<PAGE> 1
As filed with the Securities and Exchange Commission on October 22, 1999
Registration No. 333-_______
================================================================================
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)
----------------------
1995 Employee Stock Purchase Plan
1995 Stock Option Plan
1995 Outside Directors Stock Option Plan
1996 Nonstatutory Stock Option Plan
1997 Nonstatutory Stock Option Plan for Verity Canada
(Full title of the plans)
James E. Ticehurst
Vice President of Finance and Administration
and Assistant Secretary
Verity, Inc.
894 Ross Drive
Sunnyvale, CA 94089
(408) 541-1500
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
----------------------
Copies to:
Timothy J. Moore, Esq.
Cooley Godward LLP
Five Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306
----------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===================================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF SECURITIES TO BE AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF REGISTRATION
REGISTERED REGISTERED SHARE (1) PRICE (1) FEE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Common Stock (par value $.001) (See Notes to
Calculation of
4,700,000 Registration Fee) $313,415,083 $ 87,130
====================================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(h) promulgated under the
Securities Act of 1933, as amended (the "Securities Act"). The price per
share and aggregate offering price are based upon (a) the weighted
average
<PAGE> 2
exercise price, for shares subject to outstanding options granted by
Verity, Inc. (the "Company") under (i) the 1996 Nonstatutory Stock
Option Plan, and (ii) the 1995 Outside Directors Stock Option Plan, and
(b) the average of the high and low prices of the Company's Common Stock
as reported on the Nasdaq Stock Market for October 21, 1999, for shares
reserved for future issuance pursuant to (i) the 1996 Nonstatutory Stock
Option Plan, (ii) the 1997 Nonstatutory Stock Option Plan for Verity
Canada, (iii) the 1995 Employee Stock Purchase Plan and (iv) the 1995
Stock Option Plan and (v) the 1995 Outside Directors' Stock Option Plan
(pursuant to Rule 457 (c) under the Securities Act).
NOTES TO CALCULATION OF REGISTRATION FEE
The chart below details the calculations of the registration fee:
<TABLE>
<CAPTION>
====================================================================================================================================
Number of Shares Offering Price Per Share Aggregate Offering Price
<S> <C> <C> <C>
- -------------------------------------------------- ------------------------- ---------------------------- --------------------------
Shares issuable pursuant to outstanding options
under the 1996 Nonstatutory Stock Option Plan 226,855 $52.6268 $11,938,652
- -------------------------------------------------- ------------------------- ---------------------------- --------------------------
Shares reserved for future issuance pursuant to
the 1996 Nonstatutory Stock Option Plan 2,123,145 $67.625 $143,577,681
- -------------------------------------------------- ------------------------- ---------------------------- --------------------------
Shares reserved for future issuance pursuant to
the 1997 Nonstatutory Stock Option Plan for
Verity Canada 350,000 $64.875 $22,706,250
- -------------------------------------------------- ------------------------- ---------------------------- --------------------------
Shares reserved for future issuance pursuant to
the 1995 Employee Stock Purchase Plan 700,000 $67.625 $47,337,500
- -------------------------------------------------- ------------------------- ---------------------------- --------------------------
Shares reserved for future issuance pursuant to
the 1995 Stock Option Plan 1,000,000 $67.625 $67,625,000
- -------------------------------------------------- ------------------------- ---------------------------- --------------------------
Shares issuable pursuant to outstanding options
under the 1995 Outside Directors Stock Option
Plan 10,000 $61.875 $618,750
- -------------------------------------------------- ------------------------- ---------------------------- --------------------------
Shares reserved for future issuance pursuant to
the 1995 Outside Directors Stock Option Plan 290,000 $67.625 $19,611,250
- -------------------------------------------------- ------------------------- ---------------------------- --------------------------
Proposed Maximum Offering Price $313,415,083
- -------------------------------------------------- ------------------------- ---------------------------- --------------------------
Registration Fee $87,130
====================================================================================================================================
</TABLE>
<PAGE> 3
INCORPORATION BY REFERENCE OF CONTENTS OF
REGISTRATION STATEMENT ON FORM S-8 NO. 333-24753,
REGISTRATION STATEMENT ON FORM S-8 NO. 333-26600,
REGISTRATION STATEMENT ON FORM S-8 NO. 333-26869,
REGISTRATION STATEMENT ON FORM S-8 NO. 333-36527,
REGISTRATION STATEMENT ON FORM S-8 NO. 333-43905,
REGISTRATION STATEMENT ON FORM S-8 NO. 333-44877 AND
REGISTRATION STATEMENT ON FORM S-8 NO. 333-66913
The contents of Registration Statement on Form S-8 No. 333-24753 filed
with the Securities and Exchange Commission on April 8, 1997, Registration
Statement on Form S-8 No. 333-26600 filed with the Securities and Exchange
Commission on March 25, 1996, Registration Statement on Form S-8 No. 333-26869
filed with the Securities and Exchange Commission on May 12, 1997, Registration
Statement on Form S-8 No. 333-36527 filed with the Securities and Exchange
Commission on September 26, 1997, Registration Statement on Form S-8 No.
333-43905 filed with the Securities and Exchange Commission on January 8, 1998,
Registration Statement on form S-8 No. 333-44877 filed with the Securities and
Exchange Commission on January 23, 1998 and Registration Statement on Form S-8
No. 333-66913 filed with the Securities and Exchange Commission on November 6,
1998 is incorporated by reference herein.
EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
5.1 Opinion of Cooley Godward LLP
23.1 Consent of Independent Accountants
23.2 Consent of Cooley Godward LLP is contained in Exhibit
5.1 to this Registration Statement
24.1 Power of Attorney is contained on the signature page.
99.1 1995 Employee Stock Purchase Plan
99.2 1995 Stock Option Plan
99.3 1995 Outside Directors Stock Option Plan
99.4 1996 Nonstatutory Stock Option Plan
99.5 1997 Nonstatutory Stock Option Plan for Verity Canada
1.
<PAGE> 4
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 October 22,
1999.
VERITY, INC.
By /s/ James E Ticehurst
--------------------------------------------
James E. Ticehurst
Vice President of Finance and Administration
and Assistant Secretary
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below 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.
2.
<PAGE> 5
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 Chairman of the Board and Chief October 22, 1999
- --------------------------------------- Executive Officer (Principal Executive
Gary J. Sbona Officer)
/s/ Anthony J. Bettencourt President and Director October 22, 1999
- ---------------------------------------
Anthony J. Bettencourt
/s/ James E. Ticehurst Vice President of Finance and October 22, 1999
- --------------------------------------- Administration and Assistant Secretary
James E. Ticehurst (Principal Financial Officer)
/s/ Todd J. Yamami Corporate Controller (Principal October 22, 1999
- --------------------------------------- Accounting Officer)
Todd J. Yamami
/s/ Steven M. Krausz Director October 22, 1999
- ---------------------------------------
Steven M. Krausz
/s/ Stephen A. MacDonald Director October 22, 1999
- ---------------------------------------
Stephen A. MacDonald
/s/ Charles P. Waite, Jr. Director October 22, 1999
- ---------------------------------------
Charles P. Waite, Jr.
</TABLE>
3.
<PAGE> 6
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
5.1 Opinion of Cooley Godward LLP
23.1 Consent of Independent Accountants
23.2 Consent of Cooley Godward LLP is contained in
Exhibit 5.1 to this Registration Statement
24.1 Power of Attorney is contained on the signature page.
99.1 1995 Employee Stock Purchase Plan
99.2 1995 Stock Option Plan
99.3 1995 Outside Directors Stock Option Plan
99.4 1996 Nonstatutory Stock Option Plan
99.5 1997 Nonstatutory Stock Option Plan for Verity Canada
4.
<PAGE> 1
EXHIBIT 5.1
[COOLEY GODWARD LLP LETTERHEAD]
October 22, 1999
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 4,700,000 shares of the Company's
Common Stock, $.001 par value, (the "Shares") pursuant to its 1995 Employee
Stock Purchase Plan, 1995 Stock Option Plan, 1995 Outside Directors Stock Option
Plan, 1996 Nonstatutory Stock Option Plan, and 1997 Nonstatutory Stock Option
Plan for Verity Canada (collectively, the "Plans").
In connection with this opinion, we have examined the Registration Statement and
related Prospectuses, your Certificate of Incorporation and Bylaws, 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 Plans, the
Registration Statement and related Prospectuses, 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 1995 Employee Stock
Purchase Plan, the 1995 Stock Option Plan, the 1995 Outside Directors Stock
Option Plan, the 1996 Nonstatutory Stock Option Plan, and the 1997 Nonstatutory
Stock Option Plan for Verity Canada) of our reports dated June 19, 1999, on our
audits of the consolidated financial statements and financial statement schedule
of Verity, Inc. as of May 31, 1999 and 1998, and the years ended May 31, 1999,
1998 and 1997, 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.
