<PAGE> 1
As filed with the Securities and Exchange Commission on ___________, 19__
Registration No. 33-_______
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM S-8
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
VERITY, INC.
(Exact name of registrant as specified in its charter)
Delaware 77-0182779
(State of Incorporation) (I.R.S. Employer Identification No.)
894 Ross Drive
Sunnyvale, California 94089
(Address of principal executive offices)
--------------
1997 Nonstatutory Stock Option Plan for Verity Canada
(Full title of the plans)
James E. Ticehurst
Vice President, Administration and Controller
Verity, Inc.
894 Ross Drive
Sunnyvale, California 94089
(408) 541-1500
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
--------------
Copies to:
Tahir J. Naim, Esq.
Cooley Godward LLP
Five Palo Alto Square
Palo Alto, CA 94306-2155
(650) 843-5000
--------------
Page 1 of ____
Exhibit Index at Page ____
<PAGE> 2
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
====================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF SECURITIES AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED SHARE (1) PRICE (1) REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Stock Options and
Common Stock (par
value $.001) 190,000 $4.875 $926,250.00 $273.24
====================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(h). The price per share and
aggregate offering price are based upon: (i) 30,300 shares subject to
options to be granted under the Plan based on the average of the high
and low prices of Registrant's Common Stock on January 21, 1998 as
reported on the Nasdaq National Market and (ii) 159,700 shares subject
to existing options based upon the price at which such options may be
exercised.
================================================================================
ii.
<PAGE> 3
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by Verity, Inc. (the "Company") with the
Securities and Exchange Commission are incorporated by reference into this
Registration Statement:
(a) The Company's latest annual report on Form 10-K filed pursuant to
Sections 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), or either (1) the Company's latest prospectus filed pursuant to
Rule 424(b) under the Securities Act of 1933, as amended (the "Act"), that
contains audited financial statements for the Company's latest fiscal year for
which such statements have been filed, or (2) the Company's effective
registration statement on Form 10 or 20-F filed under the Exchange Act
containing audited financial statements for the Company's latest fiscal year.
(b) All other reports filed pursuant to Sections 13(a) or 15(d) of the
Exchange Act since the end of the fiscal year covered by the annual reports, the
prospectus or the registration statement referred to in (a) above.
(c) The description of the Company's Common Stock which is contained in
a registration statement filed under the Exchange Act, including any amendment
or report filed for the purpose of updating such description.
All reports and other documents subsequently filed by the Company
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
have been sold or which deregisters all securities then remaining unsold, shall
be deemed to be incorporated by reference herein and to be a part of this
registration statement from the date of the filing of such reports and
documents.
DESCRIPTION OF SECURITIES
Not applicable.
INTERESTS OF NAMED EXPERTS AND COUNSEL
Not applicable.
1.
<PAGE> 4
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 145 of the Delaware General Corporation Law the Company
has broad powers to eliminate the personal liability of directors to
corporations and their stockholders for monetary damages for breach or alleged
breach of the directors' "duty of care." While the relevant statute does not
change directors' duty of care, it enables corporations to limit available
relief to equitable remedies such as injunction or rescission. The statute has
no effect on directors' duty of loyalty, acts or omissions not in good faith or
involving intentional misconduct or knowing violations of law, illegal payment
of dividends and approval of any transaction from which a director derives an
improper personal benefit.
The Company has adopted provisions in its Certificate of Incorporation
which eliminate the personal liability of its directors to the Company and its
stockholders for monetary damages for breach or alleged breach of their duty of
care. The Bylaws of the Company provide for indemnification of its directors,
officers, employees and agents to the full extent permitted by the General
Corporation Law of the State of Delaware, the Company's state of incorporation,
including those circumstances in which indemnification would otherwise be
discretionary under Delaware Law. Section 145 of the General Corporation Law of
the State of Delaware provides for indemnification in terms sufficiently broad
to indemnify such individuals, under certain circumstances, for liabilities
(including reimbursement of expenses incurred) arising under the Securities Act.
