in
connection with defending a proceeding (except that it is not required to
advance expenses to a person against whom the Registrant brings a claim for
breach of the duty of loyalty, failure to act in good faith, intentional
misconduct, knowing violation of law or deriving an improper personal
benefit); (iv) the rights conferred in the Amended and Restated Bylaws are
not exclusive, and the Registrant is authorized to enter into indemnification
agreements with its directors, officers and employees; and (v) the Registrant
may not retroactively amend the Bylaw provisions in a way that is adverse to
such directors, officers and employees.
The Registrant's policy is to enter into indemnification agreements with
each of its directors and officers that provide the maximum indemnity allowed
to directors and officers by Section 145 of the Delaware General Corporation
Law and the Amended and Restated Bylaws, as well as certain additional
procedural protections. In addition, the indemnification agreements provide
that directors and officers will be indemnified to the fullest possible
extent not prohibited by law against all expenses (including attorney's fees)
and settlement amounts paid or incurred by them in an action or proceeding,
including any action by or in the right of the Registrant, arising out of
such person's services as a director or officer of the Registrant, any
subsidiary of the Registrant or any other company or enterprise to which such
person provides services at the request of the Registrant. The Registrant
will not be obligated pursuant to the indemnification agreements to indemnify
or advance expenses to an indemnified party with respect to proceedings or
claims initiated by the indemnified party and not by way of defense, except
with respect to proceedings specifically authorized by the Board of Directors
or brought to enforce a right to indemnification under the indemnification
agreement, the Registrants's Amended and Restated Bylaws or any statute or
law. Under the agreements, the Registrant is not obligated to indemnify the
indemnified party (i) for any expenses incurred by the indemnified party with
respect to any proceeding instituted by the indemnified party to enforce or
interpret the agreement, if a court of competent jurisdiction determines that
each of the material assertions made by the indemnified party in such
proceeding was not made in good faith or was frivolous; (ii) for any amounts
paid in settlement of a proceeding unless the Registrant consents to such
settlement; (iii) with respect to any proceeding brought by the Registrant
against the indemnified party for willful misconduct, unless a court
determines that each of such claims was not made in good faith or was
frivolous; (iv) on account of any suit in which judgment is rendered against the
-3-
<PAGE>
indemnified party for an accounting of profits made from the purchase or sale
by the indemnified party of securities of the Registrant pursuant to the
provisions of Section 16(b) of the Securities Exchange Act and related laws;
(v) on account of the indemnified party's conduct which is finally adjudged
to have been knowingly fraudulent or deliberately dishonest, or to constitute
willful misconduct or a knowing violation of the law; (vi) on account of any
conduct from which the indemnified party derived an improper personal
benefit; (vii) on account of conduct the indemnified party believed to be
contrary to the best interests of the Registrant or its stockholders; (viii)
on account of conduct that constituted a breach of the indemnified party's
duty of loyalty to the Registrant or its stockholders; or (ix) if a final
decision by a court having jurisdiction in the matter shall determine that
such indemnification is not lawful.
The indemnification provisions in the Amended and Restated Bylaws and
the indemnification agreements entered into between the Registrant and its
directors and officers may be sufficiently broad to permit indemnification of
the Registrant's directors and officers for liabilities arising under the
Securities Act of 1933.
ITEM 7. EXEMPTION FROM REGISTRATION CLAIMED.
Not applicable.
ITEM 8. INDEX TO EXHIBITS.
Exhibit
Number Description of Document
- ---------- --------------------------------------------------------------------
4.1* Specimen Certificate representing the Common Stock of the Registrant
4.2** Amended and Restated Certificate of Incorporation of Registrant
4.3** Amended and Restated Bylaws of Registrant
4.4 DigitalStyle Corporation 1995 Stock Option/Stock Issuance Plan
4.5 Form of Notice of Grant of Stock Option
4.6 Form of DigitalStyle Corporation Stock Option Agreement
4.7 Form of DigitalStyle Corporation Stock Purchase Agreement
4.8 Portola Communications, Inc. 1996 Stock Option Plan
4.9 Form of Portola Communications, Inc. Incentive Stock Option
Agreement
4.10 Form of Portola Communications, Inc. Nonstatutory Stock Option
Agreement
5.1 Opinion of Counsel as to legality of securities being registered
23.1 Consent of Independent Auditors
23.2 Consent of Counsel (contained in Exhibit 5.1)
24.1 Powers of Attorney (included as part of the signature page of this
registration statement)
- ---------------
* Filed as Exhibit 4.1 to Registrant's Registration Statement on Form
S-1 (File No. 33-93862) and incorporated herein by reference
** Incorporated by reference to the Registrant's Form 10-K filed with the
Commission on March 28, 1997.
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<PAGE>
ITEM 9. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission pursuant
to Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate offering price
set forth in the "Calculation of Registration Fee" table in the effective
registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
PROVIDED, HOWEVER, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply
if the registration statement is on Form S-3 or Form S-8, and 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 Securities Exchange Act of 1934 that are incorporated
by reference in this registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes
of determining any liability under the Securities Act of 1933, each filing of
the Registrant's annual report pursuant to section 13(a) or section 15(d) of
the Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 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
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act of 1933 and will be governed
by the final adjudication of such issue.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-8 and has duly caused this
registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Mountain View, State of California,
on this 20th day of June 1997.
NETSCAPE COMMUNICATIONS CORPORATION
By: /s/ Peter L.S. Currie
------------------------------------
Peter L.S. Currie,
Senior Vice President and Chief
Financial Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints James L. Barksdale, Roberta R. Katz
and Peter L.S. Currie jointly and severally, as such person's
attorneys-in-fact, each with the power of substitution, for him or her in any
and all capacities, to sign any amendments to this Registration Statement on
Form S-8 and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorney-in-fact, or his or
her substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the date indicated.
SIGNATURES TITLE DATE
---------- ----- ----
/s/ James L. Barksdale
- ------------------------ President, Chief Executive Officer June 23, 1997
James L. Barksdale (PRINCIPAL EXECUTIVE OFFICER)
and Director
/s/ Peter L.S. Currie
- ------------------------ Senior Vice President and Chief June 23, 1997
Peter L.S. Currie Financial Officer (PRINCIPAL
FINANCIAL OFFICER)
/s/ Noreen G. Bergin
- ------------------------ Vice President and Corporate June 23, 1997
Noreen G. Bergin Controller (PRINCIPAL ACCOUNTING
OFFICER)
/s/ James H. Clark
- ------------------------ Chairman of the Board of Directors June 23, 1997
James H. Clark
/s/ Marc L. Andreessen
- ------------------------ Senior Vice President, Technology June 23, 1997
Marc L. Andreessen and Director
- ------------------------ Director June ___, 1997
Eric A. Benhamou
- ------------------------ Director June ___, 1997
L. John Doerr
/s/ John E. Warnock
- ------------------------ Director June 23, 1997
John E. Warnock
<PAGE>
INDEX TO EXHIBITS
Exhibit Sequentially
Number Description of Document Numbered Page
- -------- ----------------------------------------------------- -------------
4.1* Specimen Certificate representing the Common Stock of
the Registrant
4.2** Amended and Restated Certificate of Incorporation of
Registrant
4.3** Amended and Restated Bylaws of Registrant
4.4 DigitalStyle Corporation 1995 Stock Option/Stock
Issuance Plan
4.5 Form of Notice of Grant of Stock Option
4.6 Form of DigitalStyle Corporation Stock Option
Agreement
4.7 Form of DigitalStyle Corporation Stock Purchase
Agreement
4.8 Portola Communications, Inc. 1996 Stock Option Plan
4.9 Form of Portola Communications, Inc. Incentive Stock
Option Agreement
4.10 Form of Portola Communications, Inc. Nonstatutory
Stock Option Agreement
5.1 Opinion of Counsel as to legality of securities being
registered
23.1 Consent of Independent Auditors
23.2 Consent of Counsel (contained in Exhibit 5.1)
24.1 Powers of Attorney (included as part of the signature
page of this registration statement)
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* Filed as Exhibit 4.1 to Registrant's Registration Statement on Form S-1
(File No. 33-93862) and incorporated herein by reference
** Incorporated by reference to the Registrant's Form 10-K filed with the
Commission on March 28, 1997.
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<PAGE>
EXHIBIT 4.4
DIGITAL STYLE CORPORATION
1995 STOCK OPTION/STOCK ISSUANCE PLAN
ARTICLE I
GENERAL PROVISIONS
1. PURPOSE
This 1995 Stock Option/Stock Issuance Plan ("Plan") is intended to
promote the interests of DIGITAL STYLE CORPORATION (the "Corporation"), by
providing individuals who render valuable services to the Corporation (or any
Parent or Subsidiary) with the opportunity to acquire ownership interests in the
Corporation so as to encourage them to continue to render services to the
Corporation (or any Parent or Subsidiary).
2. STRUCTURE OF THE PLAN; TERMINOLOGY
This Plan has two separate components: the Option Grant Program set
forth in Article II and the Stock Issuance Program set forth in Article III.
For the purposes of this Plan, any capitalized term shall have the meaning
assigned under Article IV, Section 8 hereof.
3. ADMINISTRATION OF THE PLAN
A. This Plan shall be administered either by the board of directors
of the Corporation (the "Board") or a committee of two (2), or more Board
members appointed by the Board to which the Board has delegated administrative
functions under the Plan (the "Plan Administrator"). Members of any committee
to which the Board has delegated any administrative functions shall serve for
such terms as the Board shall determine and subject to the Board's right of
removal. All delegations of authority to any committee shall be and remain
revocable by the Board.
B. The Plan Administrator shall have full power and authority to
implement, interpret and administer the Plan, to establish all such rules and
regulations as it deems appropriate, and to make such determinations under the
Plan and any outstanding option grants or share issuances as it deems necessary
or advisable. Decisions of the Plan Administrator shall be final and binding on
all parties who have an interest in the Plan or any outstanding option or share
issuance.
4. SELECTION OF OPTIONEES AND PARTICIPANTS
A. The persons eligible to receive share issuances under the Stock
Issuance Program and/or option grants pursuant to the Option Grant Program are
limited to Employees; non-employee members of the Board (or the Board of any
Parent or Subsidiary); and consultants and other independent contractors who
provide valuable services to the Corporation (or to any Parent or Subsidiary).
B. The Plan Administrator shall have the absolute discretion and
authority to determine, subject to the provisions of this Plan, the terms of
any option grant or share issuance. In addition to any other matters over
which the Plan
<PAGE>
Administrator has discretion hereunder, the Plan Administrator shall
determine which, if any, eligible individuals will be granted options in
accordance with Article II of the Plan and which will be issued shares in
accordance with Article III of the Plan. With respect to option grants made
under the Plan, the Plan Administrator will determine the number of shares to
be covered by each such grant, the status of the granted option as either an
Incentive Option or a Non-Statutory Option, the time or times at which each
granted option is to become exercisable, the exercise price payable under the
option, the vesting schedule (if any) applicable to shares issued pursuant to
the granted options, and the maximum term for which the option may remain
outstanding. With respect to share issuances under the Stock Issuance
Program, in addition to other matters over which the Plan Administrator has
discretion hereunder, the Plan Administrator will determine the number of
shares to be issued to each issuee, the vesting schedule (if any) applicable
to the issued shares, and the consideration to be paid by the individual for
such shares.
C. Stock issuable under the Plan, whether under the Option Grant
Program or the Stock Issuance Program, may be subject to such restrictions on
transfer, repurchase rights or other restrictions as may be imposed by the Plan
Administrator and set forth in the documents governing such option or issuance.
5. STOCK SUBJECT TO THE PLAN
A. Common stock of the Corporation ("Common Stock") will be issued
under the Plan. The maximum number of shares of Common Stock which may be
issued over the term of the Plan shall not exceed 580,000 shares, subject to
adjustment from time to time in accordance with the provisions of this Section 5
of Article I.
B. Shares reserved for Issuance under granted options but not in
fact issued pursuant to options granted under the Plan due to the expiration or
termination of the option or the cancellation of the option in accordance with
Section 3 of Article II, will remain available for issuance under the Plan.
Shares actually issued under the Plan, whether pursuant to the exercise of an
option under the Option Grant Program or a stock issuance pursuant to the Stock
Issuance Program, which are subsequently repurchased by the corporation will not
be available for future issuance.
C. In the event any change is made to the Common Stock issuable
under the Plan by reason of any stock dividend, stock split, combination of
shares, exchange of shares or other change affecting the outstanding Common
Stock as a class without receipt of consideration, then appropriate adjustments
shall be made to (i) the aggregate number and/or class of shares issuable under
the Plan and (ii) the aggregate number and/or class of shares and the option
price per share in effect under each outstanding option in order to prevent
the dilution or enlargement of benefits thereunder. The adjustments
determined by the Plan Administrator shall be final, binding and conclusive.
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<PAGE>
6. AMENDMENT OF THE PLAN AND AWARDS
A. The Board shall have complete and exclusive power and authority
to amend or modify the Plan in any or all respects whatsoever. However, no such
amendment or modification shall adversely affect the express rights or
obligations of an optionee with respect to options at the time outstanding under
the Plan, nor adversely affect the express rights of any issuee with respect to
Common Stock issued under the Plan prior to such action unless such optionee or
issuee consents to such amendment. In addition, the Board shall not, without
the approval of the Corporation's shareholders, amend the Plan so as to (i)
increase the maximum number of shares issuable under the Plan (except for
adjustments required under Article I, Section 5.C), (ii) materially increase the
benefits accruing under the Plan for individual optionees or issuees, or (iii)
materially modify the eligibility requirements for participation in the Plan.
B. Options to purchase shares of Common Stock may be granted under
the Option Grant Program and shares of Common Stock may be issued under the
Stock Issuance Program, which are in excess of the number of shares then
available for issuance under be Plan, PROVIDED any excess shares actually issued
under the Option Grant Program or the Stock Issuance Program are held in escrow
until shareholder approval of an amendment sufficiently increasing the number of
shares of Common Stock available for issuance under the Plan is obtained. If
such approval is not obtained within twelve (12) months after the date the
initial excess options are granted or issuances are made, then (I) any
unexercised options representing such excess shall terminate and cease to be
exercisable, (II) the Corporation shall promptly refund to the optionees and
issuees the option or purchase price paid for any excess shares issued under the
Plan and held in escrow, together with interest (at the applicable Short Term
Federal Rate) for the period the shares were held in escrow, and (III) any such
shares shall thereupon be automatically cancelled and cease to be outstanding.
7. EFFECTIVE DATE AND TERM OF PLAN
A. The Plan shall become effective when adopted by the Board.
Options to purchase shares of Common Stock may be granted under the Option Grant
Program and shares of Common Stock may be issued under the Stock Issuance
Program from and after the effective date, PROVIDED any shares actually issued
under the Plan are held in escrow until shareholder approval of the Plan is
obtained. If such approval is not obtained within twelve (12) months after the
effective date, then (I) all options shall terminate and cease to be
exercisable, (II) the Corporation shall promptly refund to the optionees and
issuees the option or purchase price paid for any shares issued under the Plan,
together with interest (at the applicable Short Term Federal Rate) for the
period the shares were held in escrow, (III) any such shares issued under the
Plan shall thereupon be automatically canceled and cease to be outstanding, and
(IV) this Plan shall terminate in its entirety.
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<PAGE>
B. Unless sooner terminated by reason of Section 7A of this
Article I, the Plan shall terminate upon the EARLIER of (i) December 31, 2005,
or (ii) the date on which all shares available for issuance under the Plan
have been issued pursuant to the exercise of options granted under Article II
or the issuance of shares under Article III. The termination of the Plan
shall have no effect on any shares issued and outstanding under the Plan, and
such securities shall thereafter continue to have force and effect in
accordance with the provisions of the agreements evidencing such issuances.
8. NO EMPLOYMENT OR SERVICE RIGHTS
Nothing in the Plan shall confer upon any person any right to continue in
Service for any period of specific duration or interfere with or otherwise
restrict in any way the rights of the Corporation (or any Parent or Subsidiary)
or of the optionee or the issuee, which rights are hereby expressly reserved by
each, to terminate Service of the optionee or issuee at any time for any reason
whatsoever, with or without cause or to engage in any recapitalization,
reorganization or other corporate transaction whatsoever.
ARTICLE II
OPTION GRANT PROGRAM
1. TERMS AND CONDITIONS OF OPTIONS
Options granted pursuant to the Plan 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, except that individuals who
are not Employees 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 of Section 1 of this Article II and each
instrument evidencing an Incentive Option shall, in addition, comply with the
provisions of Section 2 of this Article II.
A. OPTION PRICE.
(I) The option price per share shall be fixed by the Plan
Administrator. In no event, however, shall the option price per share be less
than eighty-five percent (85%) of the Fair Market Value of a share of Common
Stock on the date of the option grant.
(II) The option price per share shall become immediately
due upon exercise of the option and shall, subject to the provisions of Article
IV, Section 1 and the agreement evidencing such grant, be payable in cash or
check drawn to the Corporation's order. Notwithstanding the above, should the
Corporation's outstanding Common Stock be registered under Section 12(g) of the
1934 Act, at the time the option is exercised, then the option price may also be
paid as follows:
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<PAGE>
- in shares of Common Stock held by the optionee for the
requisite period necessary to avoid a charge to the Corporation's
earnings for financial reporting purposes and valued at Fair Market
Value; or
- through a special sale and remittance procedure pursuant
to which the optionee provides irrevocable written instructions (I)
to a 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, an amount sufficient 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 by reason of such purchase and (II)
to the Corporation to deliver the certificates for the purchased
shares directly to such brokerage firm in order to effect the sale
transaction.
Except to the extent such sale and remittance procedure is utilized, payment of
the option price must occur at the time the option is exercised.
B. TERM AND EXERCISE OF OPTIONS. Each option granted under the Plan
shall be exercisable at such time or times, during such period, and for such
number of shares as shall be determined by the Plan Administrator and set forth
in the stock option agreement evidencing such option. However, no option
granted under the Plan shall have a term in excess of ten (10) years from the
grant date.
C. NO ASSIGNMENT. During the lifetime of the optionee, the option
shall be exercisable only by the optionee and shall not be assignable or
transferable by the optionee otherwise than by will or by the laws of descent
and distribution following the optionee's death.
D. TERMINATION OF SERVICE. The following provisions shall govern the
exercise period applicable to any options held by the optionee at the time of
cessation of Service or death:
(I) Should the optionee cease to remain in Service for
any reason other than death or Permanent Disability, then the period during
which each outstanding option held by such optionee is to remain exercisable
shall be limited to the three (3)-month period following the date of
such cessation of Service.
(II) Should such Service terminate by reason of
Permanent Disability or should the optionee die while holding one or more
outstanding options, then the period during which each such option is to remain
exercisable shall be limited to the twelve (12)-month period following the date
of the optionee's cessation of Service or death. During the limited exercise
period following the optionee's death, the option may be exercised by the
personal representative of the optionee's estate or by the person or persons to
whom the option is transferred pursuant to the optionee's will or in accordance
with the laws of descent and distribution.
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<PAGE>
(III) The Plan Administrator shall have full power and
authority to extend (either at the time the option is granted or at any time
while the option remains outstanding) the period of time for which the option is
to remain exercisable following the optionee's cessation of Service, from the
limited period otherwise applicable under this subsection 1D of Article II, to
such greater period of time as the Plan Administrator may deem appropriate under
the circumstances.
(IV) Notwithstanding the above no option shall be
exercisable after the specified expiration date of the option term.
(V) Each option shall, during the applicable limited
exercise period, be exercisable only with respect to the shares for which the
option was exercisable on the date of the optionee's cessation of Service.
E. LEAVE OF ABSENCE. An optionee shall not be considered to have
terminated his or her Service to the Company by reason of any leave of absence
approved by the Company or to which the optionee may be entitled under law.
Notwithstanding the above, no rights of an optionee under any option which are
dependent upon the continued performance of Service shall accrue or vest
optionee during any such leave of absence unless otherwise provided by the Plan
Administrator in the agreement evidencing the option or in the exercise of its
discretion hereunder. The Plan Administrator shall make such adjustments to the
vesting schedule otherwise applicable with respect to the optionee as it deems
appropriate to reflect the suspension of such accrual or vesting during any such
leave of absence.
F. SHAREHOLDER RIGHTS. An optionee shall not have rights as a
shareholder with respect to any shares subject to an option until such optionee
shall have exercised the option and paid the option price.
2. INCENTIVE OPTIONS
All provisions of the Plan shall be applicable to Incentive Options
granted hereunder and, in addition, the terms and conditions specified in this
Section 2 shall be applicable to Incentive Options granted under the Plan.
Options which are specifically designated as Non-Statutory Options when issued
under the Plan shall NOT be subject to such terms and conditions set forth
herein.
A. OPTION PRICE.
(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 a share of Common Stock on the grant
date.
(II) If the individual to whom the option is granted is a 10%
Shareholder, then the option price per share shall not be less than one hundred
ten percent (110%) of the Fair Market Value of the Common Stock on the date of
the option grant.
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<PAGE>
B. DOLLAR LIMITATION. The aggregate Fair Market Value (determined as
of the date or dates of grant) of Common Stock which first becomes exercisable
during any one calendar year as Incentive Options granted to any Employee under
any option plan of the Corporation (or any parent or subsidiary corporation)
shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To the
extent the Employee holds options which become exercisable in the same calendar
year, the foregoing limitation on such options shall be applied on the basis of
the order in which such options are granted. Any options in excess of such
limitation which purport to be Incentive Options shall automatically be treated
as Non-statutory Options.
C. TERM OF OPTION FOR 10% SHAREHOLDERS. No option granted to a 10%
Shareholder shall have a term in excess of five (5) years from the grant date.
3. CANCELLATION AND NEW GRANT 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 the Plan and the grant in
substitution therefor of new options under the Plan covering the same or a
different numbers of shares of Common Stock but having an option price per share
established at the time of such cancellation and regrant in accordance with the
provisions of this Plan.
ARTICLE III
STOCK ISSUANCE PROGRAM
1. STOCK ISSUANCES
Shares of Common Stock shall be issuable under the Stock Issuance
Program through direct and immediate issuances without any intervening stock
option grants. Each such stock issuance shall be evidenced by a Stock Issuance
Agreement ("Issuance Agreement") in a form acceptable to the Plan Administrator,
which form shall be in compliance with the provisions of the Plan.
2. ISSUE PRICE
The purchase price per share shall be fixed by the Plan Administrator,
but in no event shall it be less than eighty-five percent (85%) of the Fair
Market Value of a share of Common Stock at the time of issuance.
3. PAYMENT OF ISSUE PRICE
Except as provided in Article IV, Section 1, shares shall be issued
only in exchange for cash, a check payable to the Corporation, for services
previously rendered to the Corporation (or any Parent or Subsidiary) or such
other lawful consideration as may be acceptable to the Plan Administrator.
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<PAGE>
ARTICLE IV
MISCELLANEOUS
1. LOANS
A. The Plan Administrator may assist any optionee or issuee (other
than a non-employee director) in the exercise of one or more options granted to
such optionee under the Option Grant Program or the purchase of one or more
shares to be issued to such issuee 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 issuee, or (ii) permitting the optionee or
issuee to pay the option price or purchase price for the purchased Common Stock
in installments over a period of years.
B. The terms of any loan or installment method of payment (including
the interest rate and terms of repayment) shall be established by the Plan
Administrator in its sole discretion. Loans or installment payments may be
authorized with or without security or collateral. However, any loan made to a
consultant or other non-employee advisor must be secured by property other than
the purchased shares of Common Stock. In all events the maximum credit
available to each optionee or issuee may not exceed the SUM of (i) the aggregate
option price or purchase price payable for the purchased shares plus (ii) any
Federal and State income and employment tax liability incurred by the optionee
or issuee in connection with such exercise or purchase.
C. The Plan Administrator may, in its absolute discretion, determine
that one or more loans extended under the financial assistance program shall be
subject to forgiveness by the Corporation in whole or in part upon such terms
and conditions as the Board in its discretion deems appropriate.
2. VESTING OF SHARES AND REPURCHASE RIGHTS
A. The Plan Administrator, in its absolute discretion may issue
fully and immediately vested shares of Common Stock, or the Plan
Administrator may impose such vesting requirements as it deems appropriate with
the Corporation retaining a right to repurchase any unvested shares. The terms
of the vesting schedule and of the Corporation's repurchase rights shall be as
determined by the Plan Administrator and set forth in the agreement governing
such issuance.
B. Any new, additional or different shares of stock or other
property (including money paid other than as a regular cash dividend) which the
holder of unvested Common Stock may have the right to receive by reason of a
stock dividend, stock split, reclassification or other change affecting the
outstanding Common Stock as a class without the Corporation's receipt of
consideration shall be issued subject to (i) the same vesting and repurchase
limitations applicable to the unvested Common Stock with respect to which it was
paid or arose, and (ii) such escrow arrangements as the Plan Administrator shall
deem appropriate.
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<PAGE>
C. No person to whom shares of Common Stock have been issued
pursuant to the Plan may transfer any such shares which have not vested.
Notwithstanding the above, the issuee shall have the right to make a gift of
unvested shares acquired under the Plan to his/her spouse, parents or issue or
to a trust established for such spouse, parents or issue, provided the
transferee of such shares delivers to the Corporation a written agreement to be
bound by all the provisions of the Plan and the Issuance or Stock Purchase
Agreement executed by the issuee at the time of her/her acquisition of the
gifted shares.
3. MARKET STAND-OFF AGREEMENTS
The Plan Administrator may require each person to whom any shares are
issued under this Plan to enter into an agreement which restricts or prohibits
the sale of any stock of the Corporation by such person for a reasonable period
of time following a public offering of any shares of stock by the Corporation.
4. RIGHT OF FIRST REFUSAL
Until such time as the Corporation's outstanding shares of Common
Stock are first registered under Section 12(g) of the 1934 Act, the Plan
Administrator may subject any shares issued pursuant to the Plan to a right of
first refusal with respect to any proposed disposition of such shares other than
a transfer permitted by Section 2.C of this Article IV. Such right of first
refusal shall be exercisable by the Corporation (or is assignees) in accordance
with the terms and conditions specified in the instrument governing the issuance
of such shares.
5. SECURITIES LAWS; LEGENDS
A. No shares of Common Stock or other assets shall be issued or
delivered under this Plan unless and until the Corporation shall have determined
that there has been full and adequate compliance with all applicable
requirements of the Federal and state securities laws and all other applicable
legal and regulatory requirements.
B. Shares issued under the Plan shall bear such legends as the Plan
Administrator deems necessary or appropriate, including such restrictive legends
as the Plan Administrator shall require to reflect the terms of any agreement
between the issuee and the Corporation.
6. SHAREHOLDER RIGHTS
Subject to the rights of the Corporation set forth herein or in any
other agreement entered into between the Corporation and an issuee of shares
under the Plan, each person to whom shares of Common Stock have been issued
under the Plan shall have all the rights of a shareholder with respect to those
shares whether or not his/her interest in such shares is vested. Accordingly,
the issuee shall have the right to vote such shares and to receive any cash
dividends or other distributions paid or made with respect to such shares.
-9-
<PAGE>
7. ACCELERATION
The Plan Administrator may, in its discretion, provide for the
automatic acceleration, upon a change of control, corporate transaction and/or
other circumstance, of the time at which any option will become exercisable or
for the lapse of any repurchase right tied to vesting by including a provision
to such effect in the documents evidencing the rights of the optionee or
issuee. The Plan Administrator may accelerate exercisability and/or vesting
at such other times as it may determine in its sole discretion.
8. DEFINITIONS
The following definitions shall be in effect under this Plan:
A. EMPLOYEE shall mean an individual who is in the employ of the
Corporation or any Parent or Subsidiary, subject to the control and direction of
the employer entity as to both the work to be performed and the manner and
method of performance.
B. FAIR MARKET VALUE per share of Common Stock on any relevant date
under the Plan shall be the value determined in accordance with the following
provisions:
(i) If the Common Stock is not at the time listed or
admitted to trading on any Stock Exchange but is traded on the
NASDAQ National Market System, the Fair Market Value shall be the
closing selling price per share of Common Stock on the date in
question, as the price is reported by the National Association of
Securities Dealers through the NASDAQ National Market System or any
successor system. If there is no closing selling price for the
Common Stock on the date in question, then the Fair Market Value
shall be the closing selling price on the last preceding date for
which such quotation exists.