/s/ PRICEWATERHOUSECOOPERS LLP
San Jose, California
October 22, 1999
<PAGE> 1
Exhibit 99.1
VERITY, INC.
1995 EMPLOYEE STOCK PURCHASE PLAN
(AS AMENDED THROUGH SEPTEMBER 21, 1999)
1. ESTABLISHMENT, PURPOSE AND TERM OF PLAN.
1.1 ESTABLISHMENT. The Verity, Inc. 1995 Employee Stock Purchase
Plan (the "PLAN") is hereby established effective as of the effective date of
the initial registration by the Company of its Stock under Section 12 of the
Exchange Act (the "EFFECTIVE DATE").
1.2 PURPOSE. The purpose of the Plan to provide Eligible Employees
of the Participating Company Group with an opportunity to acquire a proprietary
interest in the Company through the purchase of Stock. The Company intends that
the Plan shall qualify as an "employee stock purchase plan" under Section 423 of
the Code (including any amendments or replacements of such section), and the
Plan shall be so construed.
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.
2. DEFINITIONS AND CONSTRUCTION.
2.1 DEFINITIONS. Any term not expressly defined in the Plan but
defined for purposes of Section 423 of the Code shall have the same definition
herein. 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 a 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 successor corporation thereto.
(e) "COMPENSATION" means, with respect to an Offering Period
under the Plan, all amounts paid in cash in the forms of base salary,
commissions, overtime, bonuses,
1.
<PAGE> 2
annual awards, other incentive payments, shift premiums, and all other
compensation paid in cash during such Offering Period before deduction for any
contributions to any plan maintained by a Participating Company and described in
Section 401(k) or Section 125 of the Code. Compensation shall not include
reimbursements of expenses, allowances, long-term disability, workers'
compensation or any amount deemed received without the actual transfer of cash
or any amounts directly or indirectly paid pursuant to the Plan or any other
stock purchase or stock option plan.
(f) "ELIGIBLE EMPLOYEE" means an Employee who meets the
requirements set forth in Section 5 for eligibility to participate in the Plan.
(g) "EMPLOYEE" means any person treated as an employee of a
Participating Company for purposes of Section 423 of the Code (including an
officer or a Director who is also treated as an employee); 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. A Participant
shall be deemed to have ceased to be an Employee either upon an actual
termination of employment or upon the corporation employing the Participant
ceasing to be a Participating Company. For purposes of the Plan, an individual
shall not be deemed to have ceased to be an Employee while such individual is on
a military leave, sick leave or other bona fide leave of absence approved by the
Company of ninety (90) days or less. In the event an individual's leave of
absence exceeds ninety (90) days, the individual shall be deemed to have ceased
to be an Employee on the ninety-first (91st) day of such leave unless the
individual's right to reemployment with the Participating Company Group is
guaranteed either by statute or by contract. The Company shall determine in good
faith and in the exercise of its discretion whether an individual has become or
has ceased to be an Employee and the effective date of such individual's
employment or termination of employment, as the case may be. All such
determinations by the Company shall be, for purposes of an individual's
participation in or other rights under the Plan as of the time of the Company's
determination, final, binding and conclusive, notwithstanding that the Company
or any governmental agency subsequently makes a contrary determination.
(h) "EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended.
(i) "FAIR MARKET VALUE" means, as of any date, if there is
then a public market for the Stock, the closing sale price of a share of Stock
(or the mean of the closing bid and asked prices 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. If there is then no public market for the Stock, the Fair
Market Value on any relevant date shall be as determined by the Board without
regard to any restriction other than a restriction which, by its terms, will
never lapse. Notwithstanding the foregoing, the Fair Market
2.
<PAGE> 3
Value per share of Stock on the Effective Date shall be deemed to be the public
offering price set forth in the final prospectus filed with the Securities and
Exchange Commission in connection with the initial public offering of the Stock.
(j) "OFFERING" means an offering of Stock as provided in
Section 6.
(k) "OFFERING DATE" means, for any Offering Period, the first
day of such Offering Period.
(l) "OFFERING PERIOD" means a period determined in accordance
with Section 6.1.
(m) "PARENT CORPORATION" means any present or future "parent
corporation" of the Company, as defined in Section 424(e) of the Code.
(n) "PARTICIPANT" means an Eligible Employee participating in
the Plan.
(o) "PARTICIPATING COMPANY" means the Company or any Parent
Corporation or Subsidiary Corporation which the Board determines should be
included in the Plan. The Board shall have the sole and absolute discretion to
determine from time to time what Parent Corporations or Subsidiary Corporations
shall be Participating Companies.
(p) "PARTICIPATING COMPANY GROUP" means, at any point in time,
the Company and all other corporations collectively which are then Participating
Companies.
(q) "PURCHASE DATE" means, for any Purchase Period, the last
day of such Purchase Period.
(r) "PURCHASE PERIOD" means a period determined in accordance
with Section 6.2.
(s) "PURCHASE PRICE" means the price at which a share of Stock
may be purchased pursuant to the Plan, as determined in accordance with Section
9.
(t) "PURCHASE RIGHT" means an option granted to a Participant
pursuant to the Plan to purchase such shares of Stock as provided in Section 8,
which the Participant may or may not exercise during the Offering Period in
which such option is outstanding. Such option arises from the right of a
Participant to withdraw any accumulated payroll deductions of the Participant
not previously applied to the purchase of Stock under the Plan and to terminate
participation in the Plan or any Offering at any time during an Offering Period.
(u) "STOCK" means the common stock, par value $0.001, of the
Company, as adjusted from time to time in accordance with Section 4.2.
3.
<PAGE> 4
(v) "SUBSCRIPTION AGREEMENT" means a written agreement in such
form as specified by the Company, stating an Employee's election to participate
in the Plan and authorizing payroll deductions under the Plan from the
Employee's Compensation.
(w) "SUBSCRIPTION DATE" means the last business day prior to
the Offering Date of an Offering Period or such earlier date as the Company
shall establish.
(x) "SUBSIDIARY CORPORATION" means any present or future
"subsidiary corporation" of the Company, as defined in Section 424(f) 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 and the plural shall include the singular. Use
of the term "or" is not intended to be exclusive, unless the context clearly
requires otherwise.
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 Purchase Right shall be determined by the
Board and shall be final and binding upon all persons having an interest in the
Plan or such Purchase Right. Subject to the provisions of the Plan, the Board
shall determine all of the relevant terms and conditions of Purchase Rights
granted pursuant to the Plan; provided, however, that all Participants granted
Purchase Rights pursuant to the Plan shall have the same rights and privileges
within the meaning of Section 423(b)(5) of the Code. All expenses incurred in
connection with the administration of the Plan shall be paid by the Company.
3.2 AUTHORITY OF OFFICERS. 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 that is the responsibility of or that is
allocated to the Company herein, provided that the officer has apparent
authority with respect to such matter, right, obligation, determination or
election.
3.3 POLICIES AND PROCEDURES ESTABLISHED BY THE COMPANY. The Company
may, from time to time, consistent with the Plan and the requirements of Section
423 of the Code, establish, change or terminate such rules, guidelines,
policies, procedures, limitations, or adjustments as deemed advisable by the
Company, in its sole discretion, for the proper administration of the Plan,
including, without limitation, (a) a minimum payroll deduction amount required
for participation in an Offering, (b) a limitation on the frequency or number of
changes permitted in the rate of payroll deduction during an Offering, (c) an
exchange ratio applicable to amounts withheld in a currency other than United
States dollars, (d) a payroll deduction greater than or less than the amount
designated by a Participant in order to adjust for the Company's delay or
mistake in processing a Subscription Agreement or in otherwise effecting a
Participant's election under the Plan or as advisable to comply with the
requirements
4.
<PAGE> 5
of Section 423 of the Code, and (e) determination of the date and manner by
which the Fair Market Value of a share of Stock is determined for purposes of
administration of the Plan.
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 two million (2,000,000) and shall consist
of authorized but unissued or reacquired shares of the Stock, or any combination
thereof. If an outstanding Purchase Right for any reason expires or is
terminated or canceled, the shares of Stock allocable to the unexercised portion
of such Purchase Right 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, or in the event of any merger (including a merger effected for the
purpose of changing the Company's domicile), sale of assets or other
reorganization in which the Company is a party, appropriate adjustments shall be
made in the number and class of shares subject to the Plan and to each Purchase
Right and in the Purchase Price. If a majority of the shares which are of the
same class as the shares that are subject to outstanding Purchase Rights 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 outstanding Purchase Rights to provide that
such Purchase Rights are exercisable for New Shares. In the event of any such
amendment, the number of shares subject to, and the Purchase Price of, the
outstanding Purchase Rights 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 down to the nearest whole number, and in no event may the
Purchase Price be decreased to an amount less than the par value, if any, of the
stock subject to the Purchase Right. The adjustments determined by the Board
pursuant to this Section 4.2 shall be final, binding and conclusive.