In addition, the Company has entered into indemnity agreements with each
of its directors and executive officers. Such indemnity agreements contain
provisions which are in some respects broader than the specific indemnification
provisions contained in Delaware law.
EXEMPTION FROM REGISTRATION CLAIMED
Not applicable.
EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------
<S> <C>
4.1 Certificate of Incorporation of the Company is incorporated by
reference to Exhibit 3.1 to the Company's Registration Statement
on Form S-1 filed with the Securities and Exchange Commission on
August 25, 1995, as amended (File No. 33-96228).
4.2 Bylaws of the Company are incorporated by reference to Exhibit
3.2 to the Company's Registration Statement on Form S-1 filed
with the Securities and Exchange Commission on August 25, 1995,
as amended (File No. 33-96228).
4.3 Agreement and Plan of Merger between Verity, Inc., a California
corporation, and the Company, filed September 22, 1995, is
incorporated by reference to Exhibit 2.1 to the Company's
Registration Statement on Form S-1 filed with the Securities and
Exchange Commission on August 25, 1995, as amended (File No.
33-96228).
4.4 Stock Purchase Rights Plan is incorporated by reference to the
exhibits to the Company's report on Form 8-K filed with the
Securities and Exchange Commission on October 10, 1996.
5 Opinion of Cooley Godward llp.
23.1 Consent of Independent Accountants.
</TABLE>
2.
<PAGE> 5
<TABLE>
<S> <C>
23.2 Consent of Cooley Godward llp is contained in Exhibit 5 to this
Registration Statement.
24 Power of Attorney is set forth on the signature pages.
99.1 1997 Nonstatutory Stock Option Plan for Verity Canada.
99.2 Nonstatutory Stock Option Agreement used in connection with the
1997 Nonstatutory Stock Option Plan for Verity Canada.
</TABLE>
UNDERTAKINGS
1. Rule 415 Offering. The undersigned registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) (Section 230.424(b) of this
chapter) 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)(i) and (a)(ii) do not apply if
the information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the issuer pursuant to
Section 13 or Section 15(d) of the Exchange Act that are incorporated by
reference herein.
(b) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered herein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) 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.
2. Filing Incorporating Subsequent Exchange Act Documents by Reference.
The undersigned registrant hereby undertakes that, for purposes of determining
any liability under the Securities Act, each filing of the registrant's annual
report pursuant to Section 13(a) or Section 15(d) of the Exchange Act (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference
in the Registration Statement shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
3. Request for Acceleration of Effective Date or Filing of Registration
Statement on Form S-8. Insofar as indemnification for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the
3.
<PAGE> 6
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
4.
<PAGE> 7
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-8 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Sunnyvale, State of California, on January 23,
1998.
VERITY, INC.
By /s/ James E. Ticehurst
-------------------------------------
Title Vice President, Administration
and Controller
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears on the following page constitutes and appoints Gary J. Sbona and James
E. Ticehurst, and each or any one of them, his true and lawful attorney-in-fact
and agent, with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration Statement,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their or his substitutes or
substitute, may lawfully do or cause to be done by virtue hereof.
5.
<PAGE> 8
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Gary J. Sbona
- ------------------------------- President and Chief Executive January 23, 1998
Gary J. Sbona Officer
/s/ James E. Ticehurst
- ------------------------------- Vice President, Administration January 23, 1998
James E. Ticehurst and Controller
/s/ Steven Krausz
- ------------------------------- Director January 23, 1998
Steven Krausz
/s/ Stephen A. MacDonald
- ------------------------------- Director January 23, 1998
Stephen A. MacDonald
/s/ Charles Waite, Jr.
- ------------------------------- Director January 23, 1998
Charles Waite, Jr.
</TABLE>
6.