(ii) If the Common Stock is at the time listed or admitted
to trading on any Stock Exchange, then the Fair Market Value shall be
the closing selling price per share of Common Stock on the date in
question on the Stock Exchange determined by the Plan Administrator
to be the primary market for the Common Stock; as such price is
officially quoted in the composite tape of transactions on such
exchange. If there is no closing selling price for the Common Stock
on the date in question, then the Fair Market Value shall be the
closing selling price on the last preceding date for which such
quotation exists.
(iii) If the Common Stock is at the time neither listed nor
admitted to trading on any Stock Exchange nor traded on the NASDAQ
National Market System, then such Fair Market Value shall be
determined by the Plan Administrator after taking into account such
factors as the Plan Administrator shall deem appropriate.
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<PAGE>
C. INCENTIVE OPTION shall mean a stock option which satisfies the
requirements of Internal Revenue Code Section 422.
D. NON-STATUTORY OPTION shall mean a stock option not intended to
meet the requirements of Code Section 422.
E. PARENT shall mean any corporation (other than the Corporation) in
an unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
F. PERMANENT DISABILITY shall have the meaning assigned to such term
in Code Section 22(e)(3).
G. SERVICE shall mean the provision of services to the Corporation
or any Parent or Subsidiary by an individual in the capacity of an Employee, a
nonemployee member of the Board or a consultant or independent contractor.
H. SUBSIDIARY shall mean each corporation (other than the
Corporation) in an unbroken chain of corporations beginning with 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.
I. 10% SHAREHOLDER shall mean the owner of stock (as determined
under Code Section 424(d)) possessing ten percent (10%) or more of the total
combined voting power of all classes of stock of the Corporation.
9. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the issuance of
shares of Common Stock under the Plan shall be used for general corporate
purposes.
10. WITHHOLDING
The Corporation's obligation to deliver shares upon the exercise of
any options granted under Article II or the purchase of any shares issued under
Article III shall be subject to the satisfaction of all applicable Federal,
State and local income and employment tax withholding requirements.
11. REGULATORY APPROVALS
The implementation of the Plan, the granting of any options under the
Option Grant Program, the issuance of any shares under the Stock Issuance
Program, and the issuance of Common Stock upon the exercise 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.
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<PAGE>
EXHIBIT 4.5
TIME VESTED
NO ACCELERATION
IMMEDIATELY EXERCISABLE
DIGITAL STYLE CORPORATION
NOTICE OF GRANT OF STOCK OPTION
Notice is hereby given of the following stock option grant (the
"Option") pursuant to the 1995 Stock Option/Stock Issuance Plan (the "Plan")
to purchase shares of the Common Stock of Digital Style Corporation (the
"Corporation"):
OPTIONEE: ________________________________________________
GRANT DATE:_______________________________________________
GRANT NUMBER:____________ OPTION PRICE: $_______ per share
VESTING COMMENCEMENT DATE:________________________________
NUMBER OF OPTION SHARES: __________________________ shares
EXPIRATION DATE: _________________________________________
TYPE OF OPTION: _____ Incentive Stock Option
_____ Non-Statutory Stock Option
DATE EXERCISABLE: ________________________________________
This Option may be exercised at any time for all or any portion of the
Option Shares, whether or not vested.
VESTING SCHEDULE
The Option Shares shall vest in accordance with the following vesting
schedule:
(i) No Option Shares shall vest unless and until the
Optionee has completed twelve (12) months of Service (as defined in the Plan)
measured from the Vesting Commencement Date.
(ii) Upon the completion of the twelve (12) month service
period specified in subparagraph (i) above, 25% of the Option Shares shall
become vested.
<PAGE>
(iii) The Remaining Option Shares shall vest in a series of
successive monthly installments ( the first such month and each month
thereafter), over each of the next thirty-six (36) months of Service completed
by the Optionee after the initial twelve (12) month Service period specified
in subparagraph (i) above.
Optionee understands that the Option is granted pursuant to the
Corporation's Plan. By signing below, optionee agrees to be bound by the terms
and conditions of the Plan and the terms and conditions of the Option as set
forth in the Stock Option Agreement attached hereto as Exhibit A. Optionee
understands that any Option Shares purchased under the Option will be subject to
the terms and conditions set forth in the Stock Purchase Agreement attached
hereto as Exhibit B.
Optionee hereby acknowledges receipt of a copy of the Plan in the
form attached hereto as Exhibit C.
REPURCHASE RIGHTS. THE OPTIONEE HEREBY AGREES THAT OPTION SHARES
ACQUIRED UPON THE EXERCISE OF THE OPTION SHALL BE SUBJECT TO REPURCHASE RIGHTS
AND RIGHTS OF FIRST REFUSAL EXERCISABLE BY THE CORPORATION AND ITS ASSIGNS UPON
ANY PROPOSED SALE, ASSIGNMENT, TRANSFER, ENCUMBRANCE OR OTHER DISPOSITION OF THE
CORPORATION'S SHARES. THE TERMS AND CONDITIONS OF SUCH RIGHTS ARE SPECIFIED IN
THE STOCK PURCHASE AGREEMENT.
NO EMPLOYMENT OR SERVICE CONTRACT. Nothing in this Agreement or
in the Plan shall confer upon the Optionee any right to continue in the Service
of the Corporation for any period of specific duration or interfere with or
otherwise restrict in any way the rights of the Corporation or the Optionee,
which rights are hereby expressly reserved by each, to terminate Optionee's
Service at any time for any reason whatsoever, with or without cause.
___________________, 199__
Date
Digital Style Corporation
By ________________________________________
Title: ____________________________________
___________________________________________
Optionee
Address:______________________________
______________________________________
<PAGE>
DIGITAL STYLE CORPORATION
STOCK OPTION AGREEMENT
RECITALS
A. The Board of Directors of the Corporation has adopted the DIGITAL
STYLE CORPORATION 1995 Stock Option/Stock Issuance Plan (the "Plan") for the
purpose of attracting and retaining the services of persons who contribute to
the growth and financial success of the Corporation.
B. Optionee is a person who the Plan Administrator believes has and
will contribute to the growth and financial success of the Corporation and this
Agreement is entered into pursuant to and is intended to carry out the purposes
of the Plan.
AGREEMENT
NOW, THEREFORE, it is hereby agreed as follows:
1. GRANT OF OPTION. Subject to and upon the terms and conditions set
forth in this Agreement, the Corporation hereby grants to Optionee, as of the
grant date (the "Grant Date") specified in the accompanying Notice of Grant of
Stock Option (the "Grant Notice"), a stock option to purchase up to that number
of shares of the Corporation's Common Stock (the "Option Shares") as is
specified in the Grant Notice. The Option Shares shall be purchasable from time
to time during the option term at the option price per share (the "Option
Price") specified in the Grant Notice.
2. OPTION TERM. This option shall expire at the close of business on
the expiration date (the "Expiration Date") specified in the Grant Notice,
unless sooner terminated in accordance with Paragraph 5, 6 or 17.
3. LIMITED TRANSFERABILITY. This option shall be neither
transferable nor assignable by Optionee other than by will or by the laws of
descent and distribution following Optionee's death and may be exercised, during
Optionee's lifetime, only by Optionee.
4. DATES OF EXERCISE. This option may not be exercised in whole or
in part at any time prior to the time the Plan is approved by the Corporation's
shareholders in accordance with Paragraph 17. Provided such shareholder
approval is obtained, this option shall thereupon become exercisable for the
Option Shares in one or more installments as is specified in the Grant Notice.
As the option becomes exercisable in one or more installments, the installments
shall accumulate and the option shall remain exercisable for such installments
until the Expiration Date or the sooner termination of the option term under
Paragraph 5 or Paragraph 6 of this Agreement.
5. ACCELERATED TERMINATION OF OPTION TERM. The option term
specified in Paragraph 2 shall terminate (and this option shall cease to be
exercisable in whole or in part) prior to the Expiration Date should any of the
following provisions become applicable:
<PAGE>
(i) Except as otherwise provided in subparagraph
(ii) or below, should Optionee cease to remain in Service while
this option is outstanding, then the period for exercising this
option shall be reduced to a three (3)-month period commencing with
the date of such cessation of Service, but in no event shall this
option be exercisable at any time after the Expiration Date. Upon
the expiration of such three (3)-month period or (if earlier) upon
the Expiration Date, this option shall terminate and cease to be
outstanding.
(ii) Should Optionee die while this option is
outstanding, then the personal representative of the Optionee's
estate or the person or persons to whom the option is transferred
pursuant to the Optionee's will or in accordance with the law of
descent and distribution shall have the right to exercise this
option. Such right shall lapse and this option shall cease to be
exercisable upon the EARLIER of (A) the expiration of the twelve
(12) month period measured from the date of Optionee's death or (B)
the Expiration Date. Upon the expiration of such twelve (12) month
period or (if earlier) upon the Expiration Date, this option shall
terminate and cease to be outstanding.
(iii) Should Optionee become permanently disabled
and cease by reason thereof to remain in Service while this option
is outstanding, then the Optionee shall have a period of twelve
(12) months (commencing with the date of such cessation of Service)
during which to exercise this option, but in no event shall this
option be exercisable at any time after the Expiration Date.
Optionee shall be deemed to be permanently disabled if Optionee is
unable to engage in any substantial gainful activity for the
Corporation or the parent or subsidiary corporation retaining
his/her services by reason of any medically determinable physical
or mental impairment, which can be expected to result in death or
which has lasted or can be expected to last for a continuous period
of not less than twelve (12) months. Upon the expiration of such
limited period of exercisability or (if earlier) upon the
Expiration Date, this option shall terminate and cease to be
outstanding.
(iv) During the limited. period of exercisability
applicable under subparagraph (i), (ii) or (iii) above,
this option may be exercised for any or all of the Option
Shares for which this option is, at the time of the Optionee's
cessation of Service, exercisable in accordance with the exercise
schedule specified in the Grant Notice and the provisions of
Paragraph 6 of this Agreement.
(v) For purposes of this Paragraph 5 and for all
other purposes under this Agreement:
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<PAGE>
A. The Optionee shall be deemed to remain in SERVICE for so
long as the Optionee continues to render periodic services to the
Corporation or any parent or subsidiary corporation, whether as an
Employee, a non-employee member of the board of directors, or an
independent contractor or consultant.
B. The Optionee shall be deemed to be an EMPLOYEE of the
Corporation and to continue in the Corporation's employ for so long as the
Optionee remains in the employ of the Corporation or one or more of its
parent or subsidiary corporations, subject to the control and direction of
the employer entity as to both the work to be performed and the manner and
method of performance.
C. A corporation shall be considered to be a SUBSIDIARY
corporation of the Corporation if it is a member of an unbroken chain of
corporations beginning with the Corporation, provided each such corporation
in the chain (other than the last corporation) owns, at the time of
determination, 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.
D. A corporation shall be considered to be a PARENT corporation
of the Corporation if it is a member of an unbroken chain ending with the
Corporation, provided each such corporation in the chain (other than the
Corporation) owns, at the time of determination, 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.
6. SPECIAL TERMINATION OF OPTION.
A. This Option, to the extent not previously exercised, shall
terminate and cease to be exercisable upon the consummation of one or more of
the following shareholder-approved transactions (a "Corporate Transaction")
unless this Option is expressly assumed by the successor corporation or parent
thereof:
(i) a merger or consolidation in which the Corporation is
not the surviving entity,
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets, or
(iii) any transaction (other than an issuance of shares by
the Corporation for cash) in or by means of which one or more persons
acting in concert acquire, in the aggregate, more than 50% of the
outstanding shares of the stock of the Corporation.
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<PAGE>
B. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate Adjustments shall also be made to (i) the number and class of
securities available for issuance under the Plan on both an aggregate and per
Optionee basis following the consummation of such Corporate Transaction and (ii)
the exercise price payable per share under each outstanding option, PROVIDED
the aggregate exercise price payable for such securities shall remain the same.
C. Any options which are assumed or replaced in the Corporate
Transaction and do not otherwise accelerate at that time, shall automatically
accelerate in the event the Optionee's Service should subsequently terminate by
reason of an Involuntary Termination within twelve (12) months following the
effective date of such Corporate Transaction. Any options so accelerated shall
remain exercisable for fully-vested shares until the EARLIER of (i) the
expiration of the option term or (ii) the expiration of the one (1)-year period
measured from the effective date of the Involuntary Termination. Involuntary
Termination shall mean the termination of the Service of any individual which
occurs by reason of such individual's involuntary dismissal or discharge by the
Corporation for reasons other than Misconduct, or such individual's voluntary
resignation following a reduction in his or her level of compensation (including
base salary, fringe benefits) by more than fifteen percent (15%) or a relocation
of such individual's place of employment by more than fifty (50) miles, provided
and only if such change, reduction or relocation is effected by the Corporation
without the individual's consent. Misconduct shall mean the commission of any
act of fraud, embezzlement or dishonesty by the Optionee or Participant, any
unauthorized use or disclosure by such person of confidential information or
trade secrets of the Corporation (or any Parent or Subsidiary), or any other
intentional misconduct by such person adversely affecting the business or
affairs of the Corporation (or any Parent or Subsidiary) in a material
manner. The foregoing definition shall not be deemed to be inclusive of all
the acts or omissions which the Corporation (or any Parent or Subsidiary) may
consider as grounds for the dismissal or discharge of any Optionee,
Participant or other person in the Service of the Corporation (or any Parent
or Subsidiary).
D. This Agreement shall not in any way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise make changes in its
capital or business structure or to merge, consolidate, dissolve, liquidate or
sell or transfer all or any part of its business or assets.
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<PAGE>
7. ADJUSTMENT IN OPTION SHARES.
A. In the event any change is made to the Corporation's
outstanding Common Stock by reason of any stock split, stock dividend,
combination of shares, exchange of shares, or other change affecting the
outstanding Common Stock as a class without receipt of consideration, then
appropriate adjustments shall be made to (i) the total number of Option
Shares subject to this option, (ii) the number of Option Shares for which
this option is to be exercisable from and after each installment date
specified in the Grant Notice and (iii) the Option Price payable per share in
order to reflect such change and thereby preclude a dilution or enlargement
of benefits hereunder, provided that no adjustment shall be made to the
option or the shares available under any option in connection with any
exchange of common stock issued to investors for Series A Preferred stock.
B. If this option is to be assumed in connection with a Corporate
Transaction described in Paragraph 6 or is otherwise to remain outstanding,
then this option shall be appropriately adjusted, immediately after such
Corporate Transaction, to apply and pertain to the number and class of
securities which would have been issuable to the Optionee in the consummation
of such Corporate Transaction had the option been exercised immediately prior
to such Corporate Transaction, and appropriate adjustments shall also be made
to the Option Price payable per share, PROVIDED the aggregate Option Price
payable hereunder shall remain the same.
8. PRIVILEGE OF STOCK OWNERSHIP. The holder of this option shall
not have any of the rights of a shareholder with respect to the Option Shares
until such individual shall have exercised the option and paid the Option
Price.
9. MANNER OF EXERCISING OPTION.
A. In order to exercise this option with respect to all or any
part of the Option Shares for which this option is at the time exercisable,
Optionee (or in the case of exercise after Optionee's death, the Optionee's
executor, administrator, heir or legatee, as the case may be) must take the
following actions: (i) Execute and deliver to the Secretary of the
Corporation a stock purchase agreement (the "Purchase Agreement") in
substantially the form of Exhibit B to the Grant Notice; (ii) pay the
aggregate Option Price for the purchased shares in one or more forms approved
under the Plan; and (iii) furnish to the Corporation appropriate
documentation that the person or persons exercising the option, if other than
Optionee, have the right to exercise this option.
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B. Should the Corporation's outstanding Common Stock be registered
under Section 12(g) of the Securities Exchange Act of 1934, as amended (the
"1934 Act") at the time the option is exercised, then the Option Price may also
be paid as follows:
(i) in shares of Common Stock held by the Optionee for the
requisite period necessary to avoid a charge to the Corporation's earnings
for financial reporting purposes and valued at fair market value on the
Exercise Date; or
(ii) through a special sale and remittance procedure
pursuant to which the Optionee is to provide irrevocable written
instructions (a) to a 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 by reason of such purchase and (b) to the Corporation to
deliver the certificates for the purchased shares directly to such
brokerage firm in order to effect the sale transaction.
C. For purposes of this Agreement, the Exercise Date shall be the
date on which the executed Purchase Agreement shall have been delivered to the
Corporation, and the fair market value of a share of Common Stock on any
relevant date shall be determined in accordance with subparagraphs (i) through
(iii) below:
(i) If the Common Stock is not at the time listed or admitted to
trading on any stock exchange but is traded on the NASDAQ National Market
System, the fair market value shall be the closing selling price of one
share of Common Stock on the date in question, as such price is reported by
the National Association of Securities Dealers through its NASDAQ system or
any successor system. If there is no closing selling price for the Common
Stock on the date in question, then the closing selling price on the last
preceding date for which such quotation exists shall be determinative of
fair market value.
(ii) If the Common Stock is at the time listed or admitted
to trading on any stock exchange, then the fair market value shall be the
closing selling price per share of Common Stock on the date in question on
the stock exchange determined by the Plan Administrator to be the primary
market for the Common Stock, as such price is officially quoted in the
composite tape of transactions on such exchange. If there is no 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.
(iii) If the Common Stock at the time is neither listed nor
admitted to trading on any stock exchange nor traded in the over-the-counter
market, or if the Plan Administrator determines that the value determined
pursuant to subparagraphs (i) and (ii) above does not
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accurately reflect the fair market value of the Common Stock, then such
fair market value shall be determined by the Plan Administrator after
taking into account such factors as the Plan Administrator shall deem
appropriate.
D. As soon after the Exercise Date as practical, the Corporation
shall mail or deliver to Optionee or to the other person or persons exercising
this option a certificate or certificates representing the shares so purchased
and paid for, with the appropriate legends affixed thereto, in accordance with
the terms of the Stock Purchase Agreement.
E. In no event may this option be exercised for any fractional
shares.
10. COMPLIANCE WITH LAWS AND REGULATIONS.
A. The exercise of this option and the issuance of Option Shares
upon such exercise shall be subject to compliance by the Corporation and the
Optionee with all applicable requirements of law relating thereto and with
all applicable regulations of any stock exchange on which shares of the
Corporation's Common Stock may be listed at the time of such exercise and
issuance.
B. In connection with the exercise of this option, Optionee shall
execute and deliver to the Corporation such representations in writing as may
be requested by the Corporation in order for it to comply with the applicable
requirements of Federal and State securities laws.
11. SUCCESSORS AND ASSIGNS. Except to the extent otherwise provided
in Paragraph 3 or 6, the provisions of this Agreement shall inure to the benefit
of, and be binding upon, the successors, administrators, heirs, legal
representatives and assigns of Optionee and the successors and assigns of the
Corporation.
12. LIABILITY OF CORPORATION.
A. If the Option Shares covered by this Agreement exceed, as of the
Grant Date, the number of shares of Common Stock which may without shareholder
approval be issued under the Plan, then this option shall be void with
respect to such excess shares, unless shareholder approval of an amendment
sufficiently increasing the number of shares of Common Stock issuable under
the Plan is obtained in accordance with the provisions of Article IV, Section
3, of the Plan.
B. The inability of the Corporation to obtain approval from any
regulatory body having authority deemed by the Corporation to be necessary
to the lawful issuance and sale of any Common Stock pursuant to this option
shall relieve the Corporation of any liability with respect to the
non-issuance or sale of the Common Stock as to which such approval shall not
have been obtained. The Corporation, however, shall use its best efforts to
obtain all such approvals.
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<PAGE>
13. NOTICES. Any notice required to be given or delivered to the
Corporation under the terms of this Agreement shall be in writing and addressed
to the Corporation in care of the Corporate Secretary at its principal corporate
offices. Any notice required to be given or delivered to Optionee shall be in
writing and addressed to Optionee at the address indicated below Optionee's
signature line on the Grant Notice. All notices shall be deemed to have been
given or delivered upon personal delivery or upon deposit in the U.S. mail,
postage prepaid and properly addressed to the party to be notified.
14. LOANS. The Plan Administrator may, in its absolute discretion
and without any obligation to do so, assist the Optionee in the exercise of this
option by (i) authorizing the extension of a loan to the Optionee from the
Corporation or (ii) permitting the Optionee to pay the option price for the
purchased Common Stock in installments over a period of years. The terms of any
such loan or installment method of payment (including the interest rate, the
requirements for collateral and the terms of repayment) shall be established by
the Plan Administrator in its sole discretion.
15. CONSTRUCTION. This Agreement and the option evidenced hereby are
made and granted pursuant to the Plan and are in all respects limited by and
subject to the express terms and provisions of the Plan. All decisions of the
Plan Administrator with respect to any question or issue arising under the Plan
or this Agreement shall be conclusive and binding on all persons having an
interest in this option.
16. GOVERNING LAW. The interpretation, performance, and enforcement
of this Agreement shall be governed by the laws of the State of California
without resort to that State's conflict-of-laws rules.
17. SHAREHOLDER APPROVAL. The grant of this option is subject to
approval of the Plan by the Corporation's shareholders within twelve (12)
months after the adoption of the Plan by the Board of Directors.
NOTWITHSTANDING ANY PROVISION OF THIS AGREEMENT TO THE CONTRARY, THIS OPTION
MAY NOT BE EXERCISED IN WHOLE OR IN PART UNTIL SUCH SHAREHOLDER APPROVAL IS
OBTAINED. In the event that such shareholder approval is not obtained, then
this option shall thereupon terminate in its entirety and the Optionee shall
have no further rights to acquire any Option Shares hereunder.
18. ADDITIONAL TERMS APPLICABLE TO AN INCENTIVE STOCK OPTION. In the
event this option is designated an incentive stock option in the Grant Notice,
the following terms and conditions shall also apply to the grant:
A. This option shall cease to qualify for favorable tax treatment as
an incentive stock option under the Federal tax laws if (and to the extent) this
option is exercised for one or more Option Shares: (i) more than three (3)
months after the date the Optionee ceases to be an Employee for any reason other
than death or permanent disability (as defined in Paragraph 5) or (ii) more than
one (1) year after the date the Optionee ceases to be an Employee by reason of
permanent disability.
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<PAGE>
B. Should this option be designated as immediately exercisable in
the Grant Notice, then this option shall not become exercisable in the calendar
year in which granted if (and to the extent) the aggregate fair market value
(determined at the Grant Date) of the Corporation's Common Stock for which this
option would otherwise first become exercisable in such calendar year would,
when added to the aggregate fair market value (determined as of the respective
date or dates of grant) of the Corporation's Common Stock for which this option
or one or more other incentive stock options granted to the Optionee prior to
the Grant Date (whether under the Plan or any other option plan of the
Corporation or its parent or subsidiary corporations) first become exercisable
during the same calendar year, exceed One Hundred Thousand Dollars ($100,000)
in the aggregate. To the extent the exercisability of this option is deferred
by reason of the foregoing limitation, the deferred portion will first become
exercisable in the first calendar year or years thereafter in which the One
Hundred Thousand Dollar ($100,000) limitation of this Paragraph 18.B would not
be contravened.
C. Should this option be designated as exercisable in installments
in the Grant Notice, then no installment under this option (whether annual or
monthly) shall qualify for favorable tax treatment as an incentive stock
option under the Federal tax laws if (and to the extent) the aggregate fair
market value (determined at the Grant Date) of the Corporation's Common Stock
for which such installment first becomes exercisable hereunder will, when
added to the aggregate fair market value (determined as of the respective
date or dates of grant) of the Corporation's Common Stock for which one or
more other incentive stock options granted to the Optionee prior to the Grant
Date (whether under the Plan or any other option plan of the Corporation or
any parent or subsidiary corporation) first become exercisable during the
same calendar year, exceed One Hundred Thousand Dollars ($100,000) in the
aggregate.
19. WITHHOLDING. Optionee hereby agrees to make appropriate
arrangements with the Corporation or parent or subsidiary corporation employing
Optionee for the payment of all Federal, State or local income tax withholding
requirements and Federal employment taxes applicable to the exercise of this
option.
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REPURCHASE RIGHT
NO ACCELERATION
RIGHT OF FIRST REFUSAL
DIGITAL STYLE CORPORATION
STOCK PURCHASE AGREEMENT
AGREEMENT made as of this __ day of _________, 19__, by and among
DIGITAL STYLE CORPORATION (the "Corporation"), _____________________, the
holder of a stock option (the "Optionee") under the Corporation's 1995 Stock
Option/Stock Issuance Plan and ______________________, the Optionee's spouse.
I. EXERCISE OF OPTION
1.1 EXERCISE. Optionee hereby purchases ________ shares
("Purchased Shares") of the Corporation's common stock ("Common Stock")
pursuant to that certain option ("Option") granted Optionee on __________,
19__ ("Grant Date") to purchase up to ________ shares of the Common Stock
("Total Purchasable Shares") under the Corporation's 1995 Stock Option/Stock
Issuance Plan (the "Plan") at an option price of $_______ per share ("Option
Price").
1.2 PAYMENT. Concurrently with the delivery of this Agreement to
the Corporate Secretary of the Corporation, Optionee shall pay the Option
Price for the Purchased Shares in accordance with the provisions of the
agreement between the Corporation and Optionee evidencing the Option (the
"Option Agreement") and shall deliver whatever additional documents may be
required by the Option Agreement as a condition for exercise, together with a
duly-executed blank Assignment Separate from Certificate (in the form
attached hereto as Exhibit 1) with respect to the Purchased Shares.
1.3 DELIVERY OF CERTIFICATES. The certificates representing the
Purchased Shares hereunder shall be held in escrow by the Corporate Secretary
of the Corporation in accordance with the provisions of Article VII to the
extent such Shares are subject to the Repurchase Right contained in Article V
hereof. Certificates for all other Purchased Shares shall be delivered to
Optionee as soon as reasonably practicable following the date hereof.
1.4 SHAREHOLDER RIGHTS. Until such time as the Corporation
actually exercises its repurchase right, rights of first refusal or special
purchase right under this Agreement, Optionee (or any successor in interest)
shall have all the rights of a shareholder (including voting and dividend
rights) with respect to the Purchased Shares, including the Purchased Shares
held in escrow under Article VII, subject, however, to the transfer
restrictions of Article IV.
<PAGE>
II. SECURITIES LAW COMPLIANCE
2.1 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is made with
Participant in reliance upon Participant's representation to the Company,
which by Participant's execution of this Agreement Participant hereby
confirms, that the Shares are being acquired for investment for Participant's
own account, not as a nominee or agent, and not with a view to the resale or
distribution of any part thereof, and that Participant has no present
intention of selling, granting any participation in, or otherwise
distributing the same. By executing this Agreement, Participant further
represents that Participant does not have any contract, undertaking,
agreement or arrangement with any person to sell, transfer or grant
participations to such person or to any third person, with respect to any of
the Shares. Participant represents that he has full power and authority to
enter into this Agreement.
2.2 EXEMPTION FROM REGISTRATION. The Purchased Shares have not
been registered under the Securities Act of 1933, as amended (the "1933
Act"), and are accordingly being issued to Optionee in reliance upon the
exemption from such registration provided by Rule 701 of the Securities and
Exchange Commission for stock issuances under compensatory benefit plans such
as the Plan. Optionee hereby acknowledges previous receipt of a copy of the
documentation for such Plan in the form of Exhibit C to the Notice of Grant
of Stock Option (the "Grant Notice") accompanying the Option Agreement.
2.3 RESTRICTED SECURITIES.
A. Optionee hereby confirms that Optionee has been informed that
the Purchased Shares are restricted securities under the 1933 Act and may not
be resold or transferred unless the Purchased Shares are first registered
under the Federal securities laws or unless an exemption from such
registration is available. Accordingly, Optionee hereby acknowledges that
Optionee is prepared to hold the Purchased Shares for an indefinite period
and that Optionee is aware that Rule 144 of the Securities and Exchange
Commission issued under the 1933 Act is not presently available to exempt the
sale of the Purchased Shares from the registration requirements of the 1933
Act.