5. ELIGIBILITY.
5.1 EMPLOYEES ELIGIBLE TO PARTICIPATE. Any Employee of a
Participating Company is eligible to participate in the Plan except the
following:
(a) Employees who are customarily employed by the
Participating Company Group for twenty (20) hours or less per week; or
(b) Employees who are customarily employed by the
Participating Company Group for not more than five (5) months in any calendar
year.
5.2 EXCLUSION OF CERTAIN SHAREHOLDERS. Notwithstanding any provision
of the Plan to the contrary, no Employee shall be granted a Purchase Right under
the Plan if, immediately after such grant, such Employee would own or hold
options to purchase stock of the Company or of any Parent Corporation or
Subsidiary Corporation possessing five percent (5%)
5.
<PAGE> 6
or more of the total combined voting power or value of all classes of stock of
such corporation, as determined in accordance with Section 423(b)(3) of the
Code. For purposes of this Section 5.2, the attribution rules of Section 424(d)
of the Code shall apply in determining the stock ownership of such Employee.
5.3 EXCLUSION OF LEASED EMPLOYEES. Notwithstanding anything herein
to the contrary, any individual performing services for a Participating Company
solely through a leasing agency or employment agency shall not be deemed an
"Employee" of such Participating Company.
6. OFFERINGS.
6.1 OFFERING PERIODS. Except as otherwise set forth below, the Plan
shall be implemented by sequential Offerings of approximately twelve (12) months
duration or such other duration as the Board shall determine (an "OFFERING
PERIOD"); provided, however that the first Offering Period shall commence on the
Effective Date and end on September 30, 1997 (the "INITIAL OFFERING PERIOD".
Subsequent Offerings shall commence on the first days of April and October of
each year and end on the last days of the first March and September,
respectively, occurring thereafter. Notwithstanding the foregoing, the Board may
establish a different term for one or more Offerings or different commencing or
ending dates for such Offerings; provided, however, that no Offering may exceed
a term of twenty-seven (27) months. If the first or last day of an Offering
Period is not a day on which the national securities exchanges or Nasdaq Stock
Market are open for trading, the Company shall specify the trading day that will
be deemed the first or last day, as the case may be, of the Offering Period.
6.2 PURCHASE PERIODS. Each Offering Period shall consist of two (2)
consecutive purchase periods of approximately six (6) months duration (except
the Initial Offering Period which consisted of four (4) purchase periods
(Effective Date to March 31, 1996; April 1, 1996 to September 30, 1996; October
1, 1996 to March 31, 1997; and April 1, 1997 to September 30, 1997)) or such
other number or duration as the Board shall determine (individually, a "PURCHASE
PERIOD"). A Purchase Period commencing on the first day of April shall end on
the last day of the next following September. A Purchase Period commencing on
the first day of October shall end on the last day of the next following March.
Notwithstanding the foregoing, the Board may establish a different term for one
or more Purchase Periods or different commencing or ending dates for such
Purchase Periods. If the first or last day of a Purchase Period is not a day on
which the national securities exchanges or Nasdaq Stock Market are open for
trading, the Company shall specify the trading day that will be deemed the first
or last day, as the case may be, of the Purchase Period.
6.3 GOVERNMENTAL APPROVAL; STOCKHOLDER APPROVAL. Notwithstanding any
other provision of the Plan to the contrary, any Purchase Right granted pursuant
to the Plan shall be subject to (a) obtaining all necessary governmental
approvals or qualifications of the sale or issuance of the Purchase Rights or
the shares of Stock and (b) obtaining stockholder approval of the Plan.
Notwithstanding the foregoing, stockholder approval shall not be necessary in
order to grant any Purchase Right granted in the Plan's Initial Offering Period;
provided, however, that
6.
<PAGE> 7
the exercise of any such Purchase Right shall be subject to obtaining
stockholder approval of the Plan.
7. PARTICIPATION IN THE PLAN.
7.1 INITIAL PARTICIPATION. An Eligible Employee may become a
Participant in an Offering Period by delivering a properly completed
Subscription Agreement to the office designated by the Company not later than
the close of business for such office on the Subscription Date established by
the Company for such Offering Period. An Eligible Employee who does not deliver
a properly completed Subscription Agreement to the Company's designated office
on or before the Subscription Date for an Offering Period shall not participate
in the Plan for that Offering Period or for any subsequent Offering Period
unless such Eligible Employee subsequently delivers a properly completed
Subscription Agreement to the appropriate office of the Company on or before the
Subscription Date for such subsequent Offering Period. An Employee who becomes
an Eligible Employee after the Offering Date of an Offering Period shall not be
eligible to participate in such Offering Period but may participate in any
subsequent Offering Period provided such Employee is still an Eligible Employee
as of the Offering Date of such subsequent Offering Period.
7.2 CONTINUED PARTICIPATION. A Participant shall automatically
participate in the next Offering Period commencing immediately after the final
Purchase Date of each Offering Period in which the Participant participates
provided that such Participant remains an Eligible Employee on the Offering Date
of the new Offering Period and has not either (a) withdrawn from the Plan
pursuant to Section 12.1 or (b) terminated employment as provided in Section 13.
A Participant who may automatically participate in a subsequent Offering Period,
as provided in this Section 7.2, is not required to deliver any additional
Subscription Agreement for the subsequent Offering Period in order to continue
participation in the Plan. However, a Participant may deliver a new Subscription
Agreement for a subsequent Offering Period in accordance with the procedures set
forth in Section 7.1 if the Participant desires to change any of the elections
contained in the Participant's then effective Subscription Agreement. Eligible
Employees may not participate simultaneously in more than one Offering.
8. RIGHT TO PURCHASE SHARES.
8.1 GRANT OF PURCHASE RIGHT. Except as set forth below, on the
Offering Date of each Offering Period, each Participant in such Offering Period
shall be granted automatically a Purchase Right consisting of an option to
purchase that number of whole shares of Stock determined by dividing Fifty
Thousand Dollars ($50,000) by the Fair Market Value of a share of Stock on such
Offering Date; provided, however, that such number shall not exceed five
thousand (5,000) shares. No Purchase Right shall be granted on an Offering Date
to any person who is not, on such Offering Date, an Eligible Employee. Shares of
Stock may only be purchased through a Participant's payroll deductions pursuant
to Section 10.
8.2 PRO RATA ADJUSTMENT OF PURCHASE RIGHT. Notwithstanding the
provisions of Section 8.1, if the Board establishes an Offering Period of less
than twenty-three and one-half (23 1/2) months in duration or more than
twenty-four and one-half (24 1/2) months in
7.
<PAGE> 8
duration, then (a) the dollar amount in Section 8.1 shall be determined by
multiplying $2,083.33 by the number of months in the Offering Period and
rounding to the nearest whole dollar, and (b) the share amount in Section 8.1
shall be determined by multiplying 208.33 shares by the number of months in the
Offering Period and rounding to the nearest whole share. For purposes of the
preceding sentence, fractional months shall be rounded to the nearest whole
month.
8.3 CALENDAR YEAR PURCHASE LIMITATION. Notwithstanding any provision
of the Plan to the contrary, no Purchase Right shall entitle a Participant to
purchase shares of Stock under the Plan at a rate which, when aggregated with
such Participant's rights to purchase shares under all other employee stock
purchase plans of a Participating Company intended to meet the requirements of
Section 423 of the Code, exceeds Twenty-Five Thousand Dollars ($25,000) in Fair
Market Value (or such other limit, if any, as may be imposed by the Code) for
each calendar year in which such Purchase Right has been outstanding at any
time. For purposes of the preceding sentence, the Fair Market Value of shares
purchased during a given Offering Period shall be determined as of the Offering
Date for such Offering Period. The limitation described in this Section 8.3
shall be applied in conformance with applicable regulations under Section
423(b)(8) of the Code.