<PAGE> 9
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION SEQUENTIAL PAGE NUMBER
- ------- ----------- ----------------------
<S> <C> <C>
4.1 Certificate of Incorporation of the Company is incorporated by
reference to Exhibit 3.1 to the Company's Registration Statement on
Form S-1 filed with the Securities and Exchange Commission on August
25, 1995, as amended (File No. 33-96228)
4.2 Bylaws of the Company is incorporated by reference to Exhibit 3.2 to
the Company's Registration Statement on Form S-1 filed with the
Securities and Exchange Commission on August 25, 1995, as amended
(File No. 33-96228)
4.3 Agreement and Plan of Merger between Verity, Inc., a California
corporation, and the Company, filed September 22, 1995, is
incorporated by reference to Exhibit 2.1 to the Company's Registration
Statement on Form S-1 filed with the Securities and Exchange
Commission on August 25, 1995, as amended (File No. 33-96228).
4.4 Stock Purchase Rights Plan is incorporated by reference to the
exhibits to the Company's report on Form 8-K filed with the Securities
and Exchange Commission on October 10, 1996
5 Opinion of Cooley Godward llp
23.1 Independent Accountants
23.2 Consent of Cooley Godward llp is contained in Exhibit 5 to this
Registration Statement
24 Power of Attorney is set forth on the signature pages.
99.1 1997 Nonstatutory Stock Option Plan for Verity Canada
99.2 Nonstatutory Stock Option Agreement used in connection with the 1997
Nonstatutory Stock Option Plan for Verity Canada
</TABLE>
7.
<PAGE> 1
EXHIBIT 5
[Cooley Godward LLP Letterhead]
January 23, 1998
Verity, Inc.
894 Ross Drive
Sunnyvale, CA 94089
Ladies and Gentlemen:
You have requested our opinion with respect to certain matters in connection
with the filing by Verity, Inc. (the "Company") of a Registration Statement on
Form S-8 (the "Registration Statement") with the Securities and Exchange
Commission covering the offering of up to 190,000 shares of the Company's Common
Stock, $.001 par value, (the "Shares") pursuant to its 1997 Nonstatutory Stock
Option Plan for Verity Canada (the "Plan").
In connection with this opinion, we have examined the Registration Statement
and related Prospectus, your Certificate of Incorporation and By-laws, as
amended, and such other documents, records, certificates, memoranda and other
instruments as we deem necessary as a basis for this opinion. We have assumed
the genuineness and authenticity of all documents submitted to us as originals,
the conformity to originals of all documents submitted to us as copies thereof,
and the due execution and delivery of all documents where due execution and
delivery are a prerequisite to the effectiveness thereof.
On the basis of the foregoing, and in reliance thereon, we are of the opinion
that the Shares, when sold and issued in accordance with the Plan, the
Registration Statement and related Prospectus, will be validly issued, fully
paid, and nonassessable (except as to shares issued pursuant to certain
deferred payment arrangements, which will be fully paid and nonassessable when
such deferred payments are made in full).
We consent to the filing of this opinion as an exhibit to the Registration
Statement.
Very truly yours,
COOLEY GODWARD LLP
By: /s/ Timothy J. Moore
--------------------
Timothy J. Moore
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement
of Verity, Inc. on Form S-8 (to register shares under the 1997 Nonstatutory
Stock Option Plan for Verity Canada) of our reports dated June 18, 1997, on our
audits of the consolidated financial statements and financial statement schedule
of Verity, Inc. as of May 31, 1997 and 1996, and the years ended May 31, 1997,
1996, and 1995, which reports appear in the Annual Report on Form 10-K of
Verity, Inc. filed with the SEC pursuant to the Securities Exchange Act of
1934.
Coopers & Lybrand L.L.P.
San Jose, California
January 23, 1998
<PAGE> 1
EXHIBIT 99.1
VERITY, INC.
1997 NONSTATUTORY STOCK OPTION PLAN FOR VERITY CANADA
1. ESTABLISHMENT, PURPOSE AND TERM OF PLAN.
1.1 ESTABLISHMENT. The Verity, Inc. 1997 Nonstatutory Stock Option
Plan for Verity Canada (the "PLAN") is hereby established effective as of May
23, 1997.
1.2 PURPOSE. The purpose of the Plan is to advance the interests
of the Participating Company Group and its stockholders by providing an
incentive to attract, retain and reward persons performing services for a
Participating Company 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.
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, of the United States of America 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.