B. Upon the expiration of the ninety (90)-day period immediately
following the date on which the Corporation first becomes subject to the
reporting requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), the Purchased Shares, to the extent vested under
Article V, may be sold (without registration) pursuant to the applicable
requirements of Rule 144. If Optionee is at the time of such sale an
affiliate of the Corporation for purposes of Rule 144 or was such an
affiliate during the preceding three (3) months, then the sale must comply
with all the requirements of Rule 144 (including the volume limitation on the
number of shares sold, the broker/market-maker sale requirement and the
requisite notice to the Securities and Exchange Commission); however, the two
(2)-year holding period requirement of the Rule will not be applicable. If
Optionee is not at the time of the sale an affiliate of the Corporation nor
was such an affiliate during the preceding three (3) months, then none of the
requirements of Rule 144 (other than the broker/market-maker sale requirement
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for Purchased Shares held for less than three (3) years following payment in
cash of the Option Price therefor) will be applicable to the sale.
C. Should the Corporation not become subject to the reporting
requirements of the Exchange Act, then Optionee may, provided he/she is not
at the time an affiliate of the Corporation (nor was such an affiliate during
the preceding three (3) months), sell the Purchased Shares (without
registration) pursuant to paragraph (k) of Rule 144 after the Purchased
Shares have been held for a period of three (3) years following the payment
in cash of the Option Price for such shares.
2.4 DISPOSITION OF SHARES. Optionee hereby agrees that Optionee shall
make no disposition of the Purchased Shares (other than a permitted transfer
under paragraph 4.1) unless and until there is compliance with all of the
following requirements:
(a) Optionee shall have notified the Corporation of the proposed
disposition and provided a written summary of the terms and conditions of
the proposed disposition.
(b) Optionee shall have complied with all requirements of this
Agreement applicable to the disposition of the Purchased Shares.
(c) Optionee shall have provided the Corporation with written
assurances, in form and substance satisfactory to the Corporation, that
(i) the proposed disposition does not require registration of the Purchased
Shares under the 1933 Act or (ii) all appropriate action necessary for
compliance with the registration requirements of the 1933 Act or of any
exemption from registration available under the 1933 Act (including Rule
144) has been taken.
The Corporation shall NOT be required (i) to transfer on its books
any Purchased Shares which have been sold or transferred in violation of the
provisions of this Article II NOR (ii) to treat as the owner of the Purchased
Shares, or otherwise to accord voting or dividend rights to, any transferee
to whom the Purchased Shares have been transferred in contravention of this
Agreement.
2.5 RESTRICTIVE LEGENDS. In order to reflect the restrictions on
disposition of the Purchased Shares, the stock certificates for the Purchased
Shares will be endorsed with restrictive legends, including one or more of the
following legends:
(i) "The shares represented by this certificate have not
been registered under the Securities Act of 1933. The shares may not be sold
or offered for sale in the absence of (a) an effective registration statement
for the shares under such Act, (b) a `no action' letter of the Securities and
Exchange Commission with respect to such sale or offer, or (c) satisfactory
assurances to the Corporation that registration under such Act is not
required with respect to such sale or offer."
(ii) "The shares represented by this certificate are
unvested and
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accordingly may not be sold, assigned, transferred, encumbered, or in any
manner disposed of except in conformity with the terms of a written agreement
dated __________, 19__ between the Corporation and the registered holder of
the shares (or the predecessor in interest to the shares). Such agreement
grants certain repurchase rights and rights of first refusal to the
Corporation (or its assignees) upon the sale, assignment, transfer,
encumbrance or other disposition of the Corporation's shares or upon
termination of service with the Corporation. The Corporation will upon
written request furnish a copy of such agreement to the holder hereof without
charge."
III. SPECIAL TAX ELECTION
3.1 SECTION 83(B) ELECTION APPLICABLE TO THE EXERCISE OF A
NON-STATUTORY STOCK OPTION. If the Purchased Shares are unvested and are
acquired hereunder pursuant to the exercise of a NON-STATUTORY STOCK OPTION,
as specified in the Grant Notice, then the Optionee understands that under
Section 83 of the Internal Revenue Code of 1986, as amended (the "Code"), the
excess of the fair market value of the Purchased Shares on the date any
forfeiture restrictions applicable to such shares lapse over the Option Price
paid for such shares will be reportable as ordinary income on such lapse
date. For this purpose, the term "forfeiture restrictions" includes the
right of the Corporation to repurchase the Purchased Shares pursuant to the
Repurchase Right provided under Article V of this Agreement. Optionee
understands that he/she may elect under Section 83(b) of the Code to be taxed
at the time the Purchased Shares are acquired hereunder, rather than when and
as such Purchased Shares cease to be subject to such forfeiture restrictions.
Such election must be filed with the Internal Revenue Service within thirty
(30) days after the date of this Agreement. Even if the fair market value of
the Purchased Shares at the date of this Agreement equals the Option Price
paid (and thus no tax is payable), the election must be made to avoid adverse
tax consequences in the future. THE FORM FOR MAKING THIS ELECTION IS
ATTACHED AS EXHIBIT II HERETO, OPTIONEE UNDERSTANDS THAT FAILURE TO MAKE THIS
FILING WITHIN THE THIRTY (30)-DAY PERIOD WILL RESULT IN THE RECOGNITION OF
ORDINARY INCOME BY THE OPTIONEE AS THE FORFEITURE RESTRICTIONS LAPSE.
3.2 CONDITIONAL SECTION 83(b) ELECTION APPLICABLE TO THE EXERCISE
OF AN INCENTIVE STOCK OPTION. If the Purchased Shares are unvested and are
acquired hereunder pursuant to the exercise of an INCENTIVE STOCK OPTION
under the Federal tax laws, as specified in the Grant Notice, then the
following tax principles shall be applicable to the Purchased Shares:
A. For regular tax purposes, no taxable income will be
recognized at the time the Option is exercised.
B. The excess of (i) the fair market value of the Purchased
Shares on the date the Option is exercised or (if later) on the date any
forfeiture restrictions applicable to the Purchased Shares lapse over (ii)
the Option Price paid for the Purchased Shares will be includible in the
Optionee's taxable income for alternative minimum tax purposes.
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C. If the Optionee makes a disqualifying disposition of the
Purchased Shares, then the Optionee will recognize ordinary income in the
year of such disposition equal in amount to the excess of (i) the fair
market value of the Purchased Shares on the date the Option is exercised or
(if later) on the date any forfeiture restrictions applicable to the
Purchased Shares lapse over (ii) the Option Price paid for the Purchased
Shares. Any additional gain recognized upon the disqualifying disposition
will be either short-term or long-term capital gain depending upon the
period for which the Purchased Shares are held prior to the disposition.
D. For purposes of the foregoing, the term "forfeiture
restrictions" will include the right of the Corporation to repurchase the
Purchased Shares pursuant to the Repurchase Right provided under Article V
of this Agreement. The term "disqualifying disposition" means any sale or
other disposition (1) of the Purchased Shares within two (2) years after
the Grant Date or within one (1) year after the execution date of this
Agreement.
E. In the absence of final Treasury Regulations relating to
incentive stock options, it is not certain whether the Optionee may, in
connection with the exercise of the Option for any Purchased Shares at the
time subject to forfeiture restrictions, file a protective election under
Section 83(b) of the Code which would limit (I) the Optionee's alternative
minimum taxable income upon exercise and (II) the Optionee's ordinary
income upon a disqualifying disposition, to the excess of (i) the fair
market value of the Purchased Shares on the date the Option is exercised
over (ii) the Option Price paid for the Purchased Shares. THE APPROPRIATE
FORM FOR MAKING SUCH A PROTECTIVE ELECTION IS ATTACHED AS EXHIBIT II TO
THIS AGREEMENT AND MUST BE FILED WITH THE INTERNAL REVENUE SERVICE WITHIN
THIRTY (30) DAYS AFTER THE DATE OF THIS AGREEMENT. HOWEVER, SUCH ELECTION
IF PROPERLY FILED WILL ONLY BE ALLOWED TO THE EXTENT THE FINAL TREASURY
REGULATIONS PERMIT SUCH A PROTECTIVE ELECTION.
3.3 OPTIONEE ACKNOWLEDGES THAT IT IS OPTIONEE'S SOLE RESPONSIBILITY,
AND NOT THE CORPORATION'S, TO FILE A TIMELY ELECTION UNDER SECTION 83(b), EVEN
IF OPTIONEE REQUESTS THE CORPORATION OR ITS REPRESENTATIVES TO MAKE THIS FILING
ON HIS/HER BEHALF. This filing should be made by registered or certified mail,
return receipt requested, and Optionee must retain two (2) copies of the
completed form for filing with his or her State and Federal tax returns for the
current tax year and an additional copy
_____________
(1) GENERALLY, A DISPOSITION OF SHARES PURCHASED UNDER AN INCENTIVE STOCK
OPTION INCLUDES ANY TRANSFER OF LEGAL TITLE, INCLUDING A TRANSFER BY SALE,
EXCHANGE OR GIFT, BUT DOES NOT INCLUDE A TRANSFER TO THE OPTIONEE'S SPOUSE, A
TRANSFER INTO JOINT OWNERSHIP WITH RIGHT OF SURVIVORSHIP IF OPTIONEE REMAINS ONE
OF THE JOINT OWNERS, A PLEDGE, A TRANSFER BY BEQUEST OR INHERITANCE OR CERTAIN
TAX FREE EXCHANGES PERMITTED UNDER THE CODE.
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for his or her records.
IV. TRANSFER RESTRICTIONS
4.1 RESTRICTION ON TRANSFER. Optionee shall not transfer, assign,
encumber or otherwise dispose of any of the Purchased Shares which are
subject to the Corporation's Repurchase Right under Article V. In addition,
Purchased Shares which are released from the Repurchase Right shall not be
transferred, assigned, encumbered or otherwise made the subject of
disposition in contravention of the Corporation's First Refusal Right under
Article VI. Such restrictions on transfer, however, shall NOT be applicable
to (i) a gratuitous transfer of the Purchased Shares made to the Optionee's
spouse or issue, including adopted children, or to a trust for the exclusive
benefit of the Optionee or the Optionee's spouse or issue, PROVIDED AND ONLY
IF the Optionee obtains the Corporation's prior written consent to such
transfer, (ii) a transfer of title to the Purchased Shares effected pursuant
to the Optionee's will or the laws of intestate succession or (iii) a
transfer to the Corporation in pledge as security for any purchase-money
indebtedness incurred by the Optionee in connection with the acquisition of
the Purchased Shares.
4.2 TRANSFEREE OBLIGATIONS. Each person (other than the
Corporation) to whom the Purchased Shares are transferred by means of one of
the permitted transfers specified in paragraph 4.1 must, as a condition
precedent to the validity of such transfer, acknowledge in writing to the
Corporation that such person is bound by the provisions of this Agreement and
that the transferred shares are subject to (i) both the Corporation's
Repurchase Right and the Corporation's First Refusal Right granted hereunder
and (ii) the market stand-off provisions of paragraph 4.4, to the same extent
such shares would be so subject if retained by the Optionee.
4.3 DEFINITION OF OWNER. For purposes of Articles IV, V, VI and
VII of this Agreement, the term "Owner" shall include the Optionee and all
subsequent holders of the Purchased Shares who derive their chain of
ownership through a permitted transfer from the Optionee in accordance with
paragraph 4.1.
4.4 MARKET STAND-OFF PROVISIONS.
A. In connection with any underwritten public offering by the
Corporation of its equity securities pursuant to an effective registration
statement filed under the 1933 Act, including the Corporation's initial
public offering, Owner shall not sell, make any short sale of, loan,
hypothecate, pledge, grant any option for the purchase of, or otherwise
dispose or transfer for value or otherwise agree to engage in any of the
foregoing transactions with respect to, any Purchased Shares without the prior
written consent of the Corporation or its underwriters. Such limitations
shall be in effect for such period of time from and after the effective date
of such registration statement as may be requested by the Corporation or such
underwriters; PROVIDED, however, that in no event shall such period exceed
one hundred-eighty (180) days. The limitations of this paragraph 4.4 shall
remain in effect for the two-year period immediately following the effective
date of the Corporation's initial public offering and shall thereafter
terminate and cease to have any force or effect.
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B. Owner shall be subject to the market stand-off provisions of this
paragraph 4.4 PROVIDED AND ONLY IF the officers and directors of the Corporation
are also subject to similar arrangements.
C. In the event of any stock dividend, stock split, recapitalization
or other change affecting the Corporation's outstanding Common Stock effected as
a class without receipt of consideration, then any new, substituted or
additional securities distributed with respect to the Purchased Shares shall be
immediately subject to the provisions of this paragraph 4.4, to the same extent
the Purchased Shares are at such time covered by such provisions.
D. In order to enforce the limitations of this paragraph 4.4, the
Corporation may impose stop-transfer instructions with respect to the Purchased
Shares until the end of the applicable stand-off period.
V. REPURCHASE RIGHT
5.1 GRANT. The Corporation is hereby granted the right (the
"Repurchase Right"), exercisable at any time during the sixty (60)-day period
following the date the Optionee ceases for any reason to remain in Service or
(if later) during the sixty (60)-day period following the execution date of
this Agreement, to repurchase at the Option Price all or (at the discretion
of the Corporation and with the consent of the Optionee) any portion of the
Purchased Shares in which the Optionee has not acquired a vested interest, if
any, in accordance with the vesting provisions of paragraph 5.3 (such shares
to be hereinafter called the "Unvested Shares").
5.2 EXERCISE OF THE REPURCHASE RIGHT. The Repurchase Right shall
be exercisable by written notice delivered to the Owner of the Unvested
Shares prior to the expiration of the applicable sixty (60)-day period
specified in paragraph 5.1. The notice shall indicate the number of Unvested
Shares to be repurchased and the date on which the repurchase is to be
effected, such date to be not more than thirty (30) days after the date of
notice. To the extent one or more certificates representing Unvested Shares
may have been previously delivered out of escrow to the Owner, then Owner
shall, prior to the dose of business on the date specified for the
repurchase, deliver to the Secretary of the Corporation the certificates
representing the Unvested Shares to be repurchased, each certificate, to be
properly endorsed for transfer. The Corporation shall, concurrently with the
receipt of such stock certificates (either from escrow in accordance with
paragraph 7.3 or from Owner as herein provided), pay to Owner in cash or cash
equivalents (including the cancellation of any purchase-money indebtedness),
an amount equal to the Option Price previously paid for the Unvested Shares
which are to be repurchased.
5.3 TERMINATION OF THE REPURCHASE RIGHT. The Repurchase Right
shall terminate with respect to any Unvested Shares for which it is not
timely exercised under paragraph 5.2. In addition, the Repurchase Right shall
terminate, and cease to be exercisable, with respect to any and all
previously Unvested Shares in which the Optionee becomes vested in accordance
with the vesting schedule specified in the
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Grant Notice. All Purchased Shares as to which the Repurchase Right lapses
shall, however, continue to be subject to (i) the First Refusal Right of the
Corporation and its assignees under Article VI, (ii) the market stand-off
provisions of paragraph 4.4 and (iii) the Special Purchase Right under
Article VIII.
5.4 AGGREGATE VESTING LIMITATION. If the Option is exercised in more
than one increment so that the Optionee is a party to one or more other Stock
Purchase Agreements ("Prior Purchase Agreements") which are executed prior to
the date of this Agreement, then the total number of Purchased Shares as to
which the Optionee shall be deemed to have a fully-vested interest under this
Agreement and all Prior Purchase Agreements shall not exceed in the aggregate
the number of Purchased Shares in which the Optionee would otherwise at the time
be vested, in accordance with the vesting provisions of paragraph 5.3, had all
the Purchased Shares been acquired exclusively under this Agreement.
5.5 FRACTIONAL SHARES. No fractional shares shall be repurchased
by the Corporation. Accordingly, should the Repurchase Right extend to a
fractional share (in accordance with the vesting provisions of paragraph 5.3)
at the time the Optionee ceases Service, then such fractional share shall be
added to any fractional share in which the Optionee is at such time vested in
order to make one whole vested share no longer subject to the Repurchase
Right.
5.6 ADDITIONAL SHARES OR SUBSTITUTED SECURITIES. In the event of any
stock dividend, stock split, recapitalization or other change affecting the
Corporation's outstanding Common Stock as a class effected without receipt of
consideration, then any new, substituted or additional securities or other
property (including money paid other than as a regular cash dividend) which is
by reason of any such transaction distributed with respect to the Purchased
Shares shall be immediately subject to the Repurchase Right but only to the
extent the Purchased Shares are at the time covered by such right. Appropriate
adjustments to reflect the distribution of such securities or property shall be
made to the number of Purchased Shares and Total Purchasable Shares hereunder
and to the price per share to be paid upon the exercise of the Repurchase Right
in order to reflect the effect of any such transaction upon the Corporation's
capital structure; PROVIDED, however, that the aggregate purchase price shall
remain the same.
5.7 CORPORATE TRANSACTION.
A. Immediately prior to the consummation of any of the following
shareholder-approved transactions (a "Corporate Transaction"):
(i) a merger or consolidation in which the Corporation is
not the surviving entity,
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets, or
(iii) any transaction (other than an issuance of shares by
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the Corporation for cash) in or by means of which one or more persons
acting in concert acquire, in the aggregate, more than 50% of the
outstanding shares of the stock of the Corporation,
the Repurchase Right shall automatically lapse in its entirety
except to the extent the Repurchase Right is to be assigned to the successor
corporation (or its parent company) in connection with such Corporate
Transaction.
B. To the extent the Repurchase Right remains in effect following
such Corporate Transaction, such right shall apply to the new capital stock or
other property (including cash) received in exchange for the Purchased Shares in
consummation of the Corporate Transaction, but only to the extent the Purchased
Shares are at the time covered by such right. Appropriate adjustments shall be
made to the price per share payable upon exercise of the Repurchase Right to
reflect the effect of the Corporate Transaction upon the Corporation's capital
structure; PROVIDED, however, that the aggregate purchase price shall remain
the same.
C. Any Repurchase Rights which remain in effect following such
Corporate Transaction, shall automatically cease to be exercisable
immediately prior to Optionee's termination of Service should Optionee's
Service subsequently terminate by reason of an Involuntary Termination within
twelve (12) months following the effective date of such Corporate
Transaction. Involuntary Termination shall mean the termination of the
Service of any individual which occurs by reason of such individual's
involuntary dismissal or discharge by the Corporation for reasons other than
Misconduct, or such individual's voluntary resignation following a reduction
in his or her level of compensation (including base salary, fringe benefits)
by more than fifteen percent (15%) or a relocation of such individual's place
of employment by more than fifty (50) miles, provided and only if such
change, reduction or relocation is effected by the Corporation without the
individual's consent. Misconduct shall mean the commission of any act of
fraud, embezzlement or dishonesty by the Optionee or Participant, any
unauthorized use or disclosure by such person of confidential information or
trade secrets of the Corporation (or any Parent or Subsidiary), or any other
intentional misconduct by such person adversely affecting the business or
affairs of the Corporation (or any Parent or Subsidiary) in a material
manner. The foregoing definition shall not be deemed to be inclusive of all
the acts or omissions which the Corporation (or any Parent or Subsidiary) may
consider as grounds for the dismissal or discharge of any Optionee,
Participant or other person in the Service of the Corporation (or any Parent
or Subsidiary).
D. This Agreement shall not in any way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise make changes in
its capital or business structure or to merge, consolidate, dissolve,
liquidate or sell or transfer all or any part of its business or assets.
VI. RIGHT OF FIRST REFUSAL
6.1 GRANT. The Corporation is hereby granted rights of first
refusal (the "First Refusal Right"), exercisable in connection with any
proposed transfer of the
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Purchased Shares in which the Optionee has vested in accordance with the
vesting provisions of Article V. For purposes of this Article VI, the term
"transfer" shall include any sale, assignment, pledge, encumbrance or other
disposition for value of the Purchased Shares intended to be made by the
Owner, but shall not include any of the permitted transfers under paragraph
4.1.
6.2 NOTICE OF INTENDED DISPOSITION. In the event the Owner desires
to accept a bona fide third-party offer for the transfer of any or all of the
Purchased Shares (the shares subject to such offer to be hereinafter called
the "Target Shares"), Owner shall promptly (i) deliver to the Corporate
Secretary of the Corporation written notice (the "Disposition Notice") of the
terms and conditions of the offer, including the purchase price and the
identity of the third-party offeror, and (ii) provide satisfactory proof that
the disposition of the Target Shares to such third-party offeror would not be
in contravention of the provisions set forth in Articles II and IV of this
Agreement.
6.3 EXERCISE OF RIGHT. The Corporation shall, for a period of
forty-five (45) days following receipt of the Disposition Notice, have the
right to repurchase any or all of the Target Shares specified in the
Disposition Notice upon the same terms and conditions specified therein or
upon terms and conditions which do not materially vary from those specified
therein. Such right shall be exercisable by delivery of written notice (the
"Exercise Notice") to Owner prior to the expiration of the forty-five (45)-day
exercise period. If such right is exercised with respect to all the Target
Shares specified in the Disposition Notice, then the Corporation (or its
assignees) shall effect the repurchase of the Target Shares, including
payment of the purchase price, not more than ten (10) business days after
delivery of the Exercise Notice; and at such time Owner shall deliver to the
Corporation the certificates representing the Target Shares to be
repurchased, each certificate to be properly endorsed for transfer. To the
extent any of the Target Shares are at the time held in escrow under Article
VII, the certificates for such shares shall automatically be released from
escrow and delivered to the Corporation for purchase. Should the purchase
price specified in the Disposition Notice be payable in property other than
cash or evidences of indebtedness, the Corporation (or its assignees) shall
have the right to pay the purchase price in the form of cash equal in amount
to the value of such property. If the Owner and the Corporation (or its
assignees) cannot agree on such cash value within ten (10) days after the
Corporation's receipt of the Disposition Notice, the valuation shall be made
by an appraiser of recognized standing selected by the Owner and the
Corporation (or its assignees) or, if they cannot agree on an appraiser
within twenty (20) days after the Corporation's receipt of the Disposition
Notice, each shall select an appraiser of recognized standing and the two
appraisers shall designate a third appraiser of recognized standing, whose
appraisal shall be determinative of such value. The cost of such appraisal
shall be shared equally by the Owner and the Corporation. The closing shall
then be held on the LATER of (i) the tenth business day following delivery of
the Exercise Notice or (ii) the tenth business day after such cash valuation
shall have been made.
6.4 NON-EXERCISE OF RIGHT. In the event the Exercise Notice is not
given to Owner within forty-five (45) days following the date of the
Corporation's receipt
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of the Disposition Notice, Owner shall have a period of thirty (30) days
thereafter in which to sell or otherwise dispose of the Target Shares to the
third-party offeror identified in the Disposition Notice upon terms and
conditions (including the purchase price) no more favorable to such
third-party offeror than those specified in the Disposition Notice; PROVIDED,
however, that any such sale or disposition must not be effected in
contravention of the provisions of Article II of this Agreement. To the
extent any of the Target Shares are at the time held in escrow under Article
VII, the certificates for such shares shall automatically be released from
escrow and surrendered to the Owner. The third-party offeror shall acquire
the Target Shares free and clear of the Corporation's Repurchase Right under
Article V and the Corporation's First Refusal Right hereunder, but the
acquired shares shall remain subject to (i) the securities law restrictions
of Article II and (ii) the market stand-off provisions of paragraph 4.4. In
the event Owner does not effect such sale or disposition of the Target Shares
within the specified thirty (30)-day period, the Corporation's First Refusal
Right shall continue to be applicable to any subsequent disposition of the
Target Shares by Owner until such right lapses in accordance with paragraph
6.7.
6.5 PARTIAL EXERCISE OF RIGHT. In the event the Corporation (or
its assignees) makes a timely exercise of the First Refusal Right with
respect to a portion, but not all, of the Target Shares specified in the
Disposition Notice, Owner shall have the option, exercisable by written
notice to the Corporation delivered within thirty (30) days after the date of
the Disposition Notice, to effect the sale of the Target Shares pursuant to
one of the following alternatives:
(i) sale or other disposition of all the Target Shares to
the third-party offeror identified in the Disposition Notice, but in full
compliance with the requirements of paragraph 6.4, as if the Corporation
did not exercise the First Refusal Right hereunder, or
(ii) sale to the Corporation (or its assignees) of the portion
of the Target Shares which the Corporation (or its assignees) has elected
to purchase, such sale to be effected in substantial conformity with the
provisions of paragraph 6.3.
Failure of Owner to deliver timely notification to the Corporation
under this paragraph 6.5 shall be deemed to be an election by Owner to sell the
Target Shares pursuant to alternative (i) above.
6.6 Recapitalization/Merger.
(a) In the event of any stock dividend, stock split, recapitalization
or other transaction affecting the Corporation's outstanding Common Stock as a
class effected without receipt of consideration, then any new, substituted or
additional securities or other property which is by reason of such transaction
distributed with respect to the Purchased Shares shall be immediately subject to
the Corporation's First Refusal Right hereunder, but only to the extent the
Purchased Shares are at the time covered by such right.
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(b) In the event of any of the following transactions:
(i) a merger or consolidation in which the Corporation
is not the surviving entity,
(ii) a sale, transfer or other deposition of all or
substantially all of the Corporation's assets,
(iii) a reverse merger in which the Corporation is the
surviving entity but in which the Corporation's outstanding voting
securities are transferred in whole or in part to person or persons
other than those who held such securities immediately prior to the
merger, or
(iv) any transaction effected primarily to change the
State in which the Corporation is incorporated, or to create a holding
company structure,
the Corporation's First Refusal Right shall remain in full force
and effect and shall apply to the new capital stock or other property received
in exchange for the Purchased Shares in consummation of the transaction but only
to the extent the Purchased Shares are at the time covered by such right.
6.7 LAPSE. The First Refusal Right under this Article VI shall lapse
and cease to have effect upon the EARLIEST to occur of (i) the first date on
which shares of the Corporation's Common Stock are held of record by more than
five hundred (500) persons, (ii) a determination is made by the Corporation's
Board of Directors that a public market exists for the outstanding shares of the
Corporation's Common Stock, or (iii) a firm commitment underwritten public
offering pursuant to an effective registration statement under the 1933 Act,
covering the offer and sale of the Corporation's Common Stock in the aggregate
amount of at least $5,000,000. However, the market stand-off provisions of
paragraph 4.4 shall continue to remain in full force and effect following the
lapse of the First Refusal Right hereunder.
VII. ESCROW
7.1 DEPOSIT. Upon issuance, the certificates for any Unvested
Shares purchased hereunder shall be deposited in escrow with the Corporate
Secretary of the Corporation to be held in accordance with the provisions of
this Article VII. Each deposited certificate shall be accompanied by a
duly-executed Assignment Separate from Certificate in the form of Exhibit I.
The deposited certificates, together with any other assets or securities from
time to time deposited with the Corporate Secretary pursuant to the
requirements of this Agreement, shall remain in escrow until such time or
times as the certificates (or other assets and securities) are to be released
or otherwise surrendered for cancellation in accordance with paragraph 7.3.
Upon delivery of the certificates (or other assets and securities) to the
Corporate Secretary of the Corporation, the Owner shall be issued an
instrument of deposit acknowledging the number of Unvested Shares (or other
assets and securities) delivered in escrow.
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7.2 RECAPITALIZATION. All regular cash dividends on the Unvested
Shares (or other securities at the time held in escrow) shall be paid directly
to the Owner and shall not be held in escrow. However, in the event of any
stock dividend, stock split, recapitalization or other change affecting the
Corporation's outstanding Common Stock as a class effected without receipt of
consideration or in the event of a Corporate Transaction; any new,
substituted or additional securities or other property which is by reason of
such transaction distributed with respect to the Unvested Shares shall be
immediately delivered to the Corporate Secretary to be held in escrow under
this Article VII, but only to the extent the Unvested Shares are at the time
subject to the escrow requirements of paragraph 7.1.
7.3 RELEASE/SURRENDER. The Unvested Shares, together with any
other assets or securities held in escrow hereunder, shall be subject to the
following terms and conditions relating to their release from escrow or their
surrender to the Corporation for repurchase and cancellation:
(i) Should the Corporation (or its assignees) elect to
exercise the Repurchase Right under Article V with respect to any Unvested
Shares, then the escrowed certificates for such Unvested Shares (together
with any other assets or securities issued with respect thereto) shall be
delivered to the Corporation concurrently with the payment to the Owner, in
cash or cash equivalent (including the cancellation of any purchase-money
indebtedness), of an amount equal to the aggregate Option Price for such
Unvested Shares, and the Owner shall cease to have any further rights or
claims with respect to such Unvested Shares (or other assets or securities
attributable to such Unvested Shares).