9. PURCHASE PRICE. The Purchase Price at which each share of Stock may be
acquired in an Offering Period upon the exercise of all or any portion of a
Purchase Right granted with respect to such Offering Period shall be established
by the Board; provided, however, that the Purchase Price shall not be less than
eighty-five percent (85%) of the lesser of (a) the Fair Market Value of a share
of Stock on the Offering Date of the Offering Period or (b) the Fair Market
Value of a share of Stock on the Purchase Date. Unless otherwise provided by the
Board prior to the commencement of an Offering Period, the Purchase Price for
that Offering Period shall be eighty-five percent (85%) of the lesser of (a) the
Fair Market Value of a share of Stock on the Offering Date of the Offering
Period, or (b) the Fair Market Value of a share of Stock on the Purchase Date.
10. ACCUMULATION OF PURCHASE PRICE THROUGH PAYROLL DEDUCTION. Shares of
Stock which are acquired pursuant to the exercise of all or any portion of a
Purchase Right for an Offering Period may be paid for only by means of payroll
deductions from the Participant's Compensation accumulated during the Offering
Period.
10.1 AMOUNT OF PAYROLL DEDUCTIONS. Except as otherwise provided
herein, the amount to be deducted under the Plan from a Participant's
Compensation on each payday during an Offering Period shall be determined by the
Participant's Subscription Agreement. The Subscription Agreement shall set forth
the percentage or dollar amount of the Participant's Compensation to be deducted
on each payday during an Offering Period, which, except as a result of an
election pursuant to Section 10.3 to stop payroll deductions made effective
following the first payday during an Offering, shall be not less than one dollar
($1.00) or more than twenty percent (20%) of the Participant's Compensation
otherwise payable on such payday. Notwithstanding the foregoing, the Board may
change the limits on payroll deductions effective as of any future Offering
Date.
8.
<PAGE> 9
10.2 COMMENCEMENT OF PAYROLL DEDUCTIONS. Payroll deductions shall
commence on the first payday following the Offering Date and shall continue to
the end of the Offering Period unless sooner altered or terminated as provided
in the Plan.
10.3 ELECTION TO CHANGE OR STOP PAYROLL DEDUCTIONS. During an
Offering Period, a Participant may elect to increase or decrease the amount
deducted or to stop deductions from his or her Compensation by delivering to the
Company's designated office an amended Subscription Agreement authorizing such
change on or before the "Change Notice Date." The "CHANGE NOTICE DATE" shall
initially be the seventh (7th) day prior to the end of the first pay period for
which such election is to be effective; however, the Company may change such
Change Notice Date from time to time. A Participant who elects to decrease the
rate of his or her payroll deductions to zero percent (0%) shall nevertheless
remain a Participant in the current Offering Period unless such Participant
subsequently withdraws from the Offering or the Plan as provided in Sections
12.1 and 12.2, respectively, or is automatically withdrawn from the Offering as
provided in Section 12.3.
10.4 PARTICIPANT ACCOUNTS. Individual Plan bookkeeping accounts
shall be maintained for each Participant. All payroll deductions from a
Participant's Compensation shall be credited to such account and shall be
deposited with the general funds of the Company. All payroll deductions received
or held by the Company may be used by the Company for any corporate purpose.
10.5 NO INTEREST PAID. Interest shall not be paid on sums deducted
from a Participant's Compensation pursuant to the Plan.
11. PURCHASE OF SHARES.
11.1 EXERCISE OF PURCHASE RIGHT. On each Purchase Date of an
Offering Period, each Participant who has not withdrawn from the Offering or the
Plan or whose participation in the Offering has not terminated on or before such
Purchase Date shall automatically acquire pursuant to the exercise of the
Participant's Purchase Right the number of whole shares of Stock determined by
dividing (a) the total amount of the Participant's payroll deductions
accumulated in the Participant's Plan account during the Offering Period and not
previously applied toward the purchase of Stock by (b) the Purchase Price.
However, in no event shall the number of shares purchased by the Participant
during an Offering Period exceed the number of shares subject to the
Participant's Purchase Right. No shares of Stock shall be purchased on a
Purchase Date by a Participant whose participation in the Offering or the Plan
has terminated on or before such Purchase Date.
11.2 PRO RATA ALLOCATION OF SHARES. In the event the number of
shares of Stock which might be purchased by all Participants in the Plan on a
Purchase Date exceeds the number of shares of Stock available in the Plan as
provided in Section 4.1, the Company shall make a pro rata allocation of the
remaining shares in as uniform a manner as shall be practicable and as the
Company shall determine to be equitable. Any fractional share resulting from
such pro rata allocation to any Participant shall be disregarded.
9.
<PAGE> 10
11.3 DELIVERY OF CERTIFICATES. As soon as practicable after each
Purchase Date, the Company shall arrange the delivery to each Participant, as
appropriate, of a certificate representing the shares acquired by the
Participant on such Purchase Date; provided that the Company may deliver such
shares to a broker that holds such shares in street name for the benefit of the
Participant. Shares to be delivered to a Participant under the Plan shall be
registered in the name of the Participant, or, if requested by the Participant,
in the name of the Participant and his or her spouse, or, if applicable, in the
names of the heirs of the Participant.
11.4 RETURN OF CASH BALANCE. Any cash balance remaining in a
Participant's Plan account following any Purchase Date shall be refunded to the
Participant as soon as practicable after such Purchase Date. However, if the
cash to be returned to a Participant pursuant to the preceding sentence is an
amount less than the amount that would have been necessary to purchase an
additional whole share of Stock on such Purchase Date, the Company may retain
such amount in the Participant's Plan account to be applied toward the purchase
of shares of Stock in the subsequent Purchase Period or Offering Period, as the
case may be.
11.5 TAX WITHHOLDING. At the time a Participant's Purchase Right is
exercised, in whole or in part, or at the time a Participant disposes of some or
all of the shares of Stock he or she acquires under the Plan, the Participant
shall make adequate provision for the foreign, federal, state and local tax
withholding obligations of the Participating Company Group, if any, which arise
upon exercise of the Purchase Right or upon such disposition of shares,
respectively. The Participating Company Group may, but shall not be obligated
to, withhold from the Participant's compensation the amount necessary to meet
such withholding obligations.
11.6 EXPIRATION OF PURCHASE RIGHT. Any portion of a Participant's
Purchase Right remaining unexercised after the end of the Offering Period to
which such Purchase Right relates shall expire immediately upon the end of such
Offering Period.
11.7 REPORTS TO PARTICIPANTS. Each Participant who has exercised all
or part of his or her Purchase Right shall receive, as soon as practicable after
the Purchase Date, a report of such Participant's Plan account setting forth the
total payroll deductions accumulated prior to such exercise, the number of
shares of Stock purchased, the Purchase Price for such shares, the Fair Market
Value of such shares, the date of purchase and cash balance, if any, remaining
immediately after such purchase that is to be refunded or retained in the
Participant's Plan account pursuant to Section 11.4. The report required by this
Section may be delivered in such form and by such means, including by electronic
transmission, as the Company may determine. Each Participant shall be provided
information concerning the Company equivalent to that information generally made
available to the Company's common stockholders.
12. WITHDRAWAL FROM OFFERING OR PLAN.
12.1 WITHDRAWAL FROM AN OFFERING. A Participant may withdraw from an
Offering by signing and delivering to the Company's designated office a written
notice of withdrawal on a form provided by the Company for such purpose. Such
withdrawal may be elected at any time prior to the end of an Offering Period;
provided, however, if a Participant withdraws after the Purchase Date of a
Purchase Period during the Offering, the withdrawal shall
10.
<PAGE> 11
not affect shares of Stock acquired by the Participant on such Purchase Date.
Unless otherwise elected by the Participant, withdrawal from an Offering shall
not result in the Participant's withdrawal from the Plan or any succeeding
Offering therein. By withdrawing from an Offering effective as of the close of a
given Purchase Date, a Participant may have shares of Stock purchased on such
Purchase Date and immediately commence participation in the new Offering
commencing immediately after such Purchase Date. A Participant is prohibited
from again participating in an Offering at any time following withdrawal from
such Offering. The Company may impose, from time to time, a requirement that the
notice of withdrawal from the Offering be on file with the Company's designated
office for a reasonable period prior to the effectiveness of the Participant's
withdrawal from an Offering.
12.2 WITHDRAWAL FROM THE PLAN. A Participant may withdraw from the
Plan by signing and delivering to the Company's designated office a written
notice of withdrawal on a form provided by the Company for such purpose. Such
withdrawal may be elected at any time prior to the end of an Offering Period;
provided, however, if a Participant withdraws from the Plan after the Purchase
Date of a Purchase Period, the withdrawal shall not affect shares of Stock
acquired by the Participant on such Purchase Date. A Participant who voluntarily
elects to withdraw from the Plan is prohibited from resuming participation in
the Plan in the same Offering from which he or she withdrew, but may participate
in any subsequent Offering under the Plan by again satisfying the requirements
of Sections 5 and 7.1. The Company may impose, from time to time, a requirement
that the notice of withdrawal from the Plan be on file with the Company's
designated office for a reasonable period prior to the effectiveness of the
Participant's withdrawal from the Plan.