(d) "COMPANY" means Verity, Inc., a Delaware corporation, or
any
<PAGE> 2
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.
(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) "EXCHANGE ACT" means the Securities Exchange Act of
1934, as amended, of the United States of America.
(i) "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, subject to the following:
(i) If, on such date, there is a public market for the
Stock, the Fair Market Value of a share of Stock shall be the closing sale price
of a share of Stock (or the mean of the closing bid and asked prices of a share
of Stock if the Stock is so quoted instead) as quoted on the Nasdaq National
Market, the Nasdaq Small-Cap Market or such other national or regional
securities exchange or market system constituting the primary market for the
Stock, as reported in the Wall Street Journal or such other source as the
Company deems reliable. If the relevant date does not fall on a day on which the
Stock has traded on such securities exchange or market system, the date on which
the Fair Market Value shall be established shall be the last day on which the
Stock was so traded prior to the relevant date, or such other appropriate day as
shall be determined by the Board, in its sole discretion.
(ii) If, on such date, there is no public market for
the Stock, the Fair Market Value of a share of Stock shall be as determined by
the Board without regard to any restriction other than a restriction which, by
its terms, will never lapse.
(j) "INSIDER" means an officer or a Director of the Company
or any other person whose transactions in Stock are subject to Section 16 of the
Exchange Act.
(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. Options are intended
<PAGE> 3
to be nonstatutory stock options and shall not be treated as incentive stock
options within the meaning of Section 422(b) of the Code.
(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) "PARTICIPATING COMPANY" means Verity Canada or any other
Subsidiary Corporation that the Board may designate from time to time as a
Participating Company and any successor corporation thereto.
(o) "PARTICIPATING COMPANY GROUP" means, at any point in
time, the Company and all corporations collectively which are then Participating
Companies.
(p) "STOCK" means the common stock of the Company, as
adjusted from time to time in accordance with Section 4.2.
(q) "SUBSIDIARY CORPORATION" means any corporation, other
than the Company, in an unbroken chain of corporations beginning with the
Company if each of the corporations, other than the last corporation in the
unbroken chain, owns 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 the chain.
(r) "VERITY CANADA" means 14943 Yukon Inc., a Yukon
corporation, or any successor corporation thereto.
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 and the plural shall include the singular. Use
of the term "or" is not intended to be exclusive, unless the context clearly
requires otherwise.
<PAGE> 4
3. ADMINISTRATION.
3.1 ADMINISTRATION BY THE BOARD. The Plan shall be administered by
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 the
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 ADMINISTRATION WITH RESPECT TO INSIDERS. With respect to
participation by Insiders in the Plan, at any time that any class of equity
security of the Company is registered pursuant to Section 12 of the Exchange
Act, the Plan shall be administered in compliance with the requirements, if any,
of Rule 16b-3 under the Exchange Act, as amended from time to time, or any
successor rule or regulation.
3.3 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 determine the Fair Market Value of shares of Stock or
other property;
(c) 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;
(d) to approve one or more forms of Option Agreement;
<PAGE> 5
(e) 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;
(f) 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;
(g) 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, any jurisdictions whose citizens may be granted Options;
and
(h) 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 one hundred fifty thousand (150,000) 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
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
<PAGE> 6
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. Options may be granted only to Employees and
Consultants; provided, however, that no Option may be granted to any person
whose eligibility to participate in the Plan would require approval of the Plan
by the stockholders of the Company under any law or regulation or the
requirements of any stock exchange or market system upon which the Stock may
then be listed. For purposes of the foregoing sentence, "Employees" and
"Consultants" shall include prospective Employees and prospective Consultants to
whom Options are granted in connection with written offers of employment or
other service relationship with a Participating Company. Eligible persons may be
granted more than one (1) Option.
6. TERMS AND CONDITIONS OF OPTIONS. 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 the
exercise price per share for an Option shall be not less than the Fair Market
Value of a share of Stock on the effective date of grant of the Option.
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 no Option granted to a prospective Employee or prospective Consultant may
become exercisable prior to the date on which such person commences service with
a Participating Company.