(ii) Should the Corporation (or its assignees) elect to
exercise its First Refusal Right under Article VI with respect to any
vested Target Shares held at the time in escrow hereunder, then the
escrowed certificates for such Target Shares (together with any other
assets or securities attributable thereto) shall, concurrently with the
payment of the paragraph 6.3 purchase price for such Target Shares to the
Owner, be surrendered to the Corporation, and the Owner shall cease to have
any further rights or claims with respect to such Target Shares (or other
assets or securities).
(iii) Should the Corporation (or its assignees) elect NOT to
exercise its First Refusal Right under Article VI with respect to any
Target Shares held at the time in escrow hereunder, then the escrowed
certificates for such Target Shares (together with any other assets or
securities attributable thereto) shall be surrendered to the Owner for
disposition in accordance with provisions of paragraph 6.4.
(iv) As the interest of the Optionee in the Unvested Shares
(or any other assets or securities attributable thereto) vests in
accordance with the provisions of Article V, the certificates for such
vested
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securities attributable thereto) shall, concurrently with the payment of
the paragraph 6.3 purchase price for such Target Shares to the Owner, be
surrendered to the Corporation, and the Owner shall cease to have any
further rights or claims with respect to such Target Shares (or other
assets or securities).
(iii) Should the Corporation (or its assignees) elect NOT to
exercise its First Refusal Right under Article VI with respect to any
Target Shares held at the time in escrow hereunder, then the escrowed
certificates for such Target Shares (together with any other assets or
securities attributable thereto) shall be surrendered to the Owner for
disposition in accordance with provisions of paragraph 6.4.
(iv) As the interest of the Optionee in the Unvested Shares
(or any other assets or securities attributable thereto) vests in
accordance with the provisions of Article V, the certificates for such
vested shares (as well as all other vested assets and securities) shall be
released from escrow and delivered to the Owner in accordance with the
following schedule:
A. The initial release of vested shares (or other
vested assets and securities) from escrow shall be effected within
thirty (30) days following the expiration of the initial twelve
(12)-month period measured from the Grant Date.
B. Subsequent releases of vested shares (or other
vested assets and securities) from escrow shall be effected at
semi-annual intervals thereafter, with the first such semi-annual
release to occur eighteen (18) months after the Grant Date.
C. Upon the Optionee's cessation of Service, any
escrowed Purchased Shares (or other assets or securities) in which the
Optionee is at the time vested shall be promptly released from escrow.
D. Upon any earlier termination of the Corporation's
Repurchase Right in accordance with the applicable provisions of
Article V, any Purchased Shares (or other assets or securities) at the
time held in escrow hereunder shall promptly be released to the Owner
as fully-vested shares or other property.
(v) All Purchased Shares (or other assets or securities)
released from escrow in accordance with the provisions of subparagraph (iv)
above shall nevertheless remain subject to (I) the Corporation's First
Refusal Right under Article VI until such right lapses pursuant to
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paragraph 6.7, (II) the market stand-off provisions of paragraph 4.4 until
such provisions terminate in accordance therewith and (III) the Special
Purchase Right under Article VIII.
VIII. MARITAL DISSOLUTION OR LEGAL SEPARATION
8.1 GRANT. In connection with the dissolution of the Optionee's
marriage or the legal separation of the Optionee and the Optionee's spouse,
the Corporation shall have the right (the "Special Purchase Right"),
exercisable at any time during the thirty (30)-day period following the
Corporation's receipt of the required Dissolution Notice under paragraph 8.2,
to purchase from the Optionee's spouse, in accordance with the provisions of
paragraph 8.3, all or any portion of the Purchased Shares which would
otherwise be awarded to such spouse in settlement of any community property
or other marital property rights such spouse may have in such shares.
8.2 NOTICE OF DECREE OR AGREEMENT. The Optionee shall promptly
provide the Secretary of the Corporation with written notice (the
"Dissolution Notice") of (i) the entry of any judicial decree or order
resolving the property rights of the Optionee and the Optionee's spouse in
connection with their marital dissolution or legal separation or (ii) the
execution of any contact or agreement relating to the distribution or
division of such property rights. The Dissolution Notice shall be
accompanied by a copy of the actual decree of dissolution or settlement
agreement between the Optionee and the Optionee's spouse which provides for
the award to the spouse of one or more Purchased Shares in settlement of any
community property or other marital property rights such spouse may have in
such shares.
8.3 EXERCISE OF SPECIAL PURCHASE RIGHT. The Special Purchase Right
shall be exercisable by delivery of written notice (the "Purchase Notice") to
the Optionee and the Optionee's spouse within thirty (30) days after the
Corporation's receipt of the Dissolution Notice. The Purchase Notice shall
indicate the number of shares to be purchased by the Corporation, the date
such purchase is to be effected (such date to be not less than five (5)
business days, nor more than ten (10) business days, after the date of the
Purchase Notice), and the fair market value to be paid for such Purchased
Shares. The Optionee (or the Optionee's spouse, to the extent such spouse
has physical possession of the Purchased Shares) shall, prior to the close of
business on the date specified for the purchase, deliver to the Corporate
Secretary of the Corporation the certificates representing the shares to be
purchased, each certificate to be properly endorsed for transfer. To the
extent any of the shares to be purchased by the Corporation are at the time
held in escrow under Article VII, the certificates for such shares shall be
promptly delivered out of escrow to the Corporation. The Corporation shall,
concurrently with the receipt of the stock certificates, pay to the
Optionee's spouse (in cash or cash equivalents) an amount equal to the fair
market value specified for such shams in the Purchase Notice.
If the Optionee's spouse does not agree with the fair market value
specified for the shares in the Purchase Notice, then the spouse shall
promptly notify the Corporation in writing of such disagreement and the fair
market value of such
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shares shall thereupon be determined by an appraiser of recognized standing
selected by the Corporation and the spouse. If they cannot agree on an
appraiser within twenty (20) days after the date of the Purchase Notice, each
shall select an appraiser of recognized standing, and the two appraisers
shall designate a third appraiser of recognized standing whose appraisal
shall be determinative of such value. The cost of the appraisal shall be
shared equally by the Corporation and the Optionee's spouse. The closing
shall then be held on the fifth business day following the completion of such
appraisal; PROVIDED, however, that if the appraised value is more than
fifteen percent (15%) greater than the fair market value specified for the
shares in the Purchase Notice, the Corporation shall have the right,
exercisable prior to the expiration of such five (5)-business-day period, to
rescind the exercise of the Special Purchase Right and thereby revoke its
election to purchase the shares awarded to the spouse.
8.4 LAPSE. The Special Purchase Right under this Article VIII
shall lapse and cease to have effect upon the EARLIER to occur of (i) the
first date on which the First Refusal Right under Article VI lapses or (ii)
the expiration of the thirty (30)-day exercise period specified in paragraph
8.3, to the extent the Special Purchase Right is not timely exercised in
accordance with such paragraph.
IX. GENERAL PROVISIONS
9.1 ASSIGNMENT. The Corporation may assign its Repurchase Right
under Article V, its First Refusal Right under Article VI and/or its Special
Purchase Right under Article VIII to any person or entity selected by the
Corporation's Board of Directors, including (without limitation) one or more
shareholders of the Corporation.
If the assignee of the Repurchase Right is other than a one hundred
percent (100%) owned subsidiary corporation of the Corporation or the parent
corporation owning one hundred percent (100%) of the Corporation, then such
assignee must make a cash payment to the Corporation, upon the assignment of
the Repurchase Right, in an amount equal to the excess (if any) of (i) the
fair market value of the Unvested Shares at the time subject to the assigned
Repurchase Right over (ii) the aggregate repurchase price payable for the
Unvested Shares thereunder.
9.2 DEFINITIONS. Except as otherwise provided herein, capitalized
terms shall have the meanings assigned to them in the Plan.
9.3 NO EMPLOYMENT OR SERVICE CONTRACT. Nothing in this Agreement
or in the Plan shall confer upon the Optionee any right to continue in the
Service of the Corporation (or any parent or subsidiary corporation of the
Corporation employing or retaining Optionee) for any period of specific
duration or interfere with or otherwise restrict in any way the rights of the
Corporation (or any parent or subsidiary corporation of the Corporation
employing or retaining Optionee) or the Optionee, which rights are hereby
expressly reserved by each, to terminate the Optionee's Service at any time
for any reason whatsoever, with or without cause.
9.4 NOTICES. Any notice required in connection with (i) the
Repurchase Right, the Special Purchase Right or the First Refusal Right or
(ii) the disposition of any
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Purchased Shares covered thereby shall be given in writing and shall be deemed
effective upon personal delivery or upon deposit in the United States mail,
registered or certified, postage prepaid and addressed to the party entitled to
such notice at the address indicated below such party's signature line on this
Agreement or at such other address as such party may designate by ten (10) days
advance written notice under this paragraph 9.4 to all other parties to this
Agreement.
9.5 NO WAIVER. The failure of the Corporation (or its assignees)
in any instance to exercise the Repurchase Right granted under Article V, or
the failure of the Corporation (or its assignees) in any instance to exercise
the First Refusal Right granted under Article VI, or the failure of the
Corporation (or its assignees) in any instance to exercise the Special
Purchase Right granted under Article VIII shall not constitute a waiver of
any other repurchase rights and/or rights of first refusal that may
subsequently arise under the provisions of this Agreement or any other
agreement between the Corporation and the Optionee or the Optionee's spouse.
No waiver of any breach or condition of this Agreement shall be deemed to be
a waiver of any other or subsequent breach or condition, whether of like or
different nature.
9.6 CANCELLATION OF SHARES. If the Corporation (or its assignees)
shall make available, at the time and place and in the amount and form
provided in this Agreement, the consideration for the Purchased Shares to be
repurchased in accordance with the provisions of this Agreement, then from
and after such time, the person from whom such shares are to be repurchased
shall no longer have any rights as a holder of such shares (other than the
right to receive payment of such consideration in accordance with this
Agreement), and such shares shall be deemed purchased in accordance with the
applicable provisions hereof and the Corporation (or its assignees) shall be
deemed the owner and holder of such shares, whether or not the certificates
therefor have been delivered as required by this Agreement.
X. MISCELLANEOUS PROVISIONS
10.1 OPTIONEE UNDERTAKING. Optionee hereby agrees to take whatever
additional action and execute whatever additional documents the Corporation
may in its judgment deem necessary or advisable in order to carry out or
effect one or more of the obligations or restrictions imposed on either the
Optionee or the Purchased Shares pursuant to the express provisions of this
Agreement.
10.2 AGREEMENT IS ENTIRE CONTRACT. This Agreement constitutes the
entire contract between the parties hereto with regard to the subject matter
hereof. This Agreement is made pursuant to the provisions of the Plan and
shall in all respects be construed in conformity with the express terms and
provisions of the Plan.
10.3 GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California, as such
laws are applied to contracts entered into and performed in such State
without resort to that State's conflict-of-laws rules.
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distributees, assigns and transferees by operation of law, whether or not any
such person shall have become a party to this Agreement and have agreed in
writing to join herein and be bound by the terms and conditions hereof.
10.6 POWER OF ATTORNEY. Optionee's spouse hereby appoints
Optionee his or her true and lawful attorney in fact, for him or her and in his
or her name, place and stead, and for his or her use and benefit, to agree to
any amendment or modification of this Agreement and to execute such further
instruments and take such further actions as may reasonably be necessary to
carry out the intent of this Agreement. Optionee's spouse further gives and
grants unto Optionee as his or her attorney in fact full power and authority to
do and perform every act necessary and proper to be done in the exercise of any
of the foregoing powers as fully as he or she might or could do if personally
present, with full power of substitution and revocation, hereby ratifying and
confirming all that Optionee shall lawfully do and cause to be done by virtue of
this power of attorney.
[Remainder of This Page Intentionally Left Blank]
IN WITNESS WHEREOF, the parties have executed this Agreement on the
day and year first indicated above.
DIGITAL STYLE CORPORATION OPTIONEE
By: _________________________________ ________________________________________
Title: ______________________________ Address: _______________________________
________________________________________
_______________
(1) I HAVE EXECUTED THE SECTION 83(b) ELECTION THAT WAS ATTACHED HERETO AS AN
EXHIBIT. AS SET FORTH IN ARTICLE III, I UNDERSTAND THAT I, AND NOT THE
CORPORATION, WILL BE RESPONSIBLE FOR COMPLETING THE FORM AND FILING THE ELECTION
WITH THE APPROPRIATE OFFICE OF THE FEDERAL AND STATE TAX AUTHORITIES AND THAT IF
SUCH FILING IS NOT COMPLETED WITHIN THIRTY (30) DAYS AFTER THE DATE OF THIS
AGREEMENT, I WILL NOT BE ENTITLED TO THE TAX BENEFITS PROVIDED BY SECTION 83(b).
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The undersigned spouse of Optionee has read and hereby approves the foregoing
Stock Purchase Agreement. In consideration of the Corporation's granting the
Optionee the right to acquire the Purchased Shares in accordance with the terms
of such Agreement, the undersigned hereby agrees to be irrevocably bound by all
the terms and provisions of such Agreement, including (specifically) the right
of the Corporation (or its assignees) to purchase any and all interest or right
the undersigned may otherwise have in such shares pursuant to community property
laws or other marital property rights.
________________________________________
Optionee's Spouse
Address: ________________________________________
________________________________________
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EXHIBIT I
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED ____________________ hereby sell(s), assign(s) and
transfer(s) unto DIGITAL STYLE CORPORATION (the "Corporation"), _______________
(_______) shares of the Common Stock of the Corporation standing in his\her name
on the books of the Corporation represented by Certificate No. __________ and do
hereby irrevocably constitute and appoint _________________ as Attorney to
transfer the said stock on the books of the Corporation with full power of
substitution in the premises.
Dated: ______________________________
Signature ______________________________
INSTRUCTION: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to enable the Corporation to exercise its
Repurchase Right set forth in the Agreement without requiring additional
signatures on the part of the Optionee.
Exhibit I-1
<PAGE>
EXHIBIT II
SECTION 83(b) TAX ELECTION
This statement is being made under Section 83(b) of the Internal Revenue
Code, pursuant to Treas. Reg. Section 1.83-2.
(1) The taxpayer who performed the services is:
Name: ________________________________________________________________
Address: _____________________________________________________________
Taxpayer Ident. No: __________________________________________________
(2) The property with respect to which the election is being made is _____
shares of the common stock of DIGITAL STYLE CORPORATION
(3) The property was issued on________________, 19__.
(4) The taxable year in which the election is being made is the calendar
year 19__.
(5) The property is subject to a repurchase right pursuant to which the
issuer has the right to acquire the property at the original purchase
price if for any reason taxpayer's employment with the issuer is
terminated. The issuer's repurchase right lapses in a series of
annual and monthly installments over a four (4) year period ending on
________________________________________.
(6) The fair market value at the time of transfer (determined without
regard to any restriction other than a restriction which by its terms
will never lapse) is $_____ per share.
(7) The amount paid for such property is $_____ per share.
(8) A copy of this statement was furnished to DIGITAL STYLE CORPORATION
for whom taxpayer rendered the service underlying the transfer of
property.
(9) This statement is executed as of: __________________, 19__.
_____________________________________ ________________________________________
Spouse (if any) Taxpayer
This form must be filed with the Internal Revenue Service Center with which
taxpayer files his/her Federal income tax returns. The filing must be made
within 30 days after the execution date of the Restricted Stock Issuance
Agreement.
Exhibit II-1
<PAGE>
SPECIAL PROTECTIVE ELECTION PURSUANT TO SECTION 83(b) OF THE INTERNAL
REVENUE CODE WITH RESPECT TO PROPERTY ACQUIRED UPON EXERCISE OF AN
INCENTIVE STOCK OPTION
The property described in the above Section 83(b) election is comprised of
shares of common stock acquired pursuant to the exercise of an incentive
stock option under Section 422 of the Code. Accordingly, it is the intent of
the Taxpayer to utilize this election to achieve the following tax results:
1. The purpose of this election is to have the alternative minimum
taxable income attributable to the purchased shares measured by the amount by
which the fair market value of such shares at the time of their transfer to
the Taxpayer exceeds the purchase price paid for the shares. In the absence
of this election, such alternative minimum taxable income would be measured
by the spread between the fair market value of the purchased shares and the
purchase price which exists on the various lapse dates in effect for the
forfeiture restrictions applicable to such shares. The election is to be
effective to the full extent permitted under the Internal Revenue Code.
2. Section 421 (a)(1) of the Code expressly excludes from income any
excess of the fair market value of the purchased shares over the amount paid for
such shares. Accordingly, this election is also intended to be effective in the
event there is a "disqualifying disposition" of the shares, within the meaning
of Section 421 (b) of the Code, which would otherwise render the provisions of
Section 83(a) of the Code applicable at that time. Consequently, the Taxpayer
hereby elects to have the amount of disqualifying disposition income measured by
the excess of the fair market value of the purchased shares on the date of
transfer to the Taxpayer over the amount paid for such shares. Since Section
421 (a) presently applies to the shares which are the subject of this Section
83(b) election, no taxable income is actually recognized for regular tax
purposes at this time, and no income taxes are payable, by the Taxpayer as a
result of this election.
This form should be filed with the Internal Revenue Service Center with which
taxpayer files his/her Federal income tax returns. The filing must be made
within 30 days after the execution date of the Stock Purchase Agreement.
NOTE: PAGE 2 SHOULD BE ATTACHED ONLY IF YOU ARE EXERCISING AN INCENTIVE
STOCK OPTION.
<PAGE>
PORTOLA COMMUNICATIONS, INC.
1996 STOCK OPTION PLAN
1. ESTABLISHMENT, PURPOSE AND TERM OF PLAN.
1.1 ESTABLISHMENT. The Portola Communications, Inc. 1996 Stock
Option Plan (the "PLAN") is hereby established effective as of July 22, 1996
(the "EFFECTIVE DATE").
1.2 PURPOSE. The purpose of the Plan is to advance the interests
of the Participating Company Group and its shareholders by providing an
incentive to attract, retain and reward persons performing services for the
Participating Company Group and by motivating such persons to contribute to
the growth and profitability of the Participating Company Group.
1.3 TERM OF PLAN. The Plan shall continue in effect until the
earlier of its termination by the Board or the date on which all of the
shares of Stock available for issuance under the Plan have been issued and
all restrictions on such shares under the terms of the Plan and the
agreements evidencing Options granted under the Plan have lapsed. However,
all Options shall be granted, if at all, within ten (10) years from the
earlier of the date the Plan is adopted by the Board or the date the Plan is
duly approved by the shareholders of the Company.
2. DEFINITIONS AND CONSTRUCTION.
2.1 DEFINITIONS. Whenever used herein, the following terms shall
have their respective meanings set forth below:
(a) "BOARD" means the Board of Directors of the Company. If
one or more Committees have been appointed by the Board to administer the
Plan, "Board" also means such Committee(s).
(b) "CODE" means the Internal Revenue Code of 1986, as
amended, and any applicable regulations promulgated thereunder.
(c) "COMMITTEE" means the Compensation Committee or other
committee of the Board duly appointed to administer the Plan and having such
powers as shall be specified by the Board. Unless the powers of the
Committee have been specifically limited, the Committee shall have all of the
powers of the Board granted herein, including, without limitation, the power
to amend or terminate the Plan at any time, subject to the terms of the Plan
and any applicable limitations imposed by law.
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(d) "COMPANY" means Portola Communications, Inc., a California
corporation, or any successor corporation thereto.
(e) "CONSULTANT" means any person, including an advisor,
engaged by a Participating Company to render services other than as an
Employee or a Director.
(f) "DIRECTOR" means a member of the Board or of the board of
directors of any other Participating Company.
(g) "EMPLOYEE" means any person treated as an employee
(including an officer or a Director who is also treated as an employee) in
the records of a Participating Company; provided, however, that neither
service as a Director nor payment of a director's fee shall be sufficient to
constitute employment for purposes of the Plan.
(h) "FAIR MARKET VALUE" means, as of any date, the value of a
share of stock or other property as determined by the Board, in its sole
discretion, or by the Company, in its sole discretion, if such determination
is expressly allocated to the Company herein.
(i) "INCENTIVE STOCK OPTION" means an Option intended to be
(as set forth in the Option Agreement) and which qualifies as an incentive
stock option within the meaning of Section 422(b) of the Code.
(j) "NONSTATUTORY STOCK OPTION" means an Option not intended
to be (as set forth in the Option Agreement) or which does not qualify as an
Incentive Stock Option.
(k) "OPTION" means a right to purchase Stock (subject to
adjustment as provided in Section 4.2) pursuant to the terms and conditions
of the Plan. An Option may be either an Incentive Stock Option or a
Nonstatutory Stock Option.
(l) "OPTION AGREEMENT" means a written agreement between the
Company and an Optionee setting forth the terms, conditions and restrictions
of the Option granted to the Optionee and any shares acquired upon the
exercise thereof.
(m) "OPTIONEE" means a person who has been granted one or more
Options.
(n) "PARENT CORPORATION" means any present or future "parent
corporation" of the Company, as defined in Section 424(e) of the Code.
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(o) "PARTICIPATING COMPANY" means the Company or any Parent
Corporation or Subsidiary Corporation.
(p) "PARTICIPATING COMPANY GROUP" means, at any point in time,
all corporations collectively which are then Participating Companies.
(q) "STOCK" means the common stock, without par value, of the
Company, as adjusted from time to time in accordance with Section 4.2.
(r) "SUBSIDIARY CORPORATION" means any present or future
"subsidiary corporation" of the Company, as defined in Section 424(f) of the
Code.
(s) "TEN PERCENT OWNER OPTIONEE" means an Optionee who, at the
time an Option is granted to the Optionee, owns stock possessing more than
ten percent (10%) of the total combined voting power of all classes of stock
of a Participating Company within the meaning of Section 422(b)(6) of the
Code.
2.2 CONSTRUCTION. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of the Plan. Except when otherwise indicated by the context, the
singular shall include the plural, the plural shall include the singular, and
the term "or" shall include the conjunctive as well as the disjunctive.
3. ADMINISTRATION.
3.1 ADMINISTRATION BY THE BOARD. The Plan shall be administered by
the Board, including any duly appointed Committee of the Board. All
questions of interpretation of the Plan or of any Option shall be determined
by the Board, and such determinations shall be final and binding upon all
persons having an interest in the Plan or such Option. Any officer of a
Participating Company shall have the authority to act on behalf of the
Company with respect to any matter, right, obligation, determination or
election which is the responsibility of or which is allocated to the Company
herein, provided the officer has apparent authority with respect to such
matter, right, obligation, determination or election.
3.2 POWERS OF THE BOARD. In addition to any other powers set forth
in the Plan and subject to the provisions of the Plan, the Board shall have
the full and final power and authority, in its sole discretion:
(a) to determine the persons to whom, and the time or times at
which, Options shall be granted and the number of shares of Stock to be
subject to each Option;
(b) to designate Options as Incentive Stock Options or
Nonstatutory Stock Options;
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<PAGE>
(c) to determine the Fair Market Value of shares of Stock or
other property;
(d) to determine the terms, conditions and restrictions
applicable to each Option (which need not be identical) and any shares
acquired upon the exercise thereof, including, without limitation, (i) the
exercise price of the Option, (ii) the method of payment for shares purchased
upon the exercise of the Option, (iii) the method for satisfaction of any tax
withholding obligation arising in connection with the Option or such shares,
including by the withholding or delivery of shares of stock, (iv) the timing,
terms and conditions of the exercisability of the Option or the vesting of
any shares acquired upon the exercise thereof, (v) the time of the expiration
of the Option, (vi) the effect of the Optionee's termination of employment or
service with the Participating Company Group on any of the foregoing, and
(vii) all other terms, conditions and restrictions applicable to the Option
or such shares not inconsistent with the terms of the Plan;
(e) to approve one or more forms of Option Agreement;
(f) to amend, modify, extend, or renew, or grant a new Option
in substitution for, any Option or to waive any restrictions or conditions
applicable to any Option or any shares acquired upon the exercise thereof;
(g) to accelerate, continue, extend or defer the
exercisability of any Option or the vesting of any shares acquired upon the
exercise thereof, including with respect to the period following an
Optionee's termination of employment or service with the Participating
Company Group;
(h) to prescribe, amend or rescind rules, guidelines and
policies relating to the Plan, or to adopt supplements to, or alternative
versions of, the Plan, including, without limitation, as the Board deems
necessary or desirable to comply with the laws of, or to accommodate the tax
policy or custom of, foreign jurisdictions whose citizens may be granted
Options; and
(i) to correct any defect, supply any omission or reconcile
any inconsistency in the Plan or any Option Agreement and to make all other
determinations and take such other actions with respect to the Plan or any
Option as the Board may deem advisable to the extent consistent with the Plan
and applicable law.
4. SHARES SUBJECT TO PLAN.
4.1 MAXIMUM NUMBER OF SHARES ISSUABLE. Subject to adjustment as
provided in Section 4.2, the maximum aggregate number of shares of Stock that
may be issued under the Plan shall be Three Million Five Hundred Five
Thousand (3,505,000) and shall consist of authorized but unissued or
reacquired shares of Stock or any combination thereof. If an outstanding
Option for any reason expires or is
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<PAGE>
terminated or canceled or shares of Stock acquired, subject to repurchase,
upon the exercise of an Option are repurchased by the Company, the shares of
Stock allocable to the unexercised portion of such Option, or such
repurchased shares of Stock, shall again be available for issuance under the
Plan.
4.2 ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of
any stock dividend, stock split, reverse stock split, recapitalization,
combination, reclassification or similar change in the capital structure of
the Company, appropriate adjustments shall be made in the number and class of
shares subject to the Plan and to any outstanding Options and in the exercise
price per share of any outstanding Options. If a majority of the shares
which are of the same class as the shares that are subject to outstanding
Options are exchanged for, converted into, or otherwise become (whether or
not pursuant to an Ownership Change Event, as defined in Section 8.1) shares
of another corporation (the "NEW SHARES"), the Board may unilaterally amend
the outstanding Options to provide that such Options are exercisable for New
Shares. In the event of any such amendment, the number of shares subject to,
and the exercise price per share of, the outstanding Options shall be
adjusted in a fair and equitable manner as determined by the Board, in its
sole discretion. Notwithstanding the foregoing, any fractional share
resulting from an adjustment pursuant to this Section 4.2 shall be rounded up
or down to the nearest whole number, as determined by the Board, and in no
event may the exercise price of any Option be decreased to an amount less
than the par value, if any, of the stock subject to the Option. The
adjustments determined by the Board pursuant to this Section 4.2 shall be
final, binding and conclusive.
5. ELIGIBILITY AND OPTION LIMITATIONS.
5.1 PERSONS ELIGIBLE FOR OPTIONS. Options may be granted only to
Employees, Consultants, and Directors. For purposes of the foregoing
sentence, "Employees" shall include prospective Employees to whom Options are
granted in connection with written offers of employment with the
Participating Company Group, and "Consultants" shall include prospective
Consultants to whom Options are granted in connection with written offers of
engagement with the Participating Company Group. Eligible persons may be
granted more than one (1) Option.
5.2 OPTION GRANT RESTRICTIONS. Any person who is not an Employee
on the effective date of the grant of an Option to such person may be granted
only a Nonstatutory Stock Option. An Incentive Stock Option granted to a
prospective Employee upon the condition that such person become an Employee
shall be deemed granted effective on the date such person commences service
with a Participating Company, with an exercise price determined as of such
date in accordance with Section 6.1.
5.3 FAIR MARKET VALUE LIMITATION. To the extent that the aggregate
Fair Market Value of stock with respect to which options designated as
Incentive Stock Options are exercisable by an Optionee for the first time
during any calendar year
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(under all stock option plans of the Participating Company Group, including
the Plan) exceeds One Hundred Thousand Dollars ($100,000), the portion of
such options which exceeds such amount shall be treated as Nonstatutory Stock
Options. For purposes of this Section 5.3, options designated as Incentive
Stock Options shall be taken into account in the order in which they were
granted, and the Fair Market Value of stock shall be determined as of the
time the option with respect to such stock is granted. If the Code is
amended to provide for a different limitation from that set forth in this
Section 5.3, such different limitation shall be deemed incorporated herein
effective as of the date and with respect to such Options as required or
permitted by such amendment to the Code. If an Option is treated as an
Incentive Stock Option in part and as a Nonstatutory Stock Option in part by
reason of the limitation set forth in this Section 5.3, the Optionee may
designate which portion of such Option the Optionee is exercising and may
request that separate certificates representing each such portion be issued
upon the exercise of the Option. In the absence of such designation, the
Optionee shall be deemed to have exercised the Incentive Stock Option portion
of the Option first.