12.3 AUTOMATIC WITHDRAWAL FROM AN OFFERING. If the Fair Market Value
of a share of Stock on a Purchase Date other than the final Purchase Date of an
Offering is less than the Fair Market Value of a share of Stock on the Offering
Date of the Offering, then every Participant automatically shall be (a)
withdrawn from such Offering at the close of such Purchase Date and after the
acquisition of shares of Stock for the Purchase Period and (b) enrolled in the
Offering commencing on the first business day subsequent to such Purchase Date.
A Participant may elect not to be automatically withdrawn from an Offering
pursuant to this Section 12.3 by delivering to the Company's designated office
not later than the close of business on the Purchase Date a written notice
indicating such election.
12.4 RETURN OF PAYROLL DEDUCTIONS. Upon a Participant's voluntary
withdrawal from an Offering or the Plan pursuant to Sections 12.1 or 12.2,
respectively, or automatic withdrawal from an Offering pursuant to Section 12.3,
the Participant's accumulated payroll deductions which have not been applied
toward the purchase of shares of Stock (except, in the case of an automatic
withdrawal pursuant to Section 12.3, for an amount necessary to purchase an
additional whole share as provided in Section 11.4) shall be returned as soon as
practicable after the withdrawal, without the payment of any interest, to the
Participant, and the Participant's interest in the Offering or the Plan, as
applicable, shall terminate. Such accumulated payroll deductions may not be
applied to any other Offering under the Plan.
13. TERMINATION OF EMPLOYMENT OR ELIGIBILITY. Termination of a
Participant's employment with the Company for any reason, including retirement,
disability or death or the
11.
<PAGE> 12
failure of a Participant to remain an Eligible Employee, shall terminate the
Participant's participation in the Plan immediately. In such event, the payroll
deductions credited to the Participant's Plan account since the last Purchase
Date shall, as soon as practicable, be returned to the Participant or, in the
case of the Participant's death, to the Participant's legal representative, and
all of the Participant's rights under the Plan shall terminate. Interest shall
not be paid on sums returned to a Participant pursuant to this Section 13. A
Participant whose participation has been so terminated may again become eligible
to participate in the Plan by again satisfying the requirements of Sections 5
and 7.1.
14. TRANSFER OF CONTROL.
14.1 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 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.
(c) EFFECT OF TRANSFER OF CONTROL ON PURCHASE RIGHTS. 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 assume the Company's rights and obligations under
the Plan or substitute substantially equivalent Purchase Rights for stock of the
Acquiring Corporation. If the Acquiring Corporation elects not to assume or
substitute for the outstanding Purchase Rights, the Board may, in its sole
discretion and notwithstanding any other provision herein to the contrary,
adjust the Purchase Date of the then current Purchase Period to a date on or
before the date of the Transfer of Control, but shall not adjust the number of
shares of Stock subject to any Purchase Right. All Purchase Rights which are
neither assumed or substituted for by the Acquiring Corporation in connection
with the
12.
<PAGE> 13
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, if the corporation the stock
of which is subject to the outstanding Purchase Rights immediately prior to an
Ownership Change Event described in Section 15.1(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 Purchase Rights shall not terminate unless the
Board otherwise provides in its sole discretion.
15. NONTRANSFERABILITY OF PURCHASE RIGHTS. A Purchase Right may not be
transferred in any manner otherwise than by will or the laws of descent and
distribution and shall be exercisable during the lifetime of the Participant
only by the Participant. The Company, in its absolute discretion, may impose
such restrictions on the transferability of the shares purchasable upon the
exercise of a Purchase Right as it deems appropriate and any such restriction
shall be set forth in the respective Subscription Agreement and may be referred
to on the certificates evidencing such shares.
16. RESTRICTION ON ISSUANCE OF SHARES. The issuance of shares under the
Plan shall be subject to compliance with all applicable requirements of foreign,
federal or state law with respect to such securities. A Purchase Right may not
be exercised if the issuance of shares upon such exercise would constitute a
violation of any applicable foreign, federal or state securities laws or other
law or regulations. In addition, no Purchase Right may be exercised unless (a) a
registration statement under the Securities Act of 1933, as amended, shall at
the time of exercise of the Purchase Right be in effect with respect to the
shares issuable upon exercise of the Purchase Right, or (b) in the opinion of
legal counsel to the Company, the shares issuable upon exercise of the Purchase
Right may be issued in accordance with the terms of an applicable exemption from
the registration requirements of said Act. 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 under the Plan 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 a
Purchase Right, the Company may require the Participant 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.
17. RIGHTS AS A STOCKHOLDER AND EMPLOYEE. A Participant shall have no
rights as a stockholder by virtue of the Participant's participation in the Plan
until the date of the issuance of a stock certificate for the shares of Stock
being purchased pursuant to the exercise of the Participant's Purchase Right. No
adjustment shall be made for cash dividends or distributions or other rights for
which the record date is prior to the date such stock certificate is issued.
Nothing herein shall confer upon a Participant any right to continue in the
employ of the
13.
<PAGE> 14
Participating Company Group or interfere in any way with any right of the
Participating Company Group to terminate the Participant's employment at any
time.
18. LEGENDS. The Company may at any time place legends or other
identifying symbols referencing any applicable foreign, federal or state
securities law restrictions or any provision convenient in the administration of
the Plan on some or all of the certificates representing shares of Stock issued
under the Plan. The Participant shall, at the request of the Company, promptly
present to the Company any and all certificates representing shares acquired
pursuant to a Purchase Right in the possession of the Participant 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 EVIDENCED BY THIS CERTIFICATE WERE ISSUED BY THE CORPORATION
TO THE REGISTERED HOLDER UPON THE PURCHASE OF SHARES UNDER AN EMPLOYEE STOCK
PURCHASE PLAN AS DEFINED IN SECTION 423 OF THE INTERNAL REVENUE CODE OF 1986, AS
AMENDED. THE TRANSFER AGENT FOR THE SHARES EVIDENCED HEREBY SHALL NOTIFY THE
CORPORATION IMMEDIATELY OF ANY TRANSFER OF THE SHARES BY THE REGISTERED HOLDER
HEREOF MADE ON OR BEFORE _______, ____, THE REGISTERED HOLDER SHALL HOLD ALL
SHARES PURCHASED UNDER THE PLAN IN THE REGISTERED HOLDER'S NAME (AND NOT IN THE
NAME OF ANY NOMINEE) PRIOR TO THIS DATE."
19. NOTIFICATION OF SALE OF SHARES. The Company may require the
Participant to give the Company prompt notice of any disposition of shares
acquired by exercise of a Purchase Right within two years from the date of
granting such Purchase Right or one year from the date of exercise of such
Purchase Right. The Company may require that until such time as a Participant
disposes of shares acquired upon exercise of a Purchase Right, the Participant
shall hold all such shares in the Participant's name (and not in the name of any
nominee) until the lapse of the time periods with respect to such Purchase Right
referred to in the preceding sentence. The Company may direct that the
certificates evidencing shares acquired by exercise of a Purchase Right refer to
such requirement to give prompt notice of disposition.
20. NOTICES. All notices or other communications by a Participant to the
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
21. 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 or the
Company 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
14.
<PAGE> 15
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.
22. AMENDMENT OR TERMINATION OF THE PLAN. The Board may at any time amend
or terminate the Plan, except that (a) such termination shall not affect
Purchase Rights previously granted under the Plan, except as permitted under the
Plan, and (b) no amendment may adversely affect a Purchase Right previously
granted under the Plan (except to the extent permitted by the Plan or as may be
necessary to qualify the Plan as an employee stock purchase plan pursuant to
Section 423 of the Code or to obtain qualification or registration of the shares
of Stock under applicable foreign, federal or state securities laws). In
addition, an amendment to the Plan must be approved by the stockholders of the
Company within twelve (12) months of the adoption of such amendment if such
amendment would authorize the sale of more shares than are authorized for
issuance under the Plan or would change the definition of the corporations that
may be designated by the Board as Participating Companies.
23. CONTINUATION OF INITIAL PLAN AS TO OUTSTANDING PURCHASE RIGHTS. Any
other provision of the Plan to the contrary notwithstanding, the terms of the
Plan as in effect prior to its amendment on September 25,1997 shall remain in
effect and apply to all Purchase Rights granted pursuant to the Plan prior to
such amendment.
15.
<PAGE> 16
IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies that the
foregoing sets forth the Verity, Inc. 1995 Employee Stock Purchase Plan as duly
adopted by the Board on June 15, 1995 and amended through September 21, 1999.