<PAGE> 7
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
United States federal or state securities laws, laws of other jurisdictions, 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 United States 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 form 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. The Company may establish, from time to time, an
exchange ratio applicable to amounts paid in a currency other than United States
dollars.
(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
<PAGE> 8
the exercise of the Option or with other collateral acceptable to the Company.
Unless otherwise provided by the Board, if the Company at any time is subject to
the regulations promulgated by the Board of Governors of the United States
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 United States federal, state and local taxes, if any, and
taxes of other jurisdictions, 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 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 FORM OF OPTION AGREEMENT.
7.1 GENERAL. Unless otherwise provided by the Board at the time
the Option is granted, an Option shall comply with and be subject to the terms
and conditions set forth in the form of Immediately Exercisable Stock Option
Agreement adopted by the Board concurrently with its adoption of the Plan and as
amended from time to time.
<PAGE> 9
7.2 STANDARD TERM OF OPTIONS. Except as otherwise provided 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.
7.3 AUTHORITY TO VARY TERMS. The Board shall have the authority
from time to time to vary the terms of the standard form 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 stockholders 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 stockholders 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
<PAGE> 10
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. Each Optionee shall be given access to
information concerning the Company equivalent to that information generally made
available to the Company's common stockholders.
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. 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
<PAGE> 11
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.
12. TERMINATION OR AMENDMENT OF PLAN. The Board may terminate or amend
the Plan at any time. However, 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
necessary to comply with any applicable law or government regulation.
IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies
that the foregoing Verity, Inc. 1997 Nonstatutory Stock Option Plan for Verity
Canada was duly adopted by the Board on May 23, 1997.
________________________________________
<PAGE> 1
EXHIBIT 99.2
VERITY, INC.
IMMEDIATELY EXERCISABLE
STOCK OPTION AGREEMENT
FOR VERITY CANADA
THIS IMMEDIATELY EXERCISABLE STOCK OPTION AGREEMENT (the "Option
Agreement") is made and entered into as of the date set forth on the Notice of
Grant of Stock Options (the "Notice"), by and between Verity, Inc. and the
individual named on The Notice (the "Optionee").
The Company has granted to the Optionee pursuant to the Verity, Inc.
1997 Nonstatutory Stock Option Plan for Verity Canada (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 the effective date set
forth on The Notice.
(b) "NUMBER OF OPTION SHARES" means the number of shares of
Stock set forth on The Notice, as adjusted from time to time pursuant to
Section 9.
(c) "EXERCISE PRICE" means the exercise price set forth on
The Notice, as adjusted from time to time pursuant to Section 9.
(d) "INITIAL EXERCISE DATE" means the Date of Grant.
(e) "INITIAL VESTING DATE" means the vesting date set forth
on The Notice.
(f) "OPTION EXPIRATION DATE" means the expiration date set
forth on The Notice.
(g) "DISABILITY" means the inability of the Optionee to
engage in any substantial gainful activity 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
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last for a continuous period of not less than twelve (12) months in the opinion
of a qualified physician acceptable to the Company.
(h) "Securities Act" means the Securities Act of 1933, as
amended, of the United States of America.
(i) "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 and the plural shall include the
singular. Use of the term "or" is not intended to be exclusive, unless the
context clearly requires otherwise.
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 United States Internal Revenue Code
of 1986, as amended (the "Code"). The Company makes no representation as to the
status or treatment of the Option or the tax consequences to the Optionee of
the grant or exercise of the Option or subsequent disposition of any shares
acquired upon exercise of the Option under the tax laws of any jurisdiction
other than the United States of America.
2.2 ELECTION UNDER SECTION 83(b) OF THE CODE. If the Optionee is
subject to income taxation under the Code and 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
2
<PAGE> 3
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. All determinations by the
Board shall be final and binding upon all persons having an interest in the
Option. Any officer of the 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) EXERCISE. 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 right set forth
in Section 11.