6. TERMS AND CONDITIONS OF OPTION. Options shall be evidenced by
Option Agreements specifying the number of shares of Stock covered thereby,
in such form as the Board shall from time to time establish. Option
Agreements may incorporate all or any of the terms of the Plan by reference
and shall comply with and be subject to the following terms and conditions:
6.1 EXERCISE PRICE. The exercise price for each Option shall be
established in the sole discretion of the Board; provided, however, that (a)
the exercise price per share for an Incentive Stock Option shall be not less
than the Fair Market Value of a share of Stock on the effective date of grant
of the Option, (b) the exercise price per share for a Nonstatutory Stock
Option shall be not less than eighty-five percent (85%) of the Fair Market
Value of a share of Stock on the effective date of grant of the Option, and
(c) no Option granted to a Ten Percent Owner Optionee shall have an exercise
price per share less than one hundred ten percent (110%) of the Fair Market
Value of a share of Stock on the effective date of grant of the Option.
Notwithstanding the foregoing, an Option (whether an Incentive Stock Option
or a Nonstatutory Stock Option) may be granted with an exercise price lower
than the minimum exercise price set forth above if such Option is granted
pursuant to an assumption or substitution for another option in a manner
qualifying under the provisions of Section 424(a) of the Code.
6.2 EXERCISE PERIOD. Options shall be exercisable at such time or
times, or upon such event or events, and subject to such terms, conditions,
performance criteria, and restrictions as shall be determined by the Board
and set forth in the Option Agreement evidencing such Option; provided,
however, that (a) no Option shall be exercisable after the expiration of ten
(10) years after the effective date of grant of such Option, (b) no Incentive
Stock Option granted to a Ten Percent Owner Optionee shall be exercisable
after the expiration of five (5) years after the effective date of grant of
such Option and (c) no Option granted to prospective Employee or
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<PAGE>
prospective Consultant may become exercisable prior to the date on which such
person commences service with a Participating Company.
6.3 PAYMENT OF EXERCISE PRICE.
(a) FORMS OF CONSIDERATION AUTHORIZED. Except as otherwise
provided below, payment of the exercise price for the number of shares of
Stock being purchased pursuant to any Option shall be made (i) in cash, by
check, or cash equivalent, (ii) by tender to the Company of shares of Stock
owned by the Optionee having a Fair Market Value (as determined by the
Company without regard to any restrictions on transferability applicable to
such stock by reason of federal or state securities laws or agreements with
an underwriter for the Company) not less than the exercise price, (iii) by
the assignment of the proceeds of a sale or loan with respect to some or all
of the shares being acquired upon the exercise of the Option (including,
without limitation, through an exercise complying with the provisions of
Regulation T as promulgated from time to time by the Board of Governors of
the Federal Reserve System) (a "CASHLESS EXERCISE"), (iv) by the Optionee's
promissory note in a form approved by the Company, (v) by such other
consideration as may be approved by the Board from time to time to the extent
permitted by applicable law, or (vi) by any combination thereof. The Board
may at any time or from time to time, by adoption of or by amendment to the
standard forms of Option Agreement described in Section 7, or by other means,
grant Options which do not permit all of the foregoing forms of consideration
to be used in payment of the exercise price or which otherwise restrict one
or more forms of consideration.
(b) TENDER OF STOCK. Notwithstanding the foregoing, an Option
may not be exercised by tender to the Company of shares of Stock to the
extent such tender of Stock would constitute a violation of the provisions of
any law, regulation or agreement restricting the redemption of the Company's
stock. Unless otherwise provided by the Board, an Option may not be exercised
by tender to the Company of shares of Stock unless such shares either have
been owned by the Optionee for more than six (6) months or were not acquired,
directly or indirectly, from the Company.
(c) CASHLESS EXERCISE. The Company reserves, at any and all
times, the right, in the Company's sole and absolute discretion, to
establish, decline to approve or terminate any program or procedures for the
exercise of Options by means of a Cashless Exercise.
(d) PAYMENT BY PROMISSORY NOTE. No promissory note shall be
permitted if the exercise of an Option using a promissory note would be a
violation of any law. Any permitted promissory note shall be on such terms
as the Board shall determine at the time the Option is granted. The Board
shall have the authority to permit or require the Optionee to secure any
promissory note used to exercise an Option with the shares of Stock acquired
upon the exercise of the Option or with other collateral acceptable to the
Company. Unless otherwise provided by
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the Board, if the Company at any time is subject to the regulations
promulgated by the Board of Governors of the Federal Reserve System or any
other governmental entity affecting the extension of credit in connection
with the Company's securities, any promissory note shall comply with such
applicable regulations, and the Optionee shall pay the unpaid principal and
accrued interest, if any, to the extent necessary to comply with such
applicable regulations.
6.4 TAX WITHHOLDING. The Company shall have the right, but not the
obligation, to deduct from the shares of Stock issuable upon the exercise of
an Option, or to accept from the Optionee the tender of, a number of whole
shares of Stock having a Fair Market Value, as determined by the Company,
equal to all or any part of the federal, state, local and foreign taxes, if
any, required by law to be withheld by the Participating Company Group with
respect to such Option or the shares acquired upon the exercise thereof.
Alternatively or in addition, in its sole discretion, the Company shall have
the right to require the Optionee, through payroll withholding, cash payment
or otherwise, including by means of a Cashless Exercise, to make adequate
provision for any such tax withholding obligations of the Participating
Company Group arising in connection with the Option or the shares acquired
upon the exercise thereof. The Company shall have no obligation to deliver
shares of Stock or to release shares of Stock from an escrow established
pursuant to the Option Agreement until the Participating Company Group's tax
withholding obligations have been satisfied by the Optionee.
6.5 REPURCHASE RIGHTS. Shares issued under the Plan may be subject
to a right of first refusal, one or more repurchase options, or other
conditions and restrictions as determined by the Board in its sole discretion
at the time the Option is granted. The Company shall have the right to
assign at any time any repurchase right it may have, whether or not such
right is then exercisable, to one or more persons as may be selected by the
Company. Upon request by the Company, each Optionee shall execute any
agreement evidencing such transfer restrictions prior to the receipt of
shares of Stock hereunder and shall promptly present to the Company any and
all certificates representing shares of Stock acquired hereunder for the
placement on such certificates of appropriate legends evidencing any such
transfer restrictions.
7. STANDARD FORMS OF OPTION AGREEMENT.
7.1 INCENTIVE STOCK OPTIONS. Unless otherwise provided by the
Board at the time the Option is granted, an Option designated as an
"Incentive Stock Option" shall comply with and be Subject to the terms and
conditions set forth in the form of Immediately Exercisable Incentive Stock
Option Agreement adopted by the Board concurrently with its adoption of the
Plan and as amended from time to time.
7.2 NONSTATUTORY STOCK OPTIONS. Unless otherwise provided by the
Board at the time the Option is granted, an Option designated as a
"Nonstatutory Stock Option" shall comply with and be subject to the terms and
conditions set forth
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in the form of Immediately Exercisable Nonstatutory Stock Option Agreement
adopted by the Board concurrently with its adoption of the Plan and as
amended from time to time.
7.3 STANDARD TERM OF OPTIONS. Except as otherwise provided in
Section 6.2 or by the Board in the grant of an Option, any Option granted
hereunder shall have a term of ten (10) years from the effective date of
grant of the Option.
7.4 AUTHORITY TO VARY TERMS. The Board shall have the authority
from time to time to vary the terms of any of the standard forms of Option
Agreement described in this Section 7 either in connection with the grant or
amendment of an individual Option or in connection with the authorization of
a new standard form or forms; provided, however, that the terms and
conditions of any such new, revised or amended standard form or forms of
Option Agreement shall be in accordance with the terms of the Plan. Such
authority shall include, but not by way of limitation, the authority to grant
Options which are not immediately exercisable.
8. TRANSFER OF CONTROL.
8.1 DEFINITIONS.
(a) An "OWNERSHIP CHANGE EVENT" shall be deemed to have
occurred if any of the following occurs with respect to the Company:
(i) the direct or indirect sale or exchange in a single
or series of related transactions by the shareholders of the Company of more
than fifty percent (50%) of the voting stock of the Company;
(ii) a merger or consolidation in which the Company is a
party;
(iii) the sale, exchange, or transfer of all or
substantially all of the assets of the Company; or
(iv) a liquidation or dissolution of the Company.
(b) A "TRANSFER OF CONTROL" shall mean an Ownership Change
Event or a series of related Ownership Change Events (collectively, the
"TRANSACTION") wherein the shareholders of the Company immediately before the
Transaction do not retain immediately after the Transaction, in substantially
the same proportions as their ownership of shares of the Company's voting
stock immediately before the Transaction, direct or indirect beneficial
ownership of more than fifty percent (50%) of the total combined voting power
of the outstanding voting stock of the Company or the corporation or
corporations to which the assets of the Company were transferred (the
"TRANSFEREE CORPORATION(S)"), as the case may be. For purposes of the
preceding sentence, indirect beneficial ownership shall include, without
limitation, an
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interest resulting from ownership of the voting stock of one or more
corporations which, as a result of the Transaction, own the Company or the
Transferee Corporation(s), as the case may be, either directly or through one
or more subsidiary corporations. The Board shall have the right to determine
whether multiple sales or exchanges of the voting stock of the Company or
multiple Ownership Change Events are related, and its determination shall be
final, binding and conclusive.
8.2 EFFECT OF TRANSFER OF CONTROL ON OPTIONS. In the event of a
Transfer of Control, the surviving, continuing, successor, or purchasing
corporation or parent corporation thereof, as the case may be (the "ACQUIRING
CORPORATION"), may either assume the Company's rights and obligations under
outstanding Options or substitute for outstanding Options substantially
equivalent options for the Acquiring Corporation's stock. Any Options which
are neither assumed or substituted for by the Acquiring Corporation in
connection with the Transfer of Control nor exercised as of the date of the
Transfer of Control shall terminate and cease to be outstanding effective as
of the date of the Transfer of Control. Notwithstanding the foregoing,
shares acquired upon exercise of an Option prior to the Transfer of Control
and any consideration received pursuant to the Transfer of Control with
respect to such shares shall continue to be subject to all applicable
provisions of the Option Agreement evidencing such Option except as otherwise
provided in such Option Agreement. Furthermore, notwithstanding the
foregoing, if the corporation the stock of which is subject to the
outstanding Options immediately prior to an Ownership Change Event described
in Section 8.1(a)(i) constituting a Transfer of Control is the surviving or
continuing corporation and immediately after such Ownership Change Event less
than fifty percent (50%) of the total combined voting power of its voting
stock is held by another corporation or by other corporations that are
members of an affiliated group within the meaning of Section 1504(a) of the
Code without regard to the provisions of Section 1504(b) of the Code, the
outstanding Options shall not terminate unless the Board otherwise provides
in its sole discretion.
9. PROVISION OF INFORMATION. At least annually, copies of the
Company's balance sheet and income statement for the just completed fiscal
year shall be made available to each Optionee and purchaser of shares of
Stock upon the exercise of an Option. The Company shall not be required to
provide such information to persons whose duties in connection with the
Company assure them access to equivalent information.
10. NONTRANSFERABILITY OF OPTIONS. During the lifetime of the Optionee,
an Option shall be exercisable only by the Optionee or the Optionee's
guardian or legal representative. No Option shall be assignable or
transferable by the Optionee, except by will or by the laws of descent and
distribution.
11. TRANSFER OF COMPANY'S RIGHTS. In the event any Participating Company
assigns, other than by operation of law, to a third person, other than
another Participating Company, any of the Participating Company's rights to
repurchase any shares of Stock acquired upon the exercise of an Option, the
assignee shall pay to the
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assigning Participating Company the value of such right as determined by the
Company in the Company's sole discretion. Such consideration shall be paid
in cash. In the event such repurchase right is exercisable at the time of
such assignment, the value of such right shall be not less than the Fair
Market Value of the shares of Stock which may be repurchased under such right
(as determined by the Company) minus the repurchase price of such shares.
The requirements of this Section 11 regarding the minimum consideration to be
received by the assigning Participating Company shall not inure to the
benefit of the Optionee whose shares of Stock are being repurchased. Failure
of a Participating Company to comply with the provisions of this Section 11
shall not constitute a defense or otherwise prevent the exercise of the
repurchase right by the assignee of such right.
12. INDEMNIFICATION. In addition to such other rights of
indemnification as they may have as members of the Board or officers or
employees of the Participating Company Group, members of the Board and any
officers or employees of the Participating Company Group to whom authority to
act for the Board is delegated shall be indemnified by the Company against
all reasonable expenses, including attorneys' fees, actually and necessarily
incurred in connection with the defense of any action, suit or proceeding, or
in connection with any appeal therein, to which they or any of them may be a
party by reason of any action taken or failure to act under or in connection
with the Plan, or any right granted hereunder, and against all amounts paid
by them in settlement thereof (provided such settlement is approved by
independent legal counsel selected by the Company) or paid by them in
satisfaction of a judgment in any such action, suit or proceeding, except in
relation to matters as to which it shall be adjudged in such action, suit or
proceeding that such person is liable for gross negligence, bad faith or
intentional misconduct in duties; provided, however, that within sixty (60)
days after the institution of such action, suit or proceeding, such person
shall offer to the Company, in writing, the opportunity at its own expense to
handle and defend the same.
13. TERMINATION OR AMENDMENT OF PLAN. The Board may terminate or amend
the Plan at any time. However, subject to changes in the law or other legal
requirements that would permit otherwise, without the approval of the
Company's shareholders, there shall be (a) no increase in the maximum
aggregate number of shares of Stock that may be issued under the Plan (except
by operation of the provisions of Section 4.2), (b) no change in the class of
persons eligible to receive Incentive Stock Options, and (c) no expansion in
the class of persons eligible to receive Nonstatutory Stock Options. In any
event, no termination or amendment of the Plan may adversely affect any then
outstanding Option or any unexercised portion thereof, without the consent of
the Optionee, unless such termination or amendment is required to enable an
Option designated as an Incentive Stock Option to qualify as an Incentive
Stock Option or is necessary to comply with any applicable law or government
regulation.
14. SHAREHOLDER APPROVAL. The Plan or any increase in the maximum number
of shares of Stock issuable thereunder as provided in Section 4.1 (the
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"MAXIMUM SHARES") shall be approved by the shareholders of the Company within
twelve (12) months of the date of adoption thereof by the Board. Options
granted prior to shareholder approval of the Plan or in excess of the Maximum
Shares previously approved by the shareholders shall become exercisable no
earlier than the date of shareholder approval of the Plan or such increase in
the Maximum Shares, as the case may be.
IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies
that the foregoing Portola Communications, Inc. 1996 Stock Option Plan was
duly adopted by the Board on July 22, 1996, as amended on September 16, 1996,
and September __, 1996.
------------------------------------
Secretary
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PLAN HISTORY
July 22, 1996 Board adopts Plan, with an initial reserve of 1,400,000
shares.
____________, 1996 Shareholders approve Plan, with an initial reserve of
1,400,000 shares.
September 16, 1996 Board authorizes and increase in the share reserve of
105,000 for a total of 1,505,000
September __, 1996 Board authorizes and increase in the share reserve of
2,000,000 for a total of 3,505,000
September __, 1996 Shareholders approve increase in the share reserve of
2,105,000 for a total of 3,505,000
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<PAGE>
STANDARD FORM OF
PORTOLA COMMUNICATIONS, INC.
IMMEDIATELY EXERCISABLE
INCENTIVE STOCK OPTION AGREEMENT
<PAGE>
THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAVE NOT BEEN QUALIFIED
WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE
ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE
CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE
OF SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102, OR 25105 OF
THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT
ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE
SALE IS SO EXEMPT.
THE SECURITY REPRESENTED BY THIS CERTIFICATE HAS BEEN ACQUIRED FOR INVESTMENT
AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF.
NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.
PORTOLA COMMUNICATIONS, INC.
IMMEDIATELY EXERCISABLE
INCENTIVE STOCK OPTION AGREEMENT
THIS IMMEDIATELY EXERCISABLE INCENTIVE STOCK OPTION AGREEMENT (the "OPTION
AGREEMENT") is made and entered into as of _________, 199__, by and between
Portola Communications, Inc. and ______________ (the "OPTIONEE").
The Company has granted to the Optionee pursuant to the Portola
Communications, Inc. 1996 Stock Option Plan (the "PLAN") an option to purchase
certain shares of Stock, upon the terms and conditions set forth in this Option
Agreement (the "OPTION"). The Option shall in all respects be subject to the
terms and conditions of the Plan, the provisions of which are incorporated
herein by reference.
1. DEFINITIONS AND CONSTRUCTION.
1.1 DEFINITIONS. Unless otherwise defined herein, capitalized terms
shall have the meanings assigned to such terms in the Plan. Whenever used
herein, the following terms shall have their respective meanings set forth
below:
(a) "DATE OF OPTION GRANT" means ___________________, 199__.
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(b) "NUMBER OF OPTION SHARES" means __________ shares of Stock,
as adjusted from time to time pursuant to Section 9.
(c) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(d) "EXERCISE PRICE" means $__________ per share of Stock, as
adjusted from time to time pursuant to Section 9.
(e) "INITIAL EXERCISE DATE" means the Date of Option Grant.
(f) "INITIAL VESTING DATE" means the date occurring one (1) year
after (check one):
__ the Date of Option Grant.
__ __________, 199__, the date the Optionee's Service
commenced.
(g) "VESTED RATIO" means, on any relevant date, the ratio
determined as follows:
Vested Ratio
------------
Prior to Initial Vesting Date 0
On Initial Vesting Date, 1/4
provided the Optionee's Service
is continuous from the Date of
Option Grant until the Initial
Vesting Date
Plus
----
For each full month of the 1/48
Optionee's continuous Service
from the Initial Vesting Date
until the Vested Ratio equals
1/1, an additional
(h) "OPTION EXPIRATION DATE" means the date ten (10) years after
the Date of Option Grant.
(i) "COMPANY" means Portola Communications, Inc., a California
corporation, or any successor corporation thereto.
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<PAGE>
(j) "DISABILITY" means the inability of the Optionee, in the
opinion of a qualified physician acceptable to the Company, to perform the major
duties of the Optionee's position with the Participating Company Group because
of the sickness or injury of the Optionee.
(k) "SECURITIES ACT" means the Securities Act of 1933, as
amended.
(l) "SERVICE" means the Optionee's employment or service with the
Participating Company Group, whether in the capacity of an Employee, a Director
or a Consultant. The Optionee's Service shall not be deemed to have terminated
merely because of a change in the capacity in which the Optionee renders Service
to the Participating Company Group or a change in the Participating Company for
which the Optionee renders such Service, provided that there is no interruption
or termination of the Optionee's Service. The Optionee's Service shall be
deemed to have terminated either upon an actual termination of Service or upon
the corporation for which the Optionee performs Service ceasing to be a
Participating Company. Subject to the foregoing, the Company, in its sole
discretion, shall determine whether the Optionee's Service has terminated and
the effective date of such termination. (NOTE: If the Option is exercised more
than three (3) months after the date on which the Optionee ceased to be an
Employee (other than by reason of death or a permanent and total disability as
defined in Section 22(e)(3) of the Code), the Option will be treated as a
Nonstatutory Stock Option and not as an Incentive Stock Option to the extent
required by Section 422 of the Code.)
1.2 CONSTRUCTION. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of this Option Agreement. Except when otherwise indicated by the
context, the singular shall include the plural, the plural shall include the
singular, and the term "or" shall include the conjunctive as well as the
disjunctive.
2. TAX CONSEQUENCES.
2.1 TAX STATUS OF OPTION. This Option is intended to be an
Incentive Stock Option within the meaning of Section 422(b) of the Code, but
the Company does not represent or warrant that this Option qualifies as such.
The Optionee should consult with the Optionee's own tax advisor regarding the
tax effects of this Option and the requirements necessary to obtain favorable
income tax treatment under Section 422 of the Code, including, but not
limited to, holding period requirements. (NOTE: If the aggregate Exercise
Price of the Option (that is, the Exercise Price multiplied by the Number of
Option Shares) plus the aggregate exercise price of any other Incentive Stock
Options held by the Optionee (whether granted pursuant to the Plan or any
other stock option plan of the Participating Company Group) is greater than
One Hundred Thousand Dollars ($100,000), the Optionee should contact the
Chief Financial Officer of the Company to ascertain whether the entire Option
qualifies as an Incentive Stock Option.)
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<PAGE>
2.2 ELECTION UNDER SECTION 83(b) OF THE CODE. If the Optionee
exercises this Option to purchase shares of Stock that are both
nontransferable and subject to a substantial risk of forfeiture, the Optionee
understands that the Optionee should consult with the Optionee's tax advisor
regarding the advisability of filing with the Internal Revenue Service an
election under Section 83(b) of the Code, which must be filed no later than
thirty (30) days after the date on which the Optionee exercises the Option.
Shares acquired upon exercise of the Option are nontransferable and subject
to a substantial risk of forfeiture if, for example, (a) they are unvested
and are subject to a right of the Company to repurchase such shares at the
Optionee's original purchase price if the Optionee's Service terminates, or
(b) the Optionee is subject to a restriction on transfer to comply with
"Pooling-of-Interests Accounting" rules. Failure to file an election under
Section 83(b), if appropriate, may result in adverse tax consequences to the
Optionee. The Optionee acknowledges that the Optionee has been advised to
consult with a tax advisor prior to the exercise of the Option regarding the
tax consequences to the Optionee of the exercise of the Option. AN ELECTION
UNDER SECTION 83(b) MUST BE FILED WITHIN 30 DAYS AFTER THE DATE ON WHICH THE
OPTIONEE PURCHASES SHARES. THIS TIME PERIOD CANNOT BE EXTENDED. THE
OPTIONEE ACKNOWLEDGES THAT TIMELY FILING OF A SECTION 83(b) ELECTION IS THE
OPTIONEE'S SOLE RESPONSIBILITY, EVEN IF THE OPTIONEE REQUESTS THE COMPANY OR
ITS REPRESENTATIVE TO FILE SUCH ELECTION ON HIS OR HER BEHALF.
3. ADMINISTRATION. All questions of interpretation concerning this
Option Agreement shall be determined by the Board, including any duly
appointed Committee of the Board. All determinations by the Board shall be
final and binding upon all persons having an interest in the Option. Any
officer of a Participating Company shall have the authority to act on behalf
of the Company with respect to any matter, right, obligation, or election
which is the responsibility of or which is allocated to the Company herein,
provided the officer has apparent authority with respect to such matter,
right, obligation, or election.
4. EXERCISE OF THE OPTION.
4.1 RIGHT TO EXERCISE.
(a) Except as otherwise provided herein, the Option shall be
exercisable on and after the Initial Exercise Date and prior to the
termination of the Option (as provided in Section 6) in an amount not to
exceed the Number of Option Shares less the number of shares previously
acquired upon exercise of the Option, subject to the Optionee's agreement
that any shares purchased upon exercise are subject to the Company's
repurchase rights set forth in Section 11 and Section 12. Notwithstanding
the foregoing, except as provided in Section 4.1(b), the aggregate Fair
Market Value of the shares of Stock with respect to which the Optionee may
exercise the Option for the first time during any calendar year, when added
to the aggregate Fair Market Value of the shares subject to any other options
designated as Incentive Stock Options granted to the Optionee under all stock
option plans of the Participating Company Group prior to the Date of Option
Grant with respect to
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<PAGE>
which such options are exercisable for the first time during the same
calendar year, shall not exceed One Hundred Thousand Dollars ($100,000). For
purposes of the preceding sentence, options designated as Incentive Stock
Options shall be taken into account in the order in which they were granted,
and the Fair Market Value of shares of stock shall be determined as of the
time the option with respect to such shares is granted. Such limitation on
exercise shall be referred to in this Option Agreement as the "ISO EXERCISE
LIMITATION." If Section 422 of the Code is amended to provide for a different
limitation from that set forth in this Section 4.1(a), the ISO Exercise
Limitation shall be deemed amended effective as of the date required or
permitted by such amendment to the Code. The ISO Exercise Limitation shall
terminate upon the earlier of (i) the Optionee's termination of Service, (ii)
the day immediately prior to the effective date of a Transfer of Control in
which the Option is not assumed or substituted for by the Acquiring
Corporation as provided in Section 8, or (iii) the day ten (10) days prior to
the Option Expiration Date. Upon such termination of the ISO Exercise
Limitation, the Option shall be deemed a Nonstatutory Stock Option to the
extent of the number of shares subject to the Option which would otherwise
exceed the ISO Exercise Limitation.
(b) Notwithstanding any other provision of this Option
Agreement, if compliance with the ISO Exercise Limitation as set forth in
Section 4.1(a) will result in the exercisability of any Vested Shares (as
defined in Section 11.2) being delayed more than thirty (30) days beyond the
date such shares become Vested Shares (the "VESTING DATE"), the Option shall
be deemed to be two (2) options. The first option shall be for the maximum
portion of the Number of Option Shares that can comply with the ISO Exercise
Limitation without causing the Option to be unexercisable in the aggregate as
to Vested Shares on the Vesting Date for such shares. The second option,
which shall not be treated as an Incentive Stock Option as described in
section 422(b) of the Code, shall be for the balance of the Number of Option
Shares; that is, those such shares which, on the respective Vesting Date for
such shares, would be unexercisable if included in the first option and
thereby made subject to the ISO Exercise Limitation. Shares treated as
subject to the second option shall be exercisable on the same terms and at
the same time as set forth in this Option Agreement; provided, however, that
(i) the second sentence of Section 4.1(a) shall not apply to the second
option and (ii) each such share shall become a Vested Share on the Vesting
Date such share must first be allocated to the second option pursuant to the
preceding sentence. Unless the Optionee specifically elects to the contrary
in the Optionee's written notice of exercise, the first option shall be
deemed to be exercised first to the maximum possible extent and then the
second option shall be deemed to be exercised.
4.2 METHOD OF EXERCISE. Exercise of the Option shall be by written
notice to the Company which must state the election to exercise the Option, the
number of whole shares of Stock for which the Option is being exercised and such
other representations and agreements as to the Optionee's investment intent with
respect to such shares as may be required pursuant to the provisions of this
Option Agreement. The written notice must be signed by the Optionee and must be
delivered in person, by certified or registered mail, return receipt requested,
by
5
<PAGE>
confirmed facsimile transmission, or by such other means as the Company may
permit, to the Chief Financial Officer of the Company, or other authorized
representative of the Participating Company Group, prior to the termination of
the Option as set forth in Section 6, accompanied by (i) full payment of the
aggregate Exercise Price for the number of shares of Stock being purchased and
(ii) an executed copy, if required herein, of the then current forms of escrow
and security agreement referenced below. The Option shall be deemed to be
exercised upon receipt by the Company of such written notice, the aggregate
Exercise Price, and, if required by the Company, such executed agreements.
4.3 PAYMENT OF EXERCISE PRICE.
(a) FORMS OF CONSIDERATION AUTHORIZED. Except as otherwise
provided below, payment of the aggregate Exercise Price for the number of shares
of Stock for which the Option is being exercised shall be made (i) in cash, by
check, or cash equivalent, (ii) by tender to the Company of whole shares of
Stock owned by the Optionee having a Fair Market Value (as determined by the
Company without regard to any restrictions on transferability applicable to such
stock by reason of federal or state securities laws or agreements with an
underwriter for the Company) not less than the aggregate Exercise Price, (iii)
by means of a Cashless Exercise, as defined in Section 4.3(c), (iv) in the
Company's sole discretion at the time the Option is exercised, by the Optionee's
promissory note for the aggregate Exercise Price, or (v) by any combination of
the foregoing.
(b) TENDER OF STOCK. Notwithstanding the foregoing, the Option
may not be exercised by tender to the Company of shares of Stock to the extent
such tender of Stock would constitute a violation of the provisions of any law,
regulation or agreement restricting the redemption of the Company's stock. The
Option may not be exercised by tender to the Company of shares of Stock unless
such shares either have been owned by the Optionee for more than six (6) months
or were not acquired, directly or indirectly, from the Company.
(c) CASHLESS EXERCISE. A "CASHLESS EXERCISE" means the
assignment in a form acceptable to the Company of the proceeds of a sale or loan
with respect to some or all of the shares of Stock acquired upon the exercise of
the Option pursuant to a program or procedure approved by the Company
(including, without limitation, through an exercise complying with the
provisions of Regulation T as promulgated from time to time by the Board of
Governors of the Federal Reserve System). The Company reserves, at any and all
times, the right, in the Company's sole and absolute discretion, to decline to
approve or terminate any such program or procedure.