---------------------------------
Secretary
-----------------------------------
16.
<PAGE> 1
Exhibit 99.2
VERITY, INC.
1995 STOCK OPTION PLAN
(AS AMENDED THROUGH SEPTEMBER 21, 1999)
1. ESTABLISHMENT, PURPOSE AND TERM OF PLAN.
1.1 ESTABLISHMENT. The Verity, Inc. 1988 Stock Option Plan was
initially established effective as of August 31, 1988 (the "INITIAL PLAN"). The
Initial Plan is hereby amended and restated in its entirety as the Verity, Inc.
1995 Stock Option Plan (the "PLAN") effective immediately prior to the effective
date of the initial registration by the Company of its Stock under Section 12 of
the Exchange Act (the "EFFECTIVE DATE").
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 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 Incentive
Stock Options shall be granted, if at all, within ten (10) years from July 19,
1996. Notwithstanding the foregoing, if the maximum number of shares of Stock
issuable pursuant to the Plan as provided in Section 4.1 has been increased at
any time, all Incentive Stock Options shall be granted, if at all, no later than
the last day preceding the tenth (10th) anniversary of the earlier of (a) the
date on which the latest such increase in the maximum number of shares of Stock
issuable under the Plan was approved by the stockholders of the Company or (b)
the date such amendment was adopted by the Board.
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
<PAGE> 2
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.
(d) "COMPANY" means Verity, Inc., a Delaware 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) "EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended.
(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.
(j) "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.
(k) "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.
<PAGE> 3
(l) "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.
(m) "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.
(n) "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.
(o) "OPTION RESERVE INCREASE" means the increase of four
hundred thousand (400,000) shares of Stock issuable under the Plan which was
approved by the Board on July 19, 1996.
(p) "OPTIONEE" means a person who has been granted one or more
Options.
(q) "PARENT CORPORATION" means any present or future "parent
corporation" of the Company, as defined in Section 424(e) of the Code.
(r) "PARTICIPATING COMPANY" means the Company or any Parent
Corporation or Subsidiary Corporation.
(s) "PARTICIPATING COMPANY GROUP" means, at any point in time,
all corporations collectively which are then Participating Companies.
(t) "RULE 16B-3" means Rule 16b-3 under the Exchange Act, as
amended from time to time, or any successor rule or regulation.
(u) "SECTION 162(m)" means Section 162(m) of the Code, as
amended by the Revenue Reconciliation Act of 1993 (P.L. 103-66).
(v) "STOCK" means the common stock, $0.001 par value, of the
Company, as adjusted from time to time in accordance with Section 4.2.
(w) "SUBSIDIARY CORPORATION" means any present or future
"subsidiary corporation" of the Company, as defined in Section 424(f) of the
Code.
<PAGE> 4
(x) "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;
(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
<PAGE> 5
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;
provided, however, that without the approval of the Company's stockholders, the
Board may not amend an Option granted from the Option Reserve Increase to
decrease the exercise price thereof, or grant a new Option in substitution
therefor;
(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.
3.3 COMMITTEE COMPLYING WITH SECTION 162(m). If a Participating
Company is a "publicly held corporation" within the meaning of Section 162(m),
the Board may establish a Committee of "outside directors" within the meaning of
Section 162(m) to approve the grant of any Option which might reasonably be
anticipated to result in the payment of employee remuneration that would
otherwise exceed the limit on employee remuneration deductible for income tax
purposes pursuant to Section 162(m).
<PAGE> 6
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 five million sixty thousand eight hundred
thirty-six (5,060,836) 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, the Option Reserve Increase and to any outstanding Options,
in the Section 162(m) Grant Limit set forth in Section 5.5, 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.
<PAGE> 7
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 DIRECTORS SERVING ON COMMITTEE. At any time that any class of
equity security of the Company is registered pursuant to Section 12 of the
Exchange Act, no member of a Committee established to administer the Plan in
compliance with the "disinterested administration" requirements of Rule 16b-3,
while a member, shall be eligible to be granted an Option.
5.3 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.
5.4 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 (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 5.4, 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 5.4, 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 5.4, 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
<PAGE> 8
of the Option first.
5.5 SECTION 162(m) GRANT LIMIT. Subject to adjustment as provided in
Section 4.2, at any such time as a Participating Company is a "publicly held
corporation" within the meaning of Section 162(m), no Employee shall be granted
one or more Options within any fiscal year of the Company which in the aggregate
are for the purchase of more than five hundred thousand (500,000) shares (the
"SECTION 162(m) GRANT LIMIT").
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 (a) 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, and (b)
no Incentive Stock 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 Incentive Stock 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, (c) 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, and (d) no Option granted
from the Option Reserve Increase shall be exercisable after the expiration of
eight (8) years after the effective date of grant of such Option.
<PAGE> 9
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
<PAGE> 10
provided by 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.
<PAGE> 11
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 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, (a) any Incentive Stock
Option granted hereunder (except for Incentive Stock Options granted from the
Option Reserve Increase) shall have a term of ten (10) years from the effective
date of grant of the Option, and (b) any Incentive Stock Option granted from the
Option Reserve Increase shall have a term of eight (8) 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 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.
<PAGE> 12
(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 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
<PAGE> 13
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 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, subject to changes in the law or other legal
requirements that would permit otherwise, without the approval of the Company's
stockholders, 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.
13. CONTINUATION OF INITIAL PLAN AS TO OUTSTANDING OPTIONS. Any other
provision of the Plan to the contrary notwithstanding, the terms of the Initial
Plan shall remain in effect and apply to all Options granted pursuant to the
Initial Plan.
<PAGE> 14
IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies
that the foregoing is the Verity, Inc. 1995 Stock Option Plan, as amended
through September 21, 1999.
--------------------------------------
Secretary
--------------------------------------
<PAGE> 1
Exhibit 99.3
VERITY, INC.
1995 OUTSIDE DIRECTORS STOCK OPTION PLAN
(AS AMENDED THROUGH SEPTEMBER 21, 1999)
1. ESTABLISHMENT, PURPOSE AND TERM OF PLAN.
1.1 ESTABLISHMENT. The Verity, Inc. 1995 Outside Directors Stock
Option Plan (the "PLAN") is hereby established effective as of the effective
date of the initial registration by the Company of its Stock under Section 12 of
the Exchange Act (the "EFFECTIVE DATE").
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 and retain highly qualified persons to serve as Outside Directors of
the Company and by creating additional incentive for Outside Directors to
promote 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, and any applicable regulations promulgated thereunder.
(c) "COMMITTEE" means a 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 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.
1.
<PAGE> 2
(f) "DIRECTOR" means a member of the Board or 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) "EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended.
(i) "FAIR MARKET VALUE" means, as of any date, if there is
then a public market for the Stock, the closing price of the Stock (or the mean
of the closing bid and asked prices of the Stock if the Stock is so reported
instead) as reported on the National Association of Securities Dealers Automated
Quotation ("NASDAQ") System, the NASDAQ National Market System or such other
national or regional securities exchange or market system constituting the
primary market for the Stock. If the relevant date does not fall on a day on
which the Stock is trading on NASDAQ, the NASDAQ National Market System or other
national or regional 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. If there is then no public market for
the Stock, the Fair Market Value on any relevant date shall be as determined by
the Board without regard to any restriction other than a restriction which, by
its terms, will never lapse.
(j) "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.
(k) "OPTIONEE" means a person who has been granted one or more
Options.
(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.
(m) "OUTSIDE DIRECTOR" means a Director of the Company who is
not an Employee.
(n) "PARENT CORPORATION" means any present or future "parent
corporation" of the Company, as defined in Section 424(e) of the Code.
(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.
2.
<PAGE> 3
(q) "RULE 16B-3" means Rule 16b-3 as promulgated under the
Exchange Act, as amended from time to time, or any successor rule or regulation.
(r) "SERVICE" means the Optionee's 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.
(s) "STOCK" means the common stock, par value $0.001, of the
Company, as adjusted from time to time in accordance with Section 4.2.
(t) "SUBSIDIARY CORPORATION" means any present or future
"subsidiary corporation" of the Company, as defined in Section 424(f) of the
Code.
(u) 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
use of 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 LIMITATIONS ON AUTHORITY OF THE BOARD. Notwithstanding any other
provision herein to the contrary, the Board shall have no authority, discretion,
or power to select the Outside Directors who will receive Options, to set the
exercise price of the Options, to determine the number of shares of Stock to be
subject to an Option or the time at which an Option shall be granted, to
establish the duration of an Option, or to alter any other terms or conditions
specified in the Plan, except in the sense of administering the Plan subject to
the provisions of the Plan.