(b) FREQUENCY OF EXERCISE. Notwithstanding the foregoing, the
Option may not be exercised more frequently than twice in any continuous twelve
(12) month period; provided, however, that the foregoing restriction shall not
apply so as to prevent an exercise (i) following the Optionee's termination of
Service as set forth in Section 7 or (ii) during the thirty (30) day periods
immediately preceding and following an Ownership Change Event as defined in
Section 8.1.
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 Company, 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
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<PAGE> 4
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 United States federal or state securities laws, laws
of other jurisdictions, 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 cash for a portion of the aggregate Exercise Price
not less than the par value of the shares being acquired and the Optionee's
promissory note for the balance of the aggregate Exercise Price, or (v) by any
combination of the foregoing. The Company may establish, from time to time, an
exchange ratio applicable to amounts paid in a currency other than United States
dollars.
(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 United States 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. Unless otherwise specified by the Board at the time the
Option is granted, the promissory note permitted in clause (iv) of Section
4.3(a) shall be for not more than ninety percent (90%) of the aggregate Exercise
Price of the shares of Stock being purchased and shall be a full recourse note
in a form satisfactory to the Company, with principal payable 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 or other applicable tax law, if any. Such recourse promissory note
shall be secured by the shares of Stock acquired pursuant to the then current
form of security
4
<PAGE> 5
agreement as approved by the Company. At any time the Company is subject to the
regulations promulgated by the Board of Governors of the United States 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
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 United States federal, state and local tax withholding
obligations, if any, and the tax withholding obligations of other
jurisdictions, if any, of the Participating Company Group 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 heir(s) of the Optionee.
4.6 RESTRICTIONS ON GRANT OF THE OPTION AND ISSUANCE AND SUBSEQUENT
DISPOSITION OF SHARES. The grant of the Option, the issuance of shares of Stock
upon exercise of the Option, and the subsequent disposition of such shares by
the Optionee shall be subject to compliance with all applicable requirements of
United States federal and state laws and laws of other jurisdictions with
respect to such securities. The Option may not be exercised and any shares
acquired upon exercise of the Option may not be disposed of if the issuance of
shares of Stock upon exercise or the disposition of such shares, respectively,
would constitute a violation of any applicable securities law of the United
States or of any state or other jurisdiction or other law or regulation 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
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<PAGE> 6
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
AND ANY SHARES ACQUIRED MAY NOT BE SOLD UNLESS THE FOREGOING CONDITIONS ARE
SATISFIED. ACCORDINGLY, THE OPTIONEE MAY NOT BE ABLE TO EXERCISE THE OPTION OR
SELL ANY SHARES SO ACQUIRED 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 or subsequent
disposition of any such shares by the Optionee shall relieve the Company of any
liability in respect of the failure to issue or sell such shares or to obtain
for the Optionee the ability to dispose of 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
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<PAGE> 7
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 one (1) month after the Optionee's
termination of Service.
(e) OTHER TERMINATION OF SERVICE. If the Optionee's Service
with the Participating Company Group terminates for any reason, except
Disability or death, 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 one (1) month (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 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).
7.3 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.
7.4 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.
7.5 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 Percentage.
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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 stockholders 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 stockholders 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 date of 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
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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 STOCKHOLDER, EMPLOYEE OR CONSULTANT. The Optionee shall
have no rights as a stockholder 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
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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 be calculated, on any given date, in accordance with the vesting terms
set forth on The Notice. 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 OPTIONS. 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 the Company or 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 Percentage
following an Ownership Change Event, credited Service shall include all service
with the Company or 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. ESCROW.
12.1 ESTABLISHMENT OF ESCROW. To ensure that shares subject to the
Unvested Share Repurchase Option 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 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.
12.2 DELIVERY OF SHARES TO OPTIONEE. As soon as practicable after the
expiration of the Unvested Share Repurchase Option 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.
12.3 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, 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.
13. 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 and any security
interest held by the Company with the same force and effect as the shares
subject to the Unvested Share Repurchase Option and such security interest
immediately before such event.
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14. LEGENDS. The Company may at any time place legends referencing
the Unvested Share Repurchase Option and any restrictions under applicable
securities or other law of the United States or any state or other jurisdiction
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:
"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. 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.
16. 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.
17. 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 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.
18. 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.
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