(d) PAYMENT BY PROMISSORY NOTE. No promissory note shall be
permitted if an exercise of the Option using a promissory note would be a
violation of any law. The promissory note permitted in clause (iv) of
Section 4.3(a) shall be a full recourse note in a form satisfactory to the
Company, with principal payable no more than four (4) years after the date
the Option is exercised. Interest
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<PAGE>
on the principal balance of the promissory note shall be payable in annual
installments at the minimum interest rate necessary to avoid imputed interest
pursuant to all applicable sections of the Code. Such recourse promissory note
shall be secured by the shares of Stock acquired pursuant to the then current
form of security agreement as approved by the Company. At any time the Company
is subject to the regulations promulgated by the Board of Governors of the
Federal Reserve System or any other governmental entity affecting the extension
of credit in connection with the Company's securities, any promissory note shall
comply with such applicable regulations, and the Optionee shall pay the unpaid
principal and accrued interest, if any, to the extent necessary to comply with
such applicable regulations. Except as the Company in its sole discretion shall
determine, the Optionee shall pay the unpaid principal balance of the promissory
note and any accrued interest thereon upon termination of the Optionee's Service
with the Participating Company Group for any reason, with or without cause.
4.4 TAX WITHHOLDING. At the time the Option is exercised, in whole
or in part, or at any time thereafter as requested by the Company, the
Optionee hereby authorizes withholding from payroll and any other amounts
payable to the Optionee, and otherwise agrees to make adequate provision for
(including by means of a Cashless Exercise to the extent permitted by the
Company), any sums required to satisfy the federal, state, local and foreign
tax withholding obligations of the Participating Company Group, if any, which
arise in connection with the Option, including, without limitation,
obligations arising upon (i) the exercise, in whole or in part, of the
Option, (ii) the transfer, in whole or in part, of any shares acquired upon
exercise of the Option, (iii) the operation of any law or regulation
providing for the imputation of interest, or (iv) the lapsing of any
restriction with respect to any shares acquired upon exercise of the Option.
The Optionee is cautioned that the Option is not exercisable unless the tax
withholding obligations of the Participating Company Group are satisfied.
Accordingly, the Optionee may not be able to exercise the Option when desired
even though the Option is vested, and the Company shall have no obligation to
issue a certificate for such shares or release such shares from any escrow
provided for herein.
4.5 CERTIFICATE REGISTRATION. Except in the event the Exercise
Price is paid by means of a Cashless Exercise, the certificate for the shares
as to which the Option is exercised shall be registered in the name of the
Optionee, or, if applicable, in the names of the heirs of the Optionee.
4.6 RESTRICTIONS ON GRANT OF THE OPTION AND ISSUANCE OF SHARES. The
grant of the Option and the issuance of shares of Stock upon exercise of the
Option shall be subject to compliance with all applicable requirements of
federal, state or foreign law with respect to such securities. The Option may
not be exercised if the issuance of shares of Stock upon exercise would
constitute a violation of any applicable federal, state or foreign securities
laws or other law or regulations or the requirements of any stock exchange or
market system upon which the Stock may then be listed. In addition, the Option
may not be exercised unless (i) a registration statement under the Securities
Act shall at the time of exercise of the Option be in effect with respect
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<PAGE>
to the shares issuable upon exercise of the Option or (ii) in the opinion of
legal counsel to the Company, the shares issuable upon exercise of the Option
may be issued in accordance with the terms of an applicable exemption from the
registration requirements of the Securities Act. THE OPTIONEE IS CAUTIONED THAT
THE OPTION MAY NOT BE EXERCISED UNLESS THE FOREGOING CONDITIONS ARE SATISFIED.
ACCORDINGLY, THE OPTIONEE MAY NOT BE ABLE TO EXERCISE THE OPTION WHEN DESIRED
EVEN THOUGH THE OPTION IS VESTED. The inability of the Company to obtain from
any regulatory body having jurisdiction the authority, if any, deemed by the
Company's legal counsel to be necessary to the lawful issuance and sale of any
shares subject to the Option shall relieve the Company of any liability in
respect of the failure to issue or sell such shares as to which such requisite
authority shall not have been obtained. As a condition to the exercise of the
Option, the Company may require the Optionee to satisfy any qualifications that
may be necessary or appropriate, to evidence compliance with any applicable law
or regulation and to make any representation or warranty with respect thereto as
may be requested by the Company.
4.7 FRACTIONAL SHARES. The Company shall not be required to issue
fractional shares upon the exercise of the Option.
5. NONTRANSFERABILITY OF THE OPTION. The Option may be exercised
during the lifetime of the Optionee only by the Optionee or the Optionee's
guardian or legal representative and may not be assigned or transferred in
any manner except by will or by the laws of descent and distribution.
Following the death of the Optionee, the Option, to the extent provided in
Section 7, may be exercised by the Optionee's legal representative or by any
person empowered to do so under the deceased Optionee's will or under the
then applicable laws of descent and distribution.
6. TERMINATION OF THE OPTION. The Option shall terminate and may no
longer be exercised on the first to occur of (a) the Option Expiration Date,
(b) the last date for exercising the Option following termination of the
Optionee's Service as described in Section 7, or (c) a Transfer of Control to
the extent provided in Section 8.
7. EFFECT OF TERMINATION OF SERVICE.
7.1 OPTION EXERCISABILITY.
(a) DISABILITY. If the Optionee's Service with the
Participating Company Group is terminated because of the Disability of the
Optionee, the Option, to the extent unexercised and exercisable on the date
on which the Optionee's Service terminated, may be exercised by the Optionee
(or the Optionee's guardian or legal representative) at any time prior to the
expiration of six (6) months after the date on which the Optionee's Service
terminated, but in any event no later than the Option Expiration Date. (NOTE:
If the Option is exercised more than three (3) months after the date on which
the Optionee's Service as an Employee terminated as a result of a Disability
other than a permanent and total disability as defined in Section 22(e)(3) of
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<PAGE>
the Code, the Option will be treated as a Nonstatutory Stock Option and not as
an Incentive Stock Option to the extent required by Section 422 of the Code.)
(b) DEATH. If the Optionee's Service with the Participating
Company Group is terminated because of the death of the Optionee, the Option, to
the extent unexercised and exercisable on the date on which the Optionee's
Service terminated, may be exercised by the Optionee (or the Optionee's legal
representative, or other person who acquired the right to exercise the Option by
reason of the Optionee's death) at any time prior to the expiration of six (6)
months after the date on which the Optionee's Service terminated, but in any
event no later than the Option Expiration Date. The Optionee's Service shall be
deemed to have terminated on account of death if the Optionee dies within thirty
(30) days after the Optionee's termination of Service (other than due to a
Termination For Cause).
(c) TERMINATION AFTER TRANSFER OF CONTROL. If the Optionee's
Service with the Participating Company Group is terminated because of a
Termination After Transfer of Control (as defined below), (i) the Option, to the
extent unexercised and exercisable on the date on which the Optionee's Service
terminated, may be exercised by the Optionee (or the Optionee's guardian or
legal representative) at any time prior to the expiration of six (6) months
after the date on which the Optionee's Service terminated, but in any event no
later than the Option Expiration Date, and (ii) solely for purposes of computing
the Vested Ratio, the Optionee shall be given credit for an additional twelve
(12) months of continuous Service; provided, however, that in no event shall the
Vested Ratio exceed 1/1. The Company makes no representation as to the tax
consequences if the Option is exercised more than three (3) months after the
date on which the Optionee's Service as an Employee terminated. The Optionee
should consult with the Optionee's own tax advisor as to the tax consequences to
the Optionee of any such delayed exercise.
(d) OTHER TERMINATION OF SERVICE. If the Optionee's Service with
the Participating Company Group terminates for any reason, except Disability,
death, or Termination After Transfer of Control, the Option, to the extent
unexercised and exercisable by the Optionee on the date on which the Optionee's
Service terminated, may be exercised by the Optionee within thirty (30) days (or
such other longer period of time as determined by the Board, in its sole
discretion) after the date on which the Optionee's Service terminated, but in
any event no later than the Option Expiration Date.
7.2 CERTAIN DEFINITIONS.
(a) "TERMINATION AFTER TRANSFER OF CONTROL" shall mean either of
the following events occurring within twelve (12) months after a Transfer of
Control (as defined in Section 8.1(b) below):
(i) termination by the Participating Company Group of the
Optionee's Service with the Participating Company Group for any reason other
than a Termination For Cause; or
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(ii) the Optionee's resignation from Service with the
Participating Company Group within a reasonable period of time following any
Constructive Termination (as defined below).
Notwithstanding any provision herein to the contrary, Termination After Transfer
of Control shall not include any termination of the Optionee's Service with the
Participating Company Group which (1) is a Termination For Cause; (2) is a
result of the Optionee's death or Disability; (3) is a result of the Optionee's
voluntary termination of Service other than upon Constructive Termination (as
defined below); or (4) occurs prior to the effectiveness of a Transfer of
Control.
(b) "TERMINATION FOR CAUSE" shall mean termination by the
Participating Company Group of the Optionee's Service with the Participating
Company Group for any of the following reasons: (i) theft, dishonesty, or
falsification of any Participating Company records; (ii) improper use or
disclosure of a Participating Company's confidential or proprietary information;
(iii) any action by the Optionee which has a detrimental effect on a
Participating Company's reputation or business; (iv) the Optionee's failure or
inability to perform any reasonable assigned duties after written notice from
the Participating Company Group of, and a reasonable opportunity to cure, such
failure or inability; (v) any material breach by the Optionee of any employment
agreement between the Optionee and the Participating Company Group, which breach
is not cured pursuant to the terms of such agreement; or (vi) the Optionee's
conviction of any criminal act which impairs the Optionee's ability to perform
his or her duties with the Participating Company Group.
(c) "CONSTRUCTIVE TERMINATION" shall mean any one or more of the
following:
(i) without the Optionee's express written consent,
the assignment to the Optionee of any duties, or any limitation of the
Optionee's responsibilities, substantially inconsistent with the Optionee's
positions, duties, responsibilities and status with the Participating Company
Group immediately prior to the date of the Transfer of Control;
(ii) without the Optionee's express written consent,
the relocation of the principal place of the Optionee's employment to a location
that is more than fifty (50) miles from the Optionee's principal place of
employment immediately prior to the date of the Transfer of Control, or the
imposition of travel requirements substantially more demanding of the Optionee
than such travel requirements existing immediately prior to the date of the
Transfer of Control;
(iii) any failure by the Participating Company Group to
pay, or any material reduction by the Participating Company Group of, (1) the
Optionee's base salary in effect immediately prior to the date of the Transfer
of Control (unless reductions comparable in amount and duration are concurrently
made for all other employees of the Participating Company Group with
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responsibilities, organizational level and title comparable to the
Optionee's), or (2) the Optionee's bonus compensation, if any, in effect
immediately prior to the date of the Transfer of Control (subject to
applicable performance requirements with respect to the actual amount of
bonus compensation earned by the Optionee); or
(iv) any failure by the Participating Company Group
to (1) continue to provide the Optionee with the opportunity to participate,
on terms no less favorable than those in effect for the benefit of any
employee group which customarily includes a person holding the employment
position or a comparable position with the Participating Company Group then
held by the Optionee, in any benefit or compensation plans and programs,
including, but not limited to, the Participating Company Group's life,
disability, health, dental, medical, savings, profit sharing, stock purchase
and retirement plans, if any, in which the Optionee was participating
immediately prior to the date of the Transfer of Control, or their
equivalent, or (2) provide the Optionee with all other fringe benefits (or
their equivalent) from time to time in effect for the benefit of any employee
group which customarily includes a person holding the employment position or
a comparable position with the Participating Company Group then held by the
Optionee.
7.3 ADDITIONAL LIMITATIONS ON OPTION EXERCISE. Notwithstanding the
provisions of Section 7.1, the Option may not be exercised after the Optionee's
termination of Service to the extent that the shares to be acquired upon
exercise of the Option would be subject to the Unvested Share Repurchase Option
as provided in Section 11. Except as the Company and the Optionee otherwise
agree, exercise of the Option pursuant to Section 7.1 following termination of
the Optionee's Service may not be made by delivery of a promissory note as
provided in Section 4.3(a).
7.4 EXTENSION IF EXERCISE PREVENTED BY LAW. Notwithstanding the foregoing,
if the exercise of the Option within the applicable time periods set forth in
Section 7.1 is prevented by the provisions of Section 4.6, the Option shall
remain exercisable until three (3) months after the date the Optionee is
notified by the Company that the Option is exercisable but in any event no later
than the Option Expiration Date. The Company makes no representation as to the
tax consequences of any such delayed exercise. The Optionee should consult with
the Optionee's own tax advisor as to the tax consequences of any such delayed
exercise.
7.5 EXTENSION IF OPTIONEE SUBJECT TO SECTION 16(b). Notwithstanding the
foregoing, if a sale within the applicable time periods set forth in Section 7.1
of shares acquired upon the exercise of the Option would subject the Optionee to
suit under Section 16(b) of the Exchange Act, the Option shall remain
exercisable until the earliest to occur of (i) the tenth (10th) day following
the date on which a sale of such shares by the Optionee would no longer be
subject to such suit, (ii) the one hundred and ninetieth (190th) day after the
Optionee's termination of Service, or (iii) the Option Expiration Date. The
Company makes no representation as to the tax consequences of any such delayed
exercise. The Optionee should consult with the Optionee's own tax advisor as to
the tax consequences of any such delayed exercise.
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7.6 LEAVE OF ABSENCE. For purposes of Section 7.1, the Optionee's Service
with the Participating Company Group shall not be deemed to terminate if the
Optionee takes any military leave, sick leave, or other bona fide leave of
absence approved by the Company of ninety (90) days or less. In the event of a
leave of absence in excess of ninety (90) days, the Optionee's Service shall be
deemed to terminate on the ninety-first (91st) day of such leave unless the
Optionee's right to reemployment with the Participating Company Group remains
guaranteed by statute or contract. Notwithstanding the foregoing, unless
otherwise designated by the Company (or required by law), a leave of absence
shall not be treated as Service for purposes of determining the Optionee's
Vested Ratio.
8. TRANSFER OF CONTROL.
8.1 DEFINITIONS.
(a) An "OWNERSHIP CHANGE EVENT" shall be deemed to have occurred
if any of the following occurs with respect to the Company:
(i) the direct or indirect sale or exchange in a
single or series of related transactions by the shareholders of the Company of
more than fifty percent (50%) of the voting stock of the Company;
(ii) a merger or consolidation in which the Company is
a party; or
(iii) the sale, exchange, or transfer of all or
substantially all of the assets of the Company; or
(iv) a liquidation or dissolution of the Company.
(b) A "TRANSFER OF CONTROL" shall mean an Ownership Change
Event or a series of related Ownership Change Events (collectively, the
"TRANSACTION") wherein the shareholders of the Company immediately before the
Transaction do not retain immediately after the Transaction, in substantially
the same proportions as their ownership of shares of the Company's voting
stock immediately before the Transaction, direct or indirect beneficial
ownership of more than fifty percent (50%) of the total combined voting power
of the outstanding voting stock of the Company or the corporation or
corporations to which the assets of the Company were transferred (the
"TRANSFEREE CORPORATION(S)"), as the case may be. For purposes of the
preceding sentence, indirect beneficial ownership shall include, without
limitation, an interest resulting from ownership of the voting stock of one
or more corporations which, as a result of the Transaction, own the Company
or the Transferee Corporation(s), as the case may be, either directly or
through one or more subsidiary corporations. The Board shall have the right
to determine whether multiple sales or exchanges of the voting stock of the
Company or multiple Ownership Change Events are related, and its
determination shall be final, binding and conclusive.
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8.2 EFFECT OF TRANSFER OF CONTROL ON OPTION. In the event of a
Transfer of Control, the surviving, continuing, successor, or purchasing
corporation or parent corporation thereof, as the case may be (the "ACQUIRING
CORPORATION"), may either assume the Company's rights and obligations under the
Option or substitute for the Option a substantially equivalent option for the
Acquiring Corporation's stock. The Option shall terminate and cease to be
outstanding effective as of the date of the Transfer of Control to the extent
that the Option is neither assumed or substituted for by the Acquiring
Corporation in connection with the Transfer of Control nor exercised as of the
date of the Transfer of Control. Notwithstanding the foregoing, shares acquired
upon exercise of the Option prior to the Transfer of Control and any
consideration received pursuant to the Transfer of Control with respect to such
shares shall continue to be subject to all applicable provisions of this Option
Agreement except as otherwise provided herein. Furthermore, notwithstanding the
foregoing, if the corporation the stock of which is subject to the Option
immediately prior to an Ownership Change Event described in Section 8.1(a)(i)
constituting a Transfer of Control is the surviving or continuing corporation
and immediately after such Ownership Change Event less than fifty percent (50%)
of the total combined voting power of its voting stock is held by another
corporation or by other corporations that are members of an affiliated group
within the meaning of Section 1504(a) of the Code without regard to the
provisions of Section 1504(b) of the Code, the Option shall not terminate unless
the Board otherwise provides in its sole discretion.
9. ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of any
stock dividend, stock split, reverse stock split, recapitalization, combination,
reclassification, or similar change in the capital structure of the Company,
appropriate adjustments shall be made in the number, Exercise Price and class of
shares of stock subject to the Option. If a majority of the shares which are of
the same class as the shares that are subject to the Option are exchanged for,
converted into, or otherwise become (whether or not pursuant to an Ownership
Change Event) shares of another corporation (the "NEW SHARES"), the Board may
unilaterally amend the Option to provide that the Option is exercisable for New
Shares. In the event of any such amendment, the Number of Option Shares and the
Exercise Price shall be adjusted in a fair and equitable manner, as determined
by the Board, in its sole discretion. Notwithstanding the foregoing, any
fractional share resulting from an adjustment pursuant to this Section 9 shall
be rounded up or down to the nearest whole number, as determined by the Board,
and in no event may the Exercise Price be decreased to an amount less than the
par value, if any, of the stock subject to the Option. The adjustments
determined by the Board pursuant to this Section 9 shall be final, binding and
conclusive.
10. RIGHTS AS A SHAREHOLDER, EMPLOYEE OR CONSULTANT. The Optionee shall
have no rights as a shareholder with respect to any shares covered by the
Option until the date of the issuance of a certificate for the shares for
which the Option has been exercised (as evidenced by the appropriate entry on
the books of the Company or of a duly authorized transfer agent of the
Company). No adjustment shall be made for dividends, distributions or other
rights for which the record date is prior to the date such certificate is
issued, except as provided in Section 9. Nothing in this
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Option Agreement shall confer upon the Optionee any right to continue in the
Service of a Participating Company or interfere in any way with any right of the
Participating Company Group to terminate the Optionee's Service as an Employee
or Consultant, as the case may be, at any time.
11. UNVESTED SHARE REPURCHASE OPTION.
11.1 GRANT OF UNVESTED SHARE REPURCHASE OPTION. In the event the
Optionee's Service with the Participating Company Group is terminated for any
reason or no reason, with or without cause, or, if the Optionee, the Optionee's
legal representative, or other holder of shares acquired upon exercise of the
Option attempts to sell, exchange, transfer, pledge, or otherwise dispose of
(other than pursuant to an Ownership Change Event) any shares acquired upon
exercise of the Option which exceed the Vested Shares as defined in Section 11.2
below (the "UNVESTED SHARES"), the Company shall have the right to repurchase
the Unvested Shares under the terms and subject to the conditions set forth in
this Section 11 (the "UNVESTED SHARE REPURCHASE OPTION").
11.2 VESTED SHARES AND UNVESTED SHARES DEFINED. The "VESTED
SHARES" shall mean, on any given date, a number of shares of Stock equal to
the Number of Option Shares multiplied by the Vested Ratio determined as of
such date and rounded down to the nearest whole share. On such given date,
the "UNVESTED SHARES" shall mean the number of shares of Stock acquired upon
exercise of the Option which exceed the Vested Shares determined as of such
date.
11.3 EXERCISE OF UNVESTED SHARE REPURCHASE OPTION. The Company may
exercise the Unvested Share Repurchase Option by written notice delivered
personally or forwarded by first class mail to the Optionee within sixty (60)
days after (a) termination of the Optionee's Service (or exercise of the Option,
if later) or (b) the Company has received notice of the attempted disposition of
Unvested Shares. If the Company fails to give notice within such sixty (60) day
period, the Unvested Share Repurchase Option shall terminate unless the Company
and the Optionee have extended the time for the exercise of the Unvested Share
Repurchase Option. The Unvested Share Repurchase Option must be exercised, if
at all, for all of the Unvested Shares, except as the Company and the Optionee
otherwise agree.
11.4 PAYMENT FOR SHARES AND RETURN OF SHARES TO COMPANY. The
purchase price per share being repurchased by the Company shall be an amount
equal to the Optionee's original cost per share, as adjusted pursuant to
Section 9 (the "REPURCHASE PRICE"). The Company shall pay the aggregate
Repurchase Price to the Optionee in cash within thirty (30) days after the
date of personal delivery or mailing of the written notice of the Company's
exercise of the Unvested Share Repurchase Option. For purposes of the
foregoing, cancellation of any indebtedness of the Optionee to any
Participating Company shall be treated as payment to the Optionee in cash to
the extent of the unpaid principal and any accrued interest canceled. The
shares being repurchased shall be delivered to the Company by the Optionee at
the same time as the delivery of the Repurchase Price to the Optionee.
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11.5 ASSIGNMENT OF UNVESTED SHARE REPURCHASE OPTION. The Company
shall have the right to assign the Unvested Share Repurchase Option at any time,
whether or not such option is then exercisable, to one or more persons as may be
selected by the Company.
11.6 OWNERSHIP CHANGE EVENT. Upon the occurrence of an Ownership
Change Event, any and all new, substituted or additional securities or other
property to which the Optionee is entitled by reason of the Optionee's ownership
of Unvested Shares shall be immediately subject to the Unvested Share Repurchase
Option and included in the terms "Stock" and "Unvested Shares" for all purposes
of the Unvested Share Repurchase Option with the same force and effect as the
Unvested Shares immediately prior to the Ownership Change Event. While the
aggregate Repurchase Price shall remain the same after such Ownership Change
Event, the Repurchase Price per Unvested Share upon exercise of the Unvested
Share Repurchase Option following such Ownership Change Event shall be adjusted
as appropriate. For purposes of determining the Vested Ratio following an
Ownership Change Event, credited Service shall include all Service with any
corporation which is a Participating Company at the time the Service is
rendered, whether or not such corporation is a Participating Company both before
and after the Ownership Change Event.
12. RIGHT OF FIRST REFUSAL.
12.1 GRANT OF RIGHT OF FIRST REFUSAL. Except as provided in
Section 12.7 below, in the event the Optionee, the Optionee's legal
representative, or other holder of shares acquired upon exercise of the Option
proposes to sell, exchange, transfer, pledge, or otherwise dispose of any
Vested Shares (the "TRANSFER SHARES") to any person or entity, including,
without limitation, any shareholder of the Participating Company Group, the
Company shall have the right to repurchase the Transfer Shares under the terms
and subject to the conditions set forth in this Section 12 (the "RIGHT OF FIRST
REFUSAL").
12.2 NOTICE OF PROPOSED TRANSFER. Prior to any proposed transfer of
the Transfer Shares, the Optionee shall give a written notice (the "TRANSFER
NOTICE") to the Company describing fully the proposed transfer, including the
number of Transfer Shares, the name and address of the proposed transferee. (the
"PROPOSED TRANSFEREE") and, if the transfer is voluntary, the proposed transfer
price, and containing such information necessary to show the bona fide nature of
the proposed transfer. In the event of a bona fide gift or involuntary
transfer, the proposed transfer price shall be deemed to be the Fair Market
Value of the Transfer Shares, as determined by the Board in good faith. If the
Optionee proposes to transfer any Transfer Shares to more than one Proposed
Transferee, the Optionee shall provide a separate Transfer Notice for the
proposed transfer to each Proposed Transferee. The Transfer Notice shall be
signed by both the Optionee and the Proposed Transferee and must constitute a
binding commitment of the Optionee and the Proposed Transferee for the transfer
of the Transfer Shares to the Proposed Transferee subject only to the Right of
First Refusal.
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12.3 BONA FIDE TRANSFER. If the Company determines that the
information provided by the Optionee in the Transfer Notice is insufficient to
establish the bona fide nature of a proposed voluntary transfer, the Company
shall give the Optionee written notice of the Optionee's failure to comply with
the procedure described in this Section 12, and the Optionee shall have no right
to transfer the Transfer Shares without first complying with the procedure
described in this Section 12. The Optionee shall not be permitted to transfer
the Transfer Shares if the proposed transfer is not bona fide.
12.4 EXERCISE OF RIGHT OF FIRST REFUSAL. If the Company determines
the proposed transfer to be bona fide, the Company shall have the right to
purchase all, but not less than all, of the Transfer Shares (except as the
Company and the Optionee otherwise agree) at the purchase price and on the terms
set forth in the Transfer Notice by delivery to the Optionee of a notice of
exercise of the Right of First Refusal within thirty (30) days after the date
the Transfer Notice is delivered to the Company. The Company's exercise or
failure to exercise the Right of First Refusal with respect to any proposed
transfer described in a Transfer Notice shall not affect the Company's right to
exercise the Right of First Refusal with respect to any proposed transfer
described in any other Transfer Notice, whether or not such other Transfer
Notice is issued by the Optionee or issued by a person other than the Optionee
with respect to a proposed transfer to the same Proposed Transferee. If the
Company exercises the Right of First Refusal, the Company and the Optionee shall
thereupon consummate the sale of the Transfer Shares to the Company on the terms
set forth in the Transfer Notice within sixty (60) days after the date the
Transfer Notice is delivered to the Company (unless a longer period is offered
by the Proposed Transferee); provided, however, that in the event the Transfer
Notice provides for the payment for the Transfer Shares other than in cash, the
Company shall have the option of paying for the Transfer Shares by the present
value cash equivalent of the consideration described in the Transfer Notice as
reasonably determined by the Company. For purposes of the foregoing,
cancellation of any indebtedness of the Optionee to any Participating Company
shall be treated as payment to the Optionee in cash to the extent of the unpaid
principal and any accrued interest canceled.
12.5 FAILURE TO EXERCISE RIGHT OF FIRST REFUSAL. If the Company
fails to exercise the Right of First Refusal in full (or to such lesser extent
as the Company and the Optionee otherwise agree) within the period specified in
Section 12.4 above, the Optionee may conclude a transfer to the Proposed
Transferee of the Transfer Shares on the terms and conditions described in the
Transfer Notice, provided such transfer occurs not later than ninety (90) days
following delivery to the Company of the Transfer Notice. The Company shall
have the right to demand further assurances from the Optionee and the Proposed
Transferee (in a form satisfactory to the Company) that the transfer of the
Transfer Shares was actually carried out on the terms and conditions described
in the Transfer Notice. No Transfer Shares shall be transferred on the books of
the Company until the Company has received such assurances, if so demanded, and
has approved the proposed transfer as bona fide. Any proposed transfer on terms
and conditions different from those described in the
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Transfer Notice, as well as any subsequent proposed transfer by the Optionee,
shall again be subject to the Right of First Refusal and shall require
compliance by the Optionee with the procedure described in this Section 12.
12.6 TRANSFEREES OF TRANSFER SHARES. All transferees of the Transfer
Shares or any interest therein, other than the Company, shall be required as a
condition of such transfer to agree in writing (in a form satisfactory to the
Company) that such transferee shall receive and hold such Transfer Shares or
interest therein subject to all of the terms and conditions of this Option
Agreement, including this Section 12 providing for the Right of First Refusal
with respect to any subsequent transfer. Any sale or transfer of any shares
acquired upon exercise of the Option shall be void unless the provisions of this
Section 12 are met.
12.7 TRANSFERS NOT SUBJECT TO RIGHT OF FIRST REFUSAL. The Right of
First Refusal shall not apply to any transfer or exchange of the shares acquired
upon exercise of the Option if such transfer. or exchange is in connection with
an Ownership Change Event. If the consideration received pursuant to such
transfer or exchange consists of stock of a Participating Company, such
consideration shall remain subject to the Right of First Refusal unless the
provisions of Section 12.9 below result in a termination of the Right of First
Refusal.