4. SHARES SUBJECT TO PLAN.
3.
<PAGE> 4
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 five hundred thousand (500,000) and shall
consist of authorized but unissued shares 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, to the "Initial Option" and "Anniversary Option" (as
defined in Section 6.1), and to any outstanding Options, and in the exercise
price 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 a Transfer
of Control 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 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 down to the nearest whole number, 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.
5. ELIGIBILITY AND TYPE OF OPTIONS.
5.1 PERSONS ELIGIBLE FOR OPTIONS. An Option shall be granted only to
a person who, at the time of grant, is an Outside Director.
5.2 OPTIONS AUTHORIZED. Options shall be nonstatutory stock options;
that is, options which are not treated as incentive stock options within the
meaning of Section 422(b) of the Code.
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 AUTOMATIC GRANT OF OPTIONS. Subject to execution by an Outside
Director of the appropriate Option Agreement, Options shall be granted
automatically and without further action of the Board, as follows:
4.
<PAGE> 5
(a) INITIAL OPTION. Each Outside Director first elected or
appointed to the Board on or after the Effective Date shall be granted an Option
to purchase twenty thousand (20,000) shares of Stock on the date of such initial
election or appointment (an "INITIAL OPTION"). Notwithstanding anything herein
to the contrary, a Director of the Company who previously did not qualify as an
Outside Director shall not receive an Initial Option in the event that such
Director subsequently becomes an Outside Director.
(b) ANNUAL OPTION. Each Outside Director (including any
Outside Director first elected or appointed to the Board prior to the Effective
Date or any Director of the Company who previously did not qualify as an Outside
Director but who subsequently becomes an Outside Director) shall be granted, on
the date of each annual meeting of the stockholders of the Company (an "ANNUAL
MEETING") following which such person remains an Outside Director, an Option to
purchase twenty thousand (20,000) shares of Stock (an "ANNUAL OPTION").
Notwithstanding the foregoing, an Outside Director who has not served
continuously as Director of the Company for more than six (6) months prior to
the date of an Annual Meeting shall not receive an Annual Option at such Annual
Meeting.
(c) RIGHT TO DECLINE OPTION. Notwithstanding the foregoing,
any person may elect not to receive an Option by delivering written notice of
such election to the Board no later than the day prior to the date such Option
would otherwise be granted. A person so declining an Option shall receive no
payment or other consideration in lieu of such declined Option. A person who has
declined an Option may revoke such election by delivering written notice of such
revocation to the Board no later than the day prior to the date such Option
would be granted pursuant to Section 6.1(a) or (b), as the case may be.
6.2 EXERCISE PRICE. The exercise price per share of Stock subject to
an Option shall be the Fair Market Value of a share of Stock on the date the
Option is granted.
6.3 EXERCISE PERIOD. Each Option shall terminate and cease to be
exercisable on the date ten (10) years after the date of grant of the Option
unless earlier terminated pursuant to the terms of the Plan or the Option
Agreement.
6.4 RIGHT TO EXERCISE OPTIONS.
(a) INITIAL OPTION. Except as otherwise provided in the Plan
or in the Option Agreement, an Initial Option shall (i) first become exercisable
on the date which is one (1) year after the date on which the Initial Option was
granted (the "INITIAL OPTION VESTING DATE"); and (ii) be exercisable on and
after the Initial Option Vesting Date and prior to the termination thereof in an
amount equal to the number of shares of Stock initially subject to the Initial
Option multiplied by the Vested Ratio as set forth below, less the number of
shares previously acquired upon exercise thereof. The Vested Ratio described in
the preceding sentence shall be determined as follows:
<TABLE>
<S> <C>
Vested Ratio
Prior to Initial Option Vesting Date 0
</TABLE>
5.
<PAGE> 6
<TABLE>
<S> <C>
On Initial Option Vesting Date, 1/4
provided the Optionee's Service
is continuous from the date of grant
of the Initial Option until the
Initial Option Vesting Date
Plus
For each full month of 1/48
of the Optionee's continuous
Service from the Initial
Option Vesting Date until the
Vested Ratio equals 1/1, an
additional
</TABLE>
6.5 ANNUAL OPTION. Except as otherwise provided in the Plan or in
the Option Agreement, an Annual Option shall (i) first become exercisable on the
date which is thirty-seven (37) months after the date on which the Annual Option
was granted (the "ANNUAL OPTION VESTING DATE"); and (ii) be exercisable on and
after the Annual Option Vesting Date and prior to the termination thereof in an
amount equal to the number of shares of Stock initially subject to the Annual
Option multiplied by the Vested Ratio as set forth below, less the number of
shares previously acquired upon exercise thereof. The Vested Ratio described in
the preceding sentence shall be determined as follows:
<TABLE>
<S> <C>
Vested Ratio
Prior to Annual 0
Option Vesting Date
On Annual Option Vesting Date, 1/12
provided the Optionee's Service
is continuous from the date of grant
of the Annual Option until the
Annual Option Vesting Date
Plus
For each full month of 1/12
of the Optionee's continuous
Service from the Annual Option
Vesting Date until the Vested
Ratio equals 1/1, an
additional
</TABLE>
6.6 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
6.
<PAGE> 7
the Company of shares of Stock owned by the Optionee having a Fair Market Value
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"), or (iv) by any combination thereof.
(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.
6.7 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 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 exercise thereof. Alternatively or in addition, in its sole discretion, the
Company shall have the right to require the Optionee 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 exercise
thereof. The Company shall have no obligation to deliver shares of Stock until
the Participating Company Group's tax withholding obligations have been
satisfied.
7. STANDARD FORM OF OPTION AGREEMENT.
7.1 INITIAL OPTION. Unless otherwise provided for by the Board at
the time an Initial Option is granted, each Initial Option shall comply with and
be subject to the terms and conditions set forth in the form of Nonstatutory
Stock Option Agreement for Outside Directors (Initial Option) adopted by the
Board concurrently with its adoption of the Plan and as amended from time to
time.
7.2 ANNUAL OPTION. Unless otherwise provided for by the Board at the
time an Annual Option is granted, each Annual Option shall comply with and be
subject to the terms and conditions set forth in the form of Nonstatutory Stock
Option Agreement for Outside Directors (Annual Option) adopted by the Board
concurrently with its adoption of the Plan and as amended from time to time.
7.
<PAGE> 8
7.3 AUTHORITY TO VARY TERMS. Subject to the limitations set forth in
Section 3.2, 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 immediately exercisable subject to the
Company's right to repurchase any unvested shares of Stock acquired by the
Optionee upon the exercise of an Option in the event such Optionee's Service is
terminated for any reason. In no event, however, shall the Board be permitted to
vary the terms of any standard form of Option Agreement if such change would
cause the Plan to cease to qualify as a formula plan pursuant to Rule 16b-3 at
any such time as any class of equity security of the Company is registered
pursuant to Section 12 of the Exchange Act.
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
8.
<PAGE> 9
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, any unexercisable or unvested portion of the outstanding
Options shall be immediately exercisable and vested in full as of the date ten
(10) days prior to the date of the Transfer of Control. The exercise or vesting
of any Option that was permissible solely by reason of this Section 8.2 shall be
conditioned upon the consummation of the Transfer of Control. In addition, 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.
9. 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.
10. 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
9.
<PAGE> 10
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.
11. 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
stockholders, there shall be (a) no increase in the total number of shares of
Stock that may be issued under the Plan (except by operation of the provisions
of Section 4.2), and (b) no expansion in the class of persons eligible to
receive Options. Furthermore, to the extent required by Rule 16b-3, provisions
of the Plan addressing eligibility to participate in the Plan and the amount,
price and timing of Options shall not be amended more than once every six (6)
months, other than to comport with changes in the Code, the Employee Retirement
Income Security Act of 1974, as amended, or the rules thereunder. 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 necessary to comply with
any applicable law or government regulation.
-------------------------------------------
IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies
that the foregoing sets forth the Verity, Inc. 1995 Outside Directors Stock
Option Plan as duly adopted by the Board on June 15, 1995 and amended through
September 21, 1999.
-------------------------------------------
Secretary
10.
<PAGE> 1
EXHIBIT 99.4
THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS COVERING
SECURITIES THAT HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED.
VERITY, INC.
1996 Nonstatutory Stock Option Plan
This memorandum contains information regarding the Verity, Inc. 1996
Nonstatutory Stock Option Plan (the "Plan"), under which any combination of the
authorized but unissued or reacquired shares of common stock, par value $0.001,
of Verity, Inc. ("shares") are issuable to eligible persons providing services
to Verity, Inc., a Delaware corporation, and any successor corporation thereto
(collectively the "Company"), and any parent or subsidiary corporations of the
Company (individually, a "participating company"; collectively, the
"participating company group").