12.8 ASSIGNMENT OF RIGHT OF FIRST REFUSAL. The Company shall have
the right to assign the Right of First Refusal at any time, whether or not there
has been an attempted transfer, to one or more persons as may be selected by the
Company.
12.9 EARLY TERMINATION OF RIGHT OF FIRST REFUSAL. The other
provisions of this Option Agreement notwithstanding, the Right of First Refusal
shall terminate and be of no further force and effect upon (a) the occurrence of
a Transfer of Control, unless the Acquiring Corporation assumes the Company's
rights and obligations under the Option or substitutes a substantially
equivalent option for the Acquiring Corporation's stock for the Option, or (b)
the existence of a public market for the class of shares subject to the Right of
First Refusal. A "PUBLIC MARKET" shall be deemed to exist if (i) such stock is
listed on a national securities exchange (as that term is used in the Exchange
Act) or (ii) such stock is traded on the over-the-counter market and prices
therefor are published daily on business days in a recognized financial journal.
13. ESCROW.
13.1 ESTABLISHMENT OF ESCROW. To ensure that shares subject to the
Unvested Share Repurchase Option or the Right of First Refusal or securing any
promissory note will be available for repurchase, the Company may require the
Optionee to deposit the certificate evidencing the shares which the Optionee
purchases upon exercise of the Option with an agent designated by the Company
under the terms and conditions of escrow and security agreements approved by the
Company. If the Company does not require such deposit as a condition of
exercise of the Option, the Company reserves the right at any time to require
the Optionee to
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so deposit the certificate in escrow. Upon the occurrence of an Ownership
Change Event or a change, as described in Section 9, in the character or amount
of any of the outstanding stock of the corporation the stock of which is subject
to the provisions of this Option Agreement, any and all new, substituted or
additional securities or other property to which the Optionee is entitled by
reason of the Optionee's ownership of shares of Stock acquired upon exercise of
the Option that remain, following such Ownership Change Event or change
described in Section 9, subject to the Unvested Share Repurchase Option, the
Right of First Refusal or any security interest held by the Company shall be
immediately subject to the escrow to the same extent as such shares of Stock
immediately before such event. The Company shall bear the expense of the
escrow.
13.2 DELIVERY OF SHARES TO OPTIONEE. As soon as practicable after
the expiration of the Unvested Share Repurchase Option and the Right of First
Refusal and after full repayment of any promissory note secured by the shares
or other property in escrow, but not more frequently than twice each calendar
year, the escrow agent shall deliver to the Optionee the shares and any other
property no longer subject to such restrictions and no longer securing any
promissory note.
13.3 NOTICES AND PAYMENTS. In the event the shares and any other
property held in escrow are subject to the Company's exercise of the Unvested
Share Repurchase Option or the Right of First Refusal, the notices required
to be given to the Optionee shall be given to the escrow agent, and any
payment required to be given to the Optionee shall be given to the escrow
agent. Within thirty (30) days after payment by the Company, the escrow
agent shall deliver the shares and any other property which the Company has
purchased to the Company and shall deliver the payment received from the
Company to the Optionee.
14. STOCK DISTRIBUTIONS SUBJECT TO OPTION AGREEMENT. If, from time to
time, there is any stock dividend, stock split or other change, as described in
Section 9, in the character or amount of any of the outstanding stock of the
corporation the stock of which is subject to the provisions of this Option
Agreement, then in such event any and all new, substituted or additional
securities to which the Optionee is entitled by reason of the Optionee's
ownership of the shares acquired upon exercise of the Option shall be
immediately subject to the Unvested Share Repurchase Option, the Right of First
Refusal, and any security interest held by the Company with the same force and
effect as the shares subject to the Unvested Share Repurchase Option, the Right
of First Refusal, and such security interest immediately before such event.
15. NOTICE OF SALES UPON DISQUALIFYING DISPOSITION. The Optionee shall
dispose of the shares acquired pursuant to the Option only in accordance with
the provisions of this Option Agreement. In addition, the Optionee shall
promptly notify the Chief Financial Officer of the Company if the Optionee
disposes of any of the shares acquired pursuant to the Option within one (1)
year after the date of the Optionee exercises all or part of the Option or
within two (2) years after the Date of Option Grant. Until such time as the
Optionee disposes of such shares in a manner consistent with the provisions
of this Option Agreement, unless otherwise expressly
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authorized by the Company, the Optionee shall hold all shares acquired pursuant
to the Option in the Optionee's name (and not in the name of any nominee) for
the one-year period immediately after the exercise of the Option and the
two-year period immediately after Date of Option Grant. At any time during the
one-year or two-year periods set forth above, the Company may place a legend on
any certificate representing shares acquired pursuant to the Option requesting
the transfer agent for the Company's stock to notify the Company of any such
transfers. The obligation of the Optionee to notify the Company of any such
transfer shall continue notwithstanding that a legend has been placed on the
certificate pursuant to the preceding sentence.
16. LEGENDS. The Company may at any time place legends referencing the
Unvested Share Repurchase Option, the Right of First Refusal, and any applicable
federal, state or foreign securities law restrictions on all certificates
representing shares of stock subject to the provisions of this Option Agreement.
The Optionee shall, at the request of the Company, promptly present to the
Company any and all certificates representing shares acquired pursuant to the
Option in the possession of the Optionee in order to carry out the provisions of
this Section. Unless otherwise specified by the Company, legends placed on such
certificates may include, but shall not be limited to, the following:
16.1 "THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN
ACCORDANCE WITH RULE 144 OR RULE 701 UNDER THE ACT, OR THE COMPANY RECEIVES AN
OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO
THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS
EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT."
16.2 Any legend required to be placed thereon by the Commissioner of
Corporations of the State of California.
16.3 "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO AN
UNVESTED SHARE REPURCHASE OPTION IN FAVOR OF THE CORPORATION OR ITS ASSIGNEE
SET FORTH IN AN AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED HOLDER,
OR SUCH HOLDERS PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT THE
PRINCIPAL OFFICE OF THIS CORPORATION."
16.4 "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
RIGHT OF FIRST REFUSAL OPTION IN FAVOR OF THE CORPORATION OR ITS ASSIGNEE SET
FORTH IN AN AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED HOLDER, OR
SUCH HOLDER'S
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PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF
THIS CORPORATION."
16.5 "THE SHARES EVIDENCED BY THIS CERTIFICATE WERE ISSUED BY THE
CORPORATION TO THE REGISTERED HOLDER UPON EXERCISE OF AN INCENTIVE STOCK
OPTION AS DEFINED IN SECTION 422 OF THE INTERNAL REVENUE CODE OF 1986, AS
AMENDED ("ISO"). IN ORDER TO OBTAIN THE PREFERENTIAL TAX TREATMENT AFFORDED
TO ISOs, THE SHARES SHOULD NOT BE TRANSFERRED PRIOR TO ___________________.
SHOULD THE REGISTERED HOLDER ELECT TO TRANSFER ANY OF THE SHARES PRIOR TO
THIS DATE AND FOREGO ISO TAX TREATMENT, THE TRANSFER AGENT FOR THE SHARES
SHALL NOTIFY THE CORPORATION IMMEDIATELY. THE REGISTERED HOLDER SHALL HOLD
ALL SHARES PURCHASED UNDER THE INCENTIVE STOCK OPTION IN THE REGISTERED
HOLDER'S NAME (AND NOT IN THE NAME OF ANY NOMINEE) PRIOR TO THIS DATE OR
UNTIL TRANSFERRED AS DESCRIBED ABOVE."
17. PUBLIC OFFERING. The Optionee hereby agrees that in the event of any
underwritten public offering of stock, including an initial public offering of
stock, made by the Company pursuant to an effective registration statement filed
under the Securities Act, the Optionee shall not offer, sell, contract to sell,
pledge, hypothecate, grant any option to purchase or make any short sale of, or
otherwise dispose of any shares of stock of the Company or any rights to acquire
stock of the Company for such period of time from and after the effective date
of such registration statement as may be established by the underwriter for such
public offering; provided, however, that such period of time shall not exceed
one hundred eighty (180) days from the effective date of the registration
statement to be filed in connection with such public offering. The foregoing
limitation shall not apply to shares registered in the public offering under the
Securities Act. The Optionee shall be subject to this Section provided and only
if the officers and directors of the Company are also subject to similar
arrangements.
18. BINDING EFFECT. Subject to the restrictions on transfer set forth
herein, this Option Agreement shall inure to the benefit of and be binding upon
the parties hereto and their respective heirs, executors, administrators,
successors and assigns.
19. TERMINATION OR AMENDMENT. The Board may terminate or amend the Plan
or the Option at any time; provided, however, that except as provided in Section
8.2 in connection with a Transfer of Control, no such termination or amendment
may adversely affect the Option or any unexercised portion hereof without the
consent of the Optionee unless such termination or amendment is necessary to
comply with any applicable law or government regulation or is required to enable
the Option to qualify as an Incentive Stock Option. No amendment or addition to
this Option Agreement shall be effective unless in writing.
20. INTEGRATED AGREEMENT. This Option Agreement and the Plan constitute
the entire understanding and agreement of the 0ptionee and the Participating
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Company Group with respect to the subject matter contained herein and therein
and there are no agreements, understandings, restrictions, representations, or
warranties among the Optionee and the Participating Company Group with respect
to such subject matter other than those as set forth or provided for herein or
therein. To the extent contemplated herein or therein, the provisions of this
Option Agreement shall survive any exercise of the Option and shall remain in
full force and effect.
21. APPLICABLE LAW. This Option Agreement shall be governed by the laws
of the State of California as such laws are applied to agreements between
California residents entered into and to be performed entirely within the State
of California.
PORTOLA COMMUNICATIONS, INC.
By:
-------------------------------------
Title:
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The Optionee represents that the Optionee is familiar with the terms and
provisions of this Option Agreement, including the Unvested Share Repurchase
Option set forth in Section 11 and the Right of First Refusal set forth in
Section 12, and hereby accepts the Option subject to all of the terms and
provisions thereof. The Optionee hereby agrees to accept as binding, conclusive
and final all decisions or interpretations of the Board upon any questions
arising under this Option Agreement. The undersigned acknowledges receipt of a
copy of the Plan.
OPTIONEE
Date:
------------------------------- ----------------------------------
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THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAVE NOT BEEN
QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA
AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF
THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS
THE SALE OF SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102,
OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO
THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING
OBTAINED, UNLESS THE SALE IS SO EXEMPT.
THE SECURITY REPRESENTED BY THIS CERTIFICATE HAS BEEN ACQUIRED FOR INVESTMENT
AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION
THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL SATISFACTORY
TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES
ACT OF 1933.
PORTOLA COMMUNICATIONS, INC.
IMMEDIATELY EXERCISABLE
NONSTATUTORY STOCK OPTION AGREEMENT
THIS IMMEDIATELY EXERCISABLE NONSTATUTORY STOCK OPTION AGREEMENT (the
"OPTION AGREEMENT") is made and entered into as of _____________, 199___, by
and between Portola Communications, Inc. and __________ (the "OPTIONEE").
The Company has granted to the Optionee pursuant to the Portola
Communications, Inc. 1996 Stock Option Plan (the "PLAN") an option to
purchase certain shares of Stock, upon the terms and conditions set forth in
this Option Agreement (the "OPTION"). The Option shall in all respects be
subject to the terms and conditions of the Plan, the provisions of which are
incorporated herein by reference.
1. DEFINITIONS AND CONSTRUCTION.
1.1 DEFINITIONS. Unless otherwise defined herein, capitalized
terms shall have the meanings assigned to such terms in the Plan. Whenever
used herein, the following terms shall have their respective meanings set
forth below:
(a) "DATE OF OPTION GRANT" means ____________, 199_.
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(b) "NUMBER OF OPTION SHARES" means ___________________ shares
of Stock, as adjusted from time to time pursuant to Section 9.
(c) "EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended.
(d) "EXERCISE PRICE" means $_____ per share of Stock, as
adjusted from time to time pursuant to Section 9.
(e) "INITIAL EXERCISE DATE" means the later of the Date of
Option Grant or the date the Optionee's Service commences.
(f) "INITIAL VESTING DATE" means the date occurring one (1)
year after (check one):
___ the Date of Option Grant.
___ ____________, 199_, the date the Optionee's Service
commenced.
(g) "VESTED RATIO" means, on any relevant date, the ratio
determined as follows:
VESTED RATIO
------------
Prior to Initial Vesting Date 0
On Initial Vesting Date, 1/4
provided the Optionee's Service
is continuous from the later of
the Date of Option Grant or the
Optionee's Service
commencement date until the
Initial Vesting Date
PLUS
For each full month of the 1/48
Optionee's continuous Service
from the Initial Vesting Date
until the Vested Ratio equals
1/1, an additional
(h) "OPTION EXPIRATION DATE" means the date ten (10) years
after the Date of Option Grant.
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(i) "COMPANY" means Portola Communications, Inc., a California
corporation, or any successor corporation thereto.
(j) "DISABILITY" means the inability of the Optionee, in the
opinion of a qualified physician acceptable to the Company, to perform the
major duties of the Optionee's position with the Participating Company Group
because of the sickness or injury of the Optionee.
(k) "SECURITIES ACT" means the Securities Act of 1933, as
amended.
(l) "SERVICE" means the Optionee's employment or service with
the Participating Company Group, whether in the capacity of an Employee, a
Director or a Consultant. The Optionee's Service shall not be deemed to have
terminated merely because of a change in the capacity in which the Optionee
renders Service to the Participating Company Group or a change in the
Participating Company for which the Optionee renders such Service, provided
that there is no interruption or termination of the Optionee's Service. The
Optionee's Service shall be deemed to have terminated either upon an actual
termination of Service or upon the corporation for which the Optionee
performs Service ceasing to be a Participating Company. Subject to the
foregoing, the Company, in its sole discretion, shall determine whether the
Optionee's Service has terminated and the effective date of such termination.
1.2 CONSTRUCTION. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of this Option Agreement. Except when otherwise indicated by the
context, the singular shall include the plural, the plural shall include the
singular, and the term "or" shall include the conjunctive as well as the
disjunctive.
2. TAX CONSEQUENCES.
2.1 TAX STATUS OF OPTION. This Option is intended to be a
Nonstatutory Stock Option and shall not be treated as an Incentive Stock
Option within the meaning of Section 422(b) of the Code.
2.2 ELECTION UNDER SECTION 83(b) OF THE CODE. If the Optionee
exercises this Option to purchase shares of Stock that are both
nontransferable and subject to a substantial risk of forfeiture, the Optionee
understands that the Optionee should consult with the Optionee's tax advisor
regarding the advisability of filing with the Internal Revenue Service an
election under Section 83(b) of the Code, which must be filed no later than
thirty (30) days after the date on which the Optionee exercises the Option.
Shares acquired upon exercise of the Option are nontransferable and subject
to a substantial risk of forfeiture if, for example, (a) they are unvested
and are subject to a right of the Company to repurchase such shares at the
Optionee's original purchase price if the Optionee's Service terminates, or
(b) the Optionee is subject to a restriction on transfer to comply with
"Pooling-of-Interests Accounting" rules. Failure
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to file an election under Section 83(b), if appropriate, may result in
adverse tax consequences to the Optionee. The Optionee acknowledges that the
Optionee has been advised to consult with a tax advisor prior to the exercise
of the Option regarding the tax consequences to the Optionee of the exercise
of the Option. AN ELECTION UNDER SECTION 83(b) MUST BE FILED WITHIN 30 DAYS
AFTER THE DATE ON WHICH THE OPTIONEE PURCHASES SHARES. THIS TIME PERIOD
CANNOT BE EXTENDED. THE OPTIONEE ACKNOWLEDGES THAT TIMELY FILING OF A
SECTION 83(b) ELECTION IS THE OPTIONEE'S SOLE RESPONSIBILITY, EVEN IF THE
OPTIONEE REQUESTS THE COMPANY OR ITS REPRESENTATIVE TO FILE SUCH ELECTION ON
HIS OR HER BEHALF.
3. ADMINISTRATION. All questions of interpretation concerning this
Option Agreement shall be determined by the Board, including any duly
appointed Committee of the Board. All determinations by the Board shall be
final and binding upon all persons having an interest in the Option. Any
officer of a Participating Company shall have the authority to act on behalf
of the Company with respect to any matter, right, obligation, or election
which is the responsibility of or which is allocated to the Company herein,
provided the officer has apparent authority with respect to such matter,
right, obligation, or election.
4. EXERCISE OF THE OPTION.
4.1 RIGHT TO EXERCISE.
(a) Except as otherwise provided herein, the Option shall be
exercisable on and after the Initial Exercise Date and prior to the
termination of the Option (as provided in Section 6) in an amount not to
exceed the Number of Option Shares less the number of shares previously
acquired upon exercise of the Option, subject to the Optionee's agreement
that any shares purchased upon exercise are subject to the Company's
repurchase rights set forth in Section 11 and Section 12.
4.2 METHOD OF EXERCISE. Exercise of the Option shall be by written
notice to the Company which must state the election to exercise the Option,
the number of whole shares of Stock for which the Option is being exercised
and such other representations and agreements as to the Optionee's investment
intent with respect to such shares as may be required pursuant to the
provisions of this Option Agreement. The written notice must be signed by
the Optionee and must be delivered in person, by certified or registered
mail, return receipt requested, by confirmed facsimile transmission, or by
such other means as the Company may permit, to the Chief Financial Officer of
the Company, or other authorized representative of the Participating Company
Group, prior to the termination of the Option as set forth in Section 6,
accompanied by (i) full payment of the aggregate Exercise Price for the
number of shares of Stock being purchased and (ii) an executed copy, if
required herein, of the then current forms of escrow and security agreement
referenced below. The Option shall be deemed to be exercised upon receipt by
the Company of such written notice, the aggregate Exercise Price, and, if
required by the Company, such executed agreements.
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4.3 PAYMENT OF EXERCISE PRICE.
(a) FORMS OF CONSIDERATION AUTHORIZED. Except as otherwise
provided below, payment of the aggregate Exercise Price for the number of
shares of Stock for which the Option is being exercised shall be made (i) in
cash, by check, or cash equivalent, (ii) by tender to the Company of whole
shares of Stock owned by the Optionee having a Fair Market Value (as
determined by the Company without regard to any restrictions on
transferability applicable to such stock by reason of federal or state
securities laws or agreements with an underwriter for the Company) not less
than the aggregate Exercise Price, (iii) by means of a Cashless Exercise, as
defined in Section 4.3(c), (iv) in the Company's sole discretion at the time
the Option is exercised, by the Optionee's promissory note for the aggregate
Exercise Price, or (v) by any combination of the foregoing.
(b) TENDER OF STOCK. Notwithstanding the foregoing, the
Option may not be exercised by tender to the Company of shares of Stock to
the extent such tender of Stock would constitute a violation of the
provisions of any law, regulation or agreement restricting the redemption of
the Company's stock. The Option may not be exercised by tender to the
Company of shares of Stock unless such shares either have been owned by the
Optionee for more than six (6) months or were not acquired, directly or
indirectly, from the Company.
(c) CASHLESS EXERCISE. A "CASHLESS EXERCISE" means the
assignment in a form acceptable to the Company of the proceeds of a sale or
loan with respect to some or all of the shares of Stock acquired upon the
exercise of the Option pursuant to a program or procedure approved by the
Company (including, without limitation, through an exercise complying with
the provisions of Regulation T as promulgated from time to time by the Board
of Governors of the Federal Reserve System). The Company reserves, at any
and all times, the right, in the Company's sole and absolute discretion, to
decline to approve or terminate any such program or procedure.
(d) PAYMENT BY PROMISSORY NOTE. No promissory note shall be
permitted if an exercise of the Option using a promissory note would be a
violation of any law. The promissory note permitted in clause (iv) of
Section 4.3(a) shall be a full recourse note in a form satisfactory to the
Company, with principal payable no more than four (4) years after the date
the Option is exercised. Interest on the principal balance of the promissory
note shall be payable in annual installments at the minimum interest rate
necessary to avoid imputed interest pursuant to all applicable sections of
the Code. Such recourse promissory note shall be secured by the shares of
Stock acquired pursuant to the then current form of security agreement as
approved by the Company. At any time the Company is subject to the
regulations promulgated by the Board of Governors of the Federal Reserve
System or any other governmental entity affecting the extension of credit in
connection with the Company's securities, any promissory note shall comply
with such applicable regulations, and the Optionee shall pay the unpaid
principal and accrued interest, if any, to the extent necessary to comply
with such applicable
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<PAGE>
regulations. Except as the Company in its sole discretion shall determine,
the Optionee shall pay the unpaid principal balance of the promissory note
and any accrued interest thereon upon termination of the Optionee's Service
with the Participating Company Group for any reason, with or without cause.
4.4 TAX WITHHOLDING. At the time the Option is exercised, in whole
or in part, or at any time thereafter as requested by the Company, the
Optionee hereby authorizes withholding from payroll and any other amounts
payable to the Optionee, and otherwise agrees to make adequate provision for
(including by means of a Cashless Exercise to the extent permitted by the
Company), any sums required to satisfy the federal, state, local and foreign
tax withholding obligations of the Participating Company Group, if any, which
arise in connection with the Option, including, without limitation,
obligations arising upon (i) the exercise, in whole or in part, of the
Option, (ii) the transfer, in whole or in part, of any shares acquired upon
exercise of the Option, (iii) the operation of any law or regulation
providing for the imputation of interest, or (iv) the lapsing of any
restriction with respect to any shares acquired upon exercise of the Option.
The Optionee is cautioned that the Option is not exercisable unless the tax
withholding obligations of the Participating Company Group are satisfied.
Accordingly, the Optionee may not be able to exercise the Option when desired
even though the Option is vested, and the Company shall have no obligation to
issue a certificate for such shares or release such shares from any escrow
provided for herein.
4.5 CERTIFICATE REGISTRATION. Except in the event the Exercise
Price is paid by means of a Cashless Exercise, the certificate for the shares
as to which the Option is exercised shall be registered in the name of the
Optionee, or, if applicable, in the names of the heirs of the Optionee.
4.6 RESTRICTIONS ON GRANT OF THE OPTION AND ISSUANCE OF SHARES.
The grant of the Option and the issuance of shares of Stock upon exercise of
the Option shall be subject to compliance with all applicable requirements of
federal, state or foreign law with respect to such securities. The Option
may not be exercised if the issuance of shares of Stock upon exercise would
constitute a violation of any applicable federal, state or foreign securities
laws or other law or regulations or the requirements of any stock exchange or
market system upon which the Stock may then be listed. In addition, the
Option may not be exercised unless (i) a registration statement under the
Securities Act shall at the time of exercise of the Option be in effect with
respect to the shares issuable upon exercise of the Option or (ii) in the
opinion of legal counsel to the Company, the shares issuable upon exercise of
the Option may be issued in accordance with the terms of an applicable
exemption from the registration requirements of the Securities Act. THE
OPTIONEE IS CAUTIONED THAT THE OPTION MAY NOT BE EXERCISED UNLESS THE
FOREGOING CONDITIONS ARE SATISFIED. ACCORDINGLY, THE OPTIONEE MAY NOT BE ABLE
TO EXERCISE THE OPTION WHEN DESIRED EVEN THOUGH THE OPTION IS VESTED. The
inability of the Company to obtain from any regulatory body having
jurisdiction the authority, if any, deemed by the Company's legal counsel to
be necessary to the lawful issuance and sale of any shares subject to the
Option shall
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<PAGE>
relieve the Company of any liability in respect of the failure to issue or
sell such shares as to which such requisite authority shall not have been
obtained. As a condition to the exercise of the Option, the Company may
require the Optionee to satisfy any qualifications that may be necessary or
appropriate, to evidence compliance with any applicable law or regulation and
to make any representation or warranty with respect thereto as may be
requested by the Company.
4.7 FRACTIONAL SHARES. The Company shall not be required to issue
fractional shares upon the exercise of the Option.
5. NONTRANSFERABILITY OF THE OPTION. The Option may be exercised
during the lifetime of the Optionee only by the Optionee or the Optionee's
guardian or legal representative and may not be assigned or transferred in
any manner except by will or by the laws of descent and distribution.
Following the death of the Optionee, the Option, to the extent provided in
Section 7, may be exercised by the Optionee's legal representative or by any
person empowered to do so under the deceased Optionee's will or under the
then applicable laws of descent and distribution.
6. TERMINATION OF THE OPTION. The Option shall terminate and may
no longer be exercised on the first to occur of (a) the Option Expiration
Date, (b) the last date for exercising the Option following termination of
the Optionee's Service as described in Section 7, or (c) a Transfer of
Control to the extent provided in Section 8.
7. EFFECT OF TERMINATION OF SERVICE.
7.1 OPTION EXERCISABILITY.
(a) DISABILITY. If the Optionee's Service with the
Participating Company Group is terminated because of the Disability of the
Optionee, the Option, to the extent unexercised and exercisable on the date
on which the Optionee's Service terminated, may be exercised by the Optionee
(or the Optionee's guardian or legal representative) at any time prior to the
expiration of six (6) months after the date on which the Optionee's Service
terminated, but in any event no later than the Option Expiration Date.
(b) DEATH. If the Optionee's Service with the Participating
Company Group is terminated because of the death of the Optionee, the Option,
to the extent unexercised and exercisable on the date on which the Optionee's
Service terminated, may be exercised by the Optionee (or the Optionee's legal
representative, or other person who acquired the right to exercise the Option
by reason of the Optionee's death) at any time prior to the expiration of six
(6) months after the date on which the Optionee's Service terminated, but in
any event no later than the Option Expiration Date. The Optionee's Service
shall be deemed to have terminated on account of death if the Optionee dies
within thirty (30) days after the Optionee's termination of Service (other
than due to a Termination For Cause).
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(c) TERMINATION AFTER TRANSFER OF CONTROL. If the Optionee's
Service with the Participating Company Group is terminated because of a
Termination After Transfer of Control (as defined below), (i) the Option, to
the extent unexercised and exercisable on the date on which the Optionee's
Service terminated, may be exercised by the Optionee (or the Optionee's
guardian or legal representative) at any time prior to the expiration of six
(6) months after the date on which the Optionee's Service terminated, but in
any event no later than the Option Expiration Date, and (ii) solely for
purposes of computing the Vested Ratio, the Optionee shall be given credit
for an additional twelve (12) months of continuous Service; provided,
however, that in no event shall the Vested Ratio exceed 1/1.
(d) OTHER TERMINATION OF SERVICE. If the Optionee's Service
with the Participating Company Group terminates for any reason, except
Disability, death, or Termination After Transfer of Control, the Option, to
the extent unexercised and exercisable by the Optionee on the date on which
the Optionee's Service terminated, may be exercised by the Optionee within
thirty (30) days (or such other longer period of time as determined by the
Board, in its sole discretion) after the date on which the Optionee's Service
terminated, but in any event no later than the Option Expiration Date.
7.2 CERTAIN DEFINITIONS.
(a) "TERMINATION AFTER TRANSFER OF CONTROL" shall mean either
of the following events occurring within twelve (12) months after a Transfer
of Control (as defined in Section 8.1(b) below):
(i) termination by the Participating Company Group of
the Optionee's Service with the Participating Company Group for any reason
other than a Termination For Cause; or
(ii) the Optionee's resignation from Service with the
Participating Company Group within a reasonable period of time following any
Constructive Termination (as defined below).
Notwithstanding any provision herein to the contrary, Termination After
Transfer of Control shall not include any termination of the Optionee's
Service with the Participating Company Group which (1) is a Termination For
Cause; (2) is a result of the Optionee's death or Disability; (3) is a result
of the Optionee's voluntary termination of Service other than upon
Constructive Termination (as defined below); or (4) occurs prior to the
effectiveness of a Transfer of Control.
(b) "TERMINATION FOR CAUSE" shall mean termination by the
Participating Company Group of the Optionee's Service with the Participating
Company Group for any of the following reasons: (i) theft, dishonesty, or
falsification of any Participating Company records; (ii) improper use or
disclosure of a Participating Company's confidential or proprietary
information; (iii) any action by the Optionee which has a detrimental effect
on a Participating Company's reputation
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or business; (iv) the Optionee's failure or inability to perform any
reasonable assigned duties after written notice from the Participating
Company Group of, and a reasonable opportunity to cure, such failure or
inability; (v) any material breach by the Optionee of any employment
agreement between the Optionee and the Participating Company Group, which
breach is not cured pursuant to the terms of such agreement; or (vi) the
Optionee's conviction of any criminal act which impairs the Optionee's
ability to perform his or her duties with the Participating Company Group.
(c) "CONSTRUCTIVE TERMINATION" shall mean any one or more of
the following:
(i) without the Optionee's express written consent, the
assignment to the Optionee of any duties, or any limitation of the Optionee's
responsibilities, substantially inconsistent with the Optionee's positions,
duties, responsibilities and status with the Participating Company Group
immediately prior to the date of the Transfer of Control;
(ii) without the Optionee's express written consent, the
relocation of the principal place of the Optionee's employment to a location
that is more than fifty (50) miles from the Optionee's principal place of
employment immediately prior to the date of the Transfer of Control, or the
imposition of travel requirements substantially more demanding of the
Optionee than such travel requirements existing immediately prior to the date
of the Transfer of Control;
(iii) any failure by the Participating Company Group to
pay, or any material reduction by the Participating Company Group of, (1) the
Optionee's base salary in effect immediately prior to the date of the
Transfer of Control (unless reductions comparable in amount and duration are
concurrently made for all other employees of the Participating Company Group
with responsibilities organizational level and title comparable to the
Optionee's), or (2) the Optionee's bonus compensation, if any, in effect
immediately prior to the date of the Transfer of Control (subject to
applicable performance requirements with respect to the actual amount of
bonus compensation earned by the Optionee); or
(iv) any failure by the Participating Company Group to
(1) continue to provide the Optionee with the opportunity to participate, on
terms no less favorable than those in effect for the benefit of any employee
group which customarily includes a person holding the employment position or
a comparable position with the Participating Company Group then held by the
Optionee, in any benefit or compensation plans and programs, including, but
not limited to, the Participating Company Group's life, disability, health,
dental, medical, savings, profit sharing, stock purchase and retirement
plans, if any, in which the Optionee was participating immediately prior to
the date of the Transfer of Control, or their equivalent, or (2) provide the
Optionee with all other fringe benefits (or their equivalent) from time to
time in effect for the benefit of any employee group which
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customarily includes a person holding the employment position or a comparable
position with the Participating Company Group then held by the Optionee.
7.3 ADDITIONAL LIMITATIONS ON OPTION EXERCISE. Notwithstanding the
provisions of Section 7.1, the Option may not be exercised after the
Optionee's termination of Service to the extent that the shares to be
acquired upon exercise of the Option would be subject to the Unvested Share
Repurchase Option as provided in Section 11. Except as the Company and the
Optionee otherwise agree, exercise of the Option pursuant to Section 7.1
following termination of the Optionee's Service may not be made by delivery
of a promissory note as provided in Section 43(a).
7.4 EXTENSION IF EXERCISE PREVENTED BY LAW. Notwithstanding the
foregoing, if the exercise of the Option within the applicable time periods
set forth in Section 7.1 is prevented by the provisions of Section 4.6, the
Option shall remain exercisable until three (3) months after the date the
Optionee is notified by the Company that the Option is exercisable, but in
any event no later than the Option Expiration Date.
7.5 EXTENSION IF OPTIONEE SUBJECT TO SECTION 16(b).
Notwithstanding the foregoing, if a sale within the applicable time periods
set forth in Section 7.1 of shares acquired upon the exercise of the Option
would subject the Optionee to suit under Section 16(b) of the Exchange Act,
the Option shall remain exercisable until the earliest to occur of (i) the
tenth (10th) day following the date on which a sale of such shares by the
Optionee would no longer be subject to such suit, (ii) the one hundred and
ninetieth (190th) day after the Optionee's termination of Service, or (iii)
the Option Expiration Date.
7.6 LEAVE OF ABSENCE. For purposes of Section 7.1, the Optionee's
Service with the Participating Company Group shall not be deemed to terminate
if the Optionee takes any military leave, sick leave, or other bona fide
leave of absence approved by the Company of ninety (90) days or less. In the
event of a leave of absence in excess of ninety (90) days, the Optionee's
Service shall be deemed to terminate on the ninety-first (91st) day of such
leave unless the Optionee's right to reemployment with the Participating
Company Group remains guaranteed by statute or contract. Notwithstanding the
foregoing, unless otherwise designated by the Company (or required by law), a
leave of absence shall not be treated as Service for purposes of determining
the Optionee's Vested Ratio.
8. TRANSFER OF CONTROL.
8.1 DEFINITIONS.
(a) An "OWNERSHIP CHANGE EVENT" shall be deemed to have
occurred if any of the following occurs with respect to the Company:
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(i) the direct or indirect sale or exchange in a single
or series of related transactions by the shareholders of the Company of more
than fifty percent (50%) of the voting stock of the Company;
(ii) a merger or consolidation in which the Company is a
party; or
(iii) the sale, exchange, or transfer of all or
substantially all of the assets of the Company; or
(iv) a liquidation or dissolution of the Company.
(b) A "TRANSFER OF CONTROL" shall mean an Ownership Change
Event or a series of related Ownership Change Events (collectively, the
"TRANSACTION") wherein the shareholders of the Company immediately before the
Transaction do not retain immediately after the Transaction, in substantially
the same proportions as their ownership of shares of the Company's voting
stock immediately before the Transaction, direct or indirect beneficial
ownership of more than fifty percent (50%) of the total combined voting power
of the outstanding voting stock of the Company or the corporation or
corporations to which the assets of the Company were transferred (the
"TRANSFEREE CORPORATION(S)"), as the case may be. For purposes of the
preceding sentence, indirect beneficial ownership shall include, without
limitation, an interest resulting from ownership of the voting stock of one
or more corporations which, as a result of the Transaction, own the Company
or the Transferee Corporation(s), as the case may be, either directly or
through one or more subsidiary corporations. The Board shall have the right
to determine whether multiple sales or exchanges of the voting stock of the
Company or multiple Ownership Change Events are related, and its
determination shall be final, binding and conclusive.
8.2 EFFECT OF TRANSFER OF CONTROL ON OPTION. In the event of a Transfer
of Control, the surviving, continuing, successor, or purchasing corporation
or parent corporation thereof, as the case may be (the "Acquiring
Corporation"), may either assume the Company's rights and obligations under
the Option or substitute for the Option a substantially equivalent option for
the Acquiring Corporation's stock. The Option shall terminate and cease to
be outstanding effective as of the date of the Transfer of Control to the
extent that the Option is neither assumed or substituted for by the Acquiring
Corporation in connection with the Transfer of Control nor exercised as of
the date of the Transfer of Control. Notwithstanding the foregoing, shares
acquired upon exercise of the Option prior to the Transfer of Control and any
consideration received pursuant to the Transfer of Control with respect to
such shares shall continue to be subject to all applicable provisions of this
Option Agreement except as otherwise provided herein. Furthermore,
notwithstanding the foregoing, if the corporation the stock of which is subject
to the Option immediately prior to an Ownership Change Event described in
Section 8.1(a)(i) constituting a Transfer of Control is the surviving or
continuing corporation and immediately after such Ownership Change Event less
than fifty percent (50%) of the total combined voting power of its voting
stock is held by another corporation or by other corporations that
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are members of an affiliated group within the meaning of Section 1504(a) of
the Code without regard to the provisions of Section 1504(b) of the Code, the
Option shall not terminate unless the Board otherwise provides in its sole
discretion.
9. ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of any
stock dividend, stock split, reverse stock split, recapitalization,
combination, reclassification, or similar change in the capital structure of
the Company, appropriate adjustments shall be made in the number, Exercise
Price and class of shares of stock subject to the Option. If a majority of
the shares which are of the same class as the shares that are subject to the
Option are exchanged for, converted into, or otherwise become (whether or not
pursuant to an Ownership Change Event) shares of another corporation (the
"NEW SHARES"), the Board may unilaterally amend the Option to provide that
the Option is exercisable for New Shares. In the event of any such
amendment, the Number of Option Shares and the Exercise Price shall be
adjusted in a fair and equitable manner, as determined by the Board, in its
sole discretion. Notwithstanding the foregoing, any fractional share
resulting from an adjustment pursuant to this Section 9 shall be rounded up
or down to the nearest whole number, as determined by the Board, and in no
event may the Exercise Price be decreased to an amount less than the par
value, if any, of the stock subject to the Option. The adjustments
determined by the Board pursuant to this Section 9 shall be final, binding
and conclusive.
10. RIGHTS AS A SHAREHOLDER, EMPLOYEE OR CONSULTANT. The Optionee shall
have no rights as a shareholder with respect to any shares covered by the
Option until the date of the issuance of a certificate for the shares for
which the Option has been exercised (as evidenced by the appropriate entry on
the books of the Company or of a duly authorized transfer agent of the
Company). No adjustment shall be made for dividends, distributions or other
rights for which the record date is prior to the date such certificate is
issued, except as provided in Section 9. Nothing in this Option Agreement
shall confer upon the Optionee any right to continue in the Service of a
Participating Company or interfere in any way with any right of the
Participating Company Group to terminate the Optionee's Service as an
Employee or Consultant, as the case may be, at any time.
11. UNVESTED SHARE REPURCHASE OPTION.
11.1 GRANT OF UNVESTED SHARE REPURCHASE OPTION. In the event
the Optionee's Service with the Participating Company Group is terminated for
any reason or no reason, with or without cause, or, if the Optionee, the
Optionee's legal representative, or other holder of shares acquired upon
exercise of the Option attempts to sell, exchange, transfer, pledge, or
otherwise dispose of (other than pursuant to an Ownership Change Event) any
shares acquired upon exercise of the Option which exceed the Vested Shares as
defined in Section 11.2 below (the "UNVESTED SHARES"), the Company shall have
the right to repurchase the Unvested Shares under the terms and subject to
the conditions set forth in this Section 11 (the "UNVESTED SHARE REPURCHASE
OPTION").
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11.2 VESTED SHARES AND UNVESTED SHARES DEFINED. The "VESTED
SHARES" shall mean, on any given date, a number of shares of Stock equal to
the Number of Option Shares multiplied by the Vested Ratio determined as of
such date and rounded down to the nearest whole share. On such given date,
the "UNVESTED SHARES" shall mean the number of shares of Stock acquired upon
exercise of the Option which exceed the Vested Shares determined as of such
date.
11.3 EXERCISE OF UNVESTED SHARE REPURCHASE OPTION. The Company
may exercise the Unvested Share Repurchase Option by written notice delivered
personally or forwarded by first class mail to the Optionee within sixty (60)
days after (a) termination of the Optionee's Service (or exercise of the
Option, if later) or (b) the Company has received notice of the attempted
disposition of Unvested Shares. If the Company fails to give notice within
such sixty (60) day period, the Unvested Share Repurchase Option shall
terminate unless the Company and the Optionee have extended the time for the
exercise of the Unvested Share Repurchase Option. The Unvested Share
Repurchase Option must be exercised, if at all, for all of the Unvested
Shares, except as the Company and the Optionee otherwise agree.
11.4 PAYMENT FOR SHARES AND RETURN OF SHARES TO COMPANY. The
purchase price per share being repurchased by the Company shall be an amount
equal to the Optionee's original cost per share, as adjusted pursuant to
Section 9 (the "REPURCHASE PRICE"). The Company shall pay the aggregate
Repurchase Price to the Optionee in cash within thirty (30) days after the
date of personal delivery or mailing of the written notice of the Company's
exercise of the Unvested Share Repurchase Option. For purposes of the
foregoing, cancellation of any indebtedness of the Optionee to any
Participating Company shall be treated as payment to the Optionee in cash to
the extent of the unpaid principal and any accrued interest canceled. The
shares being repurchased shall be delivered to the Company by the Optionee at
the same time as the delivery of the Repurchase Price to the Optionee.
11.5 ASSIGNMENT OF UNVESTED SHARE REPURCHASE OPTION. The
Company shall have the right to assign the Unvested Share Repurchase Option
at any time, whether or not such option is then exercisable, to one or more
persons as may be selected by the Company.
11.6 OWNERSHIP CHANGE EVENT. Upon the occurrence of an
Ownership Change Event, any and all new, substituted or additional securities
or other property to which the Optionee is entitled by reason of the
Optionee's ownership of Unvested Shares shall be immediately subject to the
Unvested Share Repurchase Option and included in the terms "Stock" and
"Unvested Shares" for all purposes of the Unvested Share Repurchase Option
with the same force and effect as the Unvested Shares immediately prior to
the Ownership Change Event. While the aggregate Repurchase Price shall remain
the same after such Ownership Change Event, the Repurchase Price per Unvested
Share upon exercise of the Unvested Share Repurchase Option following such
Ownership Change Event shall be adjusted as appropriate. For purposes of
determining the Vested Ratio following an Ownership Change Event, credited
Service shall include all Service with any corporation which is a
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Participating Company at the time the Service is rendered, whether or not
such corporation is a Participating Company both before and after the
Ownership Change Event.
12. RIGHT OF FIRST REFUSAL.
12.1 GRANT OF RIGHT OF FIRST REFUSAL. Except as provided in
Section 12.7 below, in the event the Optionee, the Optionee's legal
representative, or other holder of shares acquired upon exercise of the
Option proposes to sell, exchange, transfer, pledge, or otherwise dispose of
any Vested Shares (the "TRANSFER SHARES") to any person or entity, including,
without limitation, any shareholder of the Participating Company Group, the
Company shall have the right to repurchase the Transfer Shares under the
terms and subject to the conditions set forth in this Section 12 (the "RIGHT
OF FIRST REFUSAL").
12.2 NOTICE OF PROPOSED TRANSFER. Prior to any proposed
transfer of the Transfer Shares, the Optionee shall give a written notice
(the "TRANSFER NOTICE") to the Company describing fully the proposed
transfer, including the number of Transfer Shares, the name and address of
the proposed transferee (the "PROPOSED TRANSFEREE") and, if the transfer is
voluntary, the proposed transfer price, and containing such information
necessary to show the bona fide nature of the proposed transfer. In the
event of a bona fide gift or involuntary transfer, the proposed transfer
price shall be deemed to be the Fair Market Value of the Transfer Shares, as
determined by the Board in good faith. If the Optionee proposes to transfer
any Transfer Shares to more than one Proposed Transferee, the Optionee shall
provide a separate Transfer Notice for the proposed transfer to each Proposed
Transferee. The Transfer Notice shall be signed by both the Optionee and the
Proposed Transferee and must constitute a binding commitment of the Optionee
and the Proposed Transferee for the transfer of the Transfer Shares to the
Proposed Transferee subject only to the Right of First Refusal.
12.3 BONA FIDE TRANSFER. If the Company determines that the
information provided by the Optionee in the Transfer Notice is insufficient
to establish the bona fide nature of a proposed voluntary transfer, the
Company shall give the Optionee written notice of the Optionee's failure to
comply with the procedure described in this Section 12, and the Optionee
shall have no right to transfer the Transfer Shares without first complying
with the procedure described in this Section 12. The Optionee shall not be
permitted to transfer the Transfer Shares if the proposed transfer is not
bona fide.
12.4 EXERCISE OF RIGHT OF FIRST REFUSAL. If the Company
determines the proposed transfer to be bona fide, the Company shall have the
right to purchase all, but not less than all, of the Transfer Shares (except
as the Company and the Optionee otherwise agree) at the purchase price and on
the terms set forth in the Transfer Notice by delivery to the Optionee of a
notice of exercise of the Right of First Refusal within thirty (30) days
after the date the Transfer Notice is delivered to the Company. The
Company's exercise or failure to exercise the Right of First Refusal
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with respect to any proposed transfer described in a Transfer Notice shall
not affect the Company's right to exercise the Right of First Refusal with
respect to any proposed transfer described in any other Transfer Notice,
whether or not such other Transfer Notice is issued by the Optionee or issued
by a person other than the Optionee with respect to a proposed transfer to
the same Proposed Transferee. If the Company exercises the Right of First
Refusal, the Company and the Optionee shall thereupon consummate the sale of
the Transfer Shares to the Company on the terms set forth in the Transfer
Notice within sixty (60) days after the date the Transfer Notice is delivered
to the Company (unless a longer period is offered by the Proposed
Transferee); provided, however, that in the event the Transfer Notice
provides for the payment for the Transfer Shares other than in cash, the
Company shall have the option of paying for the Transfer Shares by the
present value cash equivalent of the consideration described in the Transfer
Notice as reasonably determined by the Company. For purposes of the
foregoing, cancellation of any indebtedness of the Optionee to any
Participating Company shall be treated as payment to the Optionee in cash to
the extent of the unpaid principal and any accrued interest canceled.
12.5 FAILURE TO EXERCISE RIGHT OF FIRST REFUSAL. If the
Company fails to exercise the Right of First Refusal in full (or to such
lesser extent as the Company and the Optionee otherwise agree) within the
period specified in Section 12.4 above, the Optionee may conclude a transfer
to the Proposed Transferee of the Transfer Shares on the terms and conditions
described in the Transfer Notice, provided such transfer occurs not later
than ninety (90) days following delivery to the Company of the Transfer
Notice. The Company shall have the right to demand further assurances from
the Optionee and the Proposed Transferee (in a form satisfactory to the
Company) that the transfer of the Transfer Shares was actually carried out on
the terms and conditions described in the Transfer Notice. No Transfer
Shares shall be transferred on the books of the Company until the Company has
received such assurances, if so demanded, and has approved the proposed
transfer as bona fide. Any proposed transfer on terms and conditions
different from those described in the Transfer Notice, as well as any
subsequent proposed transfer by the Optionee, shall again be subject to the
Right of First Refusal and shall require compliance by the Optionee with the
procedure described in this Section 12.
12.6 TRANSFEREES OF TRANSFER SHARES. All transferees of the
Transfer Shares or any interest therein, other than the Company, shall be
required as a condition of such transfer to agree in writing (in a form
satisfactory to the Company) that such transferee shall receive and hold such
Transfer Shares or interest therein subject to all of the terms and
conditions of this Option Agreement, including this Section 12 providing for
the Right of First Refusal with respect to any subsequent transfer. Any sale
or transfer of any shares acquired upon exercise of the Option shall be void
unless the provisions of this Section 12 are met.
12.7 TRANSFERS NOT SUBJECT TO RIGHT OF FIRST REFUSAL. The
Right of First Refusal shall not apply to any transfer or exchange of the
shares acquired upon exercise of the Option if such transfer or exchange is
in connection with an
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Ownership Change Event. If the consideration received pursuant to such
transfer or exchange consists of stock of a Participating Company, such
consideration shall remain subject to the Right of First Refusal unless the
provisions of Section 12.9 below result in a termination of the Right of
First Refusal.
12.8 ASSIGNMENT OF RIGHT OF FIRST REFUSAL. The Company shall
have the right to assign the Right of First Refusal at any time, whether or
not there has been an attempted transfer, to one or more persons as may be
selected by the Company.
12.9 EARLY TERMINATION OF RIGHT OF FIRST REFUSAL. The other
provisions of this Option Agreement notwithstanding, the Right of First
Refusal shall terminate and be of no further force and effect upon (a) the
occurrence of a Transfer of Control, unless the Acquiring Corporation assumes
the Company's rights and obligations under the Option or substitutes a
substantially equivalent option for the Acquiring Corporation's stock for the
Option, or (b) the existence of a public market for the class of shares
subject to the Right of First Refusal. A "PUBLIC MARKET" shall be deemed to
exist if (i) such stock is listed on a national securities exchange (as that
term is used in the Exchange Act) or (ii) such stock is traded on the
over-the-counter market and prices therefor are published daily on business
days in a recognized financial journal.
13. ESCROW.
13.1 ESTABLISHMENT OF ESCROW. To ensure that shares subject to
the Unvested Share Repurchase Option or the Right of First Refusal or
securing any promissory note will be available for repurchase, the Company
may require the Optionee to deposit the certificate evidencing the shares
which the Optionee purchases upon exercise of the Option with an agent
designated by the Company under the terms and conditions of escrow and
security agreements approved by the Company. If the Company does not require
such deposit as a condition of exercise of the Option, the Company reserves
the right at any time to require the Optionee to so deposit the certificate
in escrow. Upon the occurrence of an Ownership Change Event or a change, as
described in Section 9, in the character or amount of any of the outstanding
stock of the corporation the stock of which is subject to the provisions of
this Option Agreement, any and all new, substituted or additional securities
or other property to which the Optionee is entitled by reason of the
Optionee's ownership of shares of Stock acquired upon exercise of the Option
that remain, following such Ownership Change Event or change described in
Section 9, subject to the Unvested Share Repurchase Option, the Right of
First Refusal or any security interest held by the Company shall be
immediately subject to the escrow to the same extent as such shares of Stock
immediately before such event. The Company shall bear the expenses of the
escrow.
13.2 DELIVERY OF SHARES TO OPTIONEE. As soon as practicable
after the expiration of the Unvested Share Repurchase Option and the Right of
First Refusal and after full repayment of any promissory note secured by the
shares or other property in escrow, but not more frequently than twice each
calendar year, the
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escrow agent shall deliver to the Optionee the shares and any other property
no longer subject to such restrictions and no longer securing any promissory
note.
13.3 NOTICES AND PAYMENTS. In the event the shares and any
other property held in escrow are subject to the Company's exercise of the
Unvested Share Repurchase Option or the Right of First Refusal, the notices
required to be given to the Optionee shall be given to the escrow agent, and
any payment required to be given to the Optionee shall be given to the escrow
agent. Within thirty (30) days after payment by the Company, the escrow
agent shall deliver the shares and any other property which the Company has
purchased to the Company and shall deliver the payment received from the
Company to the Optionee.
14. STOCK DISTRIBUTIONS SUBJECT TO OPTION AGREEMENT. If, from time to
time, there is any stock dividend, stock split or other change, as described
in Section 9, in the character or amount of any of the outstanding stock of
the corporation the stock of which is subject to the provisions of this
Option Agreement, then in such event any and all new, substituted or
additional securities to which the Optionee is entitled by reason of the
Optionee's ownership of the shares acquired upon exercise of the Option shall
be immediately subject to the Unvested Share Repurchase Option, the Right of
First Refusal, and any security interest held by the Company with the same
force and effect as the shares subject to the Unvested Share Repurchase
Option, the Right of First Refusal, and such security interest immediately
before such event.
15. LEGENDS. The Company may at any time place legends referencing the
Unvested Share Repurchase Option, the Right of First Refusal, and any
applicable federal, state or foreign securities law restrictions on all
certificates representing shares of stock subject to the provisions of this
Option Agreement. The Optionee shall, at the request of the Company, promptly
present to the Company any and all certificates representing shares acquired
pursuant to the Option in the possession of the Optionee in order to carry
out the provisions of this Section. Unless otherwise specified by the
Company, legends placed on such certificates may include, but shall not be
limited to, the following:
15.1 "THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS
MADE IN ACCORDANCE WITH RULE 144 OR RULE 701 UNDER THE ACT, OR THE COMPANY
RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY
SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR
HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF SUCH ACT."
15.2 Any legend required to be placed thereon by the
Commissioner of Corporations of the State of California.
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15.3 "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
AN UNVESTED SHARE REPURCHASE OPTION IN FAVOR OF THE CORPORATION OR ITS
ASSIGNEE SET FORTH IN AN AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED
HOLDER, OR SUCH HOLDER'S PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE
AT THE PRINCIPAL OFFICE OF THIS CORPORATION."
15.4 "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
A RIGHT OF FIRST REFUSAL OPTION IN FAVOR OF THE CORPORATION OR ITS ASSIGNEE
SET FORTH IN AN AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED HOLDER,
OR SUCH HOLDER'S PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT THE
PRINCIPAL OFFICE OF THIS CORPORATION."
16. PUBLIC OFFERING. The Optionee hereby agrees that in the event of
any underwritten public offering of stock, including an initial public
offering of stock, made by the Company pursuant to an effective registration
statement filed under the Securities Act, the Optionee shall not offer, sell,
contract to sell, pledge, hypothecate, grant any option to purchase or make
any short sale of, or otherwise dispose of any shares of stock of the Company
or any rights to acquire stock of the Company for such period of time from
and after the effective date of such registration statement as may be
established by the underwriter for such public offering; provided, however,
that such period of time shall not exceed one hundred eighty (180) days from
the effective date of the registration statement to be filed in connection
with such public offering. The foregoing limitation shall not apply to
shares registered in the public offering under the Securities Act. The
Optionee shall be subject to this Section provided and only if the officers
and directors of the Company are also subject to similar arrangements.
17. BINDING EFFECT. Subject to the restrictions on transfer set forth
herein, this Option Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective heirs, executors,
administrators, successors and assigns.
18. TERMINATION OR AMENDMENT. The Board may terminate or amend the Plan
or the Option at any time; provided, however, that except as provided in
Section 8.2 in connection with a Transfer of Control, no such termination or
amendment may adversely affect the Option or any unexercised portion hereof
without the consent of the Optionee unless such termination or amendment is
necessary to comply with any applicable law or government regulation. No
amendment or addition to this Option Agreement shall be effective unless in
writing.
19. INTEGRATED AGREEMENT. This Option Agreement and the Plan constitute
the entire understanding and agreement of the Optionee and the Participating
Company Group with respect to the subject matter contained herein and therein
and there are no agreements, understandings, restrictions, representations,
or warranties among the Optionee and the Participating Company Group with
respect to such subject matter other than those as set forth or provided for
herein or therein. To the
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extent contemplated herein or therein, the provisions of this Option
Agreement shall survive any exercise of the Option and shall remain in full
force and effect.
20. APPLICABLE LAW. This Option Agreement shall be governed by the laws
of the State of California as such laws are applied to agreements between
California residents entered into and to be performed entirely within the
State of California.
PORTOLA COMMUNICATIONS, INC.
By:
--------------------------------
Title:
-----------------------------
The Optionee represents that the Optionee is familiar with the terms and
provisions of this Option Agreement, including the Unvested Share Repurchase
Option set forth in Section 11 and the Right of First Refusal set forth in
Section 12, and hereby accepts the Option subject to all of the terms and
provisions thereof. The Optionee hereby agrees to accept as binding,
conclusive and final all decisions or interpretations of the Board upon any
questions arising under this Option Agreement. The undersigned acknowledges
receipt of a copy of the Plan.
OPTIONEE
Date:
------------------------------ -----------------------------------
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EXHIBIT 5.1
June 23, 1997
Netscape Communications Corporation
501 East Middlefield Road
Mountain View, California 94043
RE: REGISTRATION STATEMENT ON FORM S-8
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-8 (the
"Registration Statement") to be filed by Netscape Communications Corporation,
a Delaware corporation (the "Registrant"or "you"), with the Securities and
Exchange Commission on or about June 24, 1997, in connection with the
registration under the Securities Act of 1933, as amended, of an aggregate of
193,849 shares of your Common Stock, $.0001 par value (the "Shares"),
reserved for issuance pursuant to the DigitalStyle Corporation 1995 Stock
Option/Stock Issuance Plan and the Portola Communications, Inc. 1996 Stock
Option Plan (collectively, the "Plans"). As your legal counsel, we have
reviewed the actions proposed to be taken by you in connection with the
proposed sale and issuance of the Shares by the Registrant under the Plans.
It is our opinion that, upon completion of the actions being taken, or
contemplated by us as your counsel to be taken by you prior to the issuance
of the Shares pursuant to the Registration Statement and the Plans, and upon
completion of the actions being taken in order to permit such transactions to
be carried out in accordance with the securities laws of the various states
where required, the Shares will be legally and validly issued, fully paid and
nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement, and further consent to the use of our name wherever appearing in
the Registration Statement and any subsequent amendment thereto.
Very truly yours,
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
/s/ Wilson Sonsini Goodrich & Rosati
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8) of Netscape Communications Corporation pertaining to the
DigitalStyle Corporation 1995 Stock Option/Stock Issuance Plan and the
Portola Communications, Inc. 1996 Stock Option Plan of our report dated
January 24, 1997, with respect to the consolidated financial statements of
Netscape Communications Corporation incorporated by reference in its Annual
Report (Form 10-K) for the year ended December 31, 1996 filed with the
Securities and Exchange Commission.
We also consent to the incorporation by reference therein of our report dated
March 27, 1997 with respect to the financial statement schedule of Netscape
Communications Corporation for the year ended December 31, 1996 included
in the Annual Report (Form 10-K) for 1996 filed with the Securities and
Exchange Commission.
/s/ ERNST & YOUNG LLP
Palo Alto, California
June 23, 1996