As used herein, "option" means a right to purchase shares (subject to
capital changes) under the Plan; "option agreement" means a written agreement
between the Company and an optionee setting forth the terms, conditions and
restrictions of the option; "optionee" means a person granted one or more
options; "Board" means the Board of Directors of the Company; "Code" means the
Internal Revenue Code of 1986, as amended, and any applicable regulations
promulgated thereunder; "insider" means an officer or a director of the Company
or any other person whose transactions in the shares are subject to Section 16
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"); and
"Rule 16b-3" means Rule 16b-3 under the Exchange Act, as amended from time to
time, or any successor rule or regulation.
The Company will provide without charge to each person to whom a copy of
this memorandum is delivered, upon written or oral request, copies of the
documents that have been incorporated by reference in the Company's Registration
Statement by which the securities described in this memorandum are registered
(not including exhibits to the documents that are incorporated by reference
unless such exhibits are specifically incorporated by reference into the
documents that the Registration Statement incorporates). This information is
also incorporated by reference in this memorandum. The Company also will provide
without charge to each person to whom a copy of this memorandum is delivered,
upon written or oral request, an additional copy of this memorandum, a copy of
the Company's annual report to stockholders for its latest fiscal year and a
copy of all reports, proxy statements and other communications distributed to
its stockholders for its latest fiscal year and a copy of all reports, proxy
statements and other communications distributed to its stockholders generally.
Such requests should be directed to the Stock Plan Administrator, Verity, Inc.,
894 Ross Drive, Sunnyvale, CA 94089, 408/541-1500.
The date of this document is August 11, 1998
<PAGE> 2
A. GENERAL PLAN INFORMATION.
The Plan's purpose is to provide, through the grant of
nonstatutory options (which are not intended to be incentive stock options
within the meaning of Section 422(b) of the Code), an incentive to attract,
retain and reward persons performing services for the participating company
group and to motivate such persons to contribute to its growth and
profitability. The Board adopted the Plan on February 6, 1996. No stockholder
approval is required. The Plan will continue in effect until the earlier of its
termination by the Board or the date all shares available for issuance under the
Plan have been issued and all restrictions on such shares have lapsed.
Should any inconsistency exist between the following description and the
actual terms of the Plan or the optionee's agreement, the terms of the Plan or
the optionee's agreement control.
B. PLAN ADMINISTRATION.
(1) General. The Plan is administered by the Board,
including any duly appointed committee of the Board. All questions of
interpretation of the Plan or of any option are determined by the Board, and
such determinations are final and binding. Communications to the Board may be
addressed to the Company's principal executive offices at 894 Ross Drive,
Sunnyvale, CA 94089, 408/541-1500.
(2) Composition of Board. Directors are elected for
three-year terms. The directors are divided into three classes, with one class
elected at each annual meeting of stockholders. All directors will hold office
until the expiration of the term for which elected and until their successors
are elected and qualified or until their earlier death, resignation or removal
from office. The entire Board or any individual director may be removed from
office, prior to the expiration of a Board member's term of office, only in the
manner and within the limitations provided by the Bylaws of the Company and the
law of Delaware.
(3) Powers of the Board. In addition to any other powers in
the Plan and subject to the provisions of the Plan, the Board (a) determines the
persons to whom, and the time or times at which, options will be granted and the
number of shares subject to each option; (b) determines the fair market value of
shares or other property; (c) determines the terms, conditions and restrictions
consistent with the terms of the Plan applicable to each option (which need not
be identical) and any acquired shares; (d) may approve one or more forms of
option agreement; (e) may amend, modify, extend, or renew, or grant a new option
in substitution for, any option or waive any restrictions or conditions
applicable to any option or any acquired shares; (f) may 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) may prescribe, amend or rescind rules,
guidelines and policies relating to the Plan, or adopt supplements to, or
alternative versions of, the Plan; and (h) may correct any defect, supply any
omission or reconcile any inconsistency in the Plan or any option agreement and
make all other determinations and take such other actions with respect to the
Plan or any option to the extent consistent with the Plan and applicable law.
(4) Share Reserve and Capital Changes. A maximum aggregate
of 4,210,000 shares may be issued under the Plan. If there is a stock dividend,
stock split, reverse stock split, recapitalization,
<PAGE> 3
combination, reclassification or similar change in the capital structure of the
Company, appropriate adjustments will be made in the number and class of shares
subject to the Plan and to any outstanding options, as well as in the exercise
price per share of any outstanding options.
C. ELIGIBILITY.
One or more options may be granted to employees and consultants
(but not to insiders) of the participating company group. Options also may be
granted to prospective employees and consultants in connection with written
offers of employment or engagement.
D. GRANT OF OPTION.
Options are evidenced by option agreements specifying the number
of shares covered in a form established by the Board, subject to the following
terms and conditions:
(1) Exercise Price. The exercise price per share may not be
less than 85% of the fair market value of a share on the option grant date, as
determined by the Board (generally the closing price of the common stock of the
Company on the Nasdaq National Market).
(2) Right to Exercise. Generally, an option may be exercised
at any time after its grant and prior to its termination, subject to the
Company's right to repurchase any unvested shares held by the optionee at the
time of the optionee's termination of service or if the optionee attempts to
dispose of unvested shares. (An option granted to a prospective employee or
consultant cannot be exercised before the optionee commences service with a
participating company.) However, the option may not be exercised more frequently
than twice in any continuous 12 month period, although this restriction will not
prevent an exercise (a) following the optionee's termination of service or (b)
during the 30 day periods immediately preceding and following an "ownership
change event" described below. To ensure that unvested shares or shares securing
any promissory note will be available for repurchase, the Company may require
the optionee to deposit the certificate evidencing the shares with an agent
designated by the Company under the terms and conditions of escrow and security
agreements approved by the Company.
(3) Vesting Schedule. The vesting schedules of option
agreements need not be identical. However, provided the optionee has
continuously rendered service to the participating company group, the normal
vesting schedule is as follows:
<TABLE>
<CAPTION>
Vested Shares
-------------
<S> <C>
6 months after grant of the option................12.50%
Plus, for each full month thereafter
of optionee's continuous service.................. 2.08%
</TABLE>
(4) Tax Withholding. The Company may deduct from the shares
issuable upon the exercise of an option, or accept from the optionee the tender
of, a number of whole shares having a fair market value equal to all or any part
of any taxes required to be withheld by the participating company
<PAGE> 4
group. Alternatively or in addition, the Company may require the optionee to
make adequate provision for such tax withholding obligations. The Company is not
obliged to deliver shares or to release shares from any escrow until such tax
withholding obligations have been satisfied.
(5) Term of Option. An option terminates and may not be
exercised after the earlier of (a) the option expiration date stated in an
optionee's agreement (generally 10 years), (b) as to unvested shares,
immediately upon the optionee's termination of service for any reason, (c) as to
vested shares, six months after the optionee's termination of service due to
death or disability or one month after the optionee's termination of service for
any other reason, or (d) a "transfer of control" as described below unless the
option is assumed or substituted for by the acquiring corporation.
(6) Leave of Absence. The optionee's service with the
participating company group will 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 90 days or less. If a leave of absence in excess of
90 days, the optionee's service will terminate on the 91st day of such leave
unless the optionee's right to reemployment with the participating company group
remains guaranteed by statute or contract. Unless otherwise designated by the
Company (or required by law), a leave of absence will not be treated as service
for vesting purposes.
(7) Extension of Option Term. If exercise is prevented
because the issuance of shares would violate any law or regulation, the option
is exercisable until the earlier of the option's expiration date or three months
after the optionee is notified by the Company that the option is again
exercisable. If a sale of shares during the time limits for exercise following
termination of service would subject the optionee to suit under Section 16(b) of
the Exchange Act ("Section 16(b)"), the option will remain exercisable until the
earlier of the option's expiration date, 10 days after the optionee is no longer
subject to such suit, or 190 days after the optionee's termination of service.
(8) Rights as a Stockholder, Employee or Consultant. An
optionee will have no rights as a stockholder with respect to any shares until
issued a share certificate. No adjustment will be made for dividends,
distributions, or other rights if the record date is prior to the date a
certificate is issued (except for capital changes described above). Nothing in
the Plan or an option gives an optionee any right to continue in the service of
a participating company or interferes with any right of the participating
company to terminate the optionee's service.
(9) Repurchase Rights. The shares may be subject to a right
of first refusal, one or more repurchase options, or other conditions and
restrictions determined by the Board at the time the option is granted. The
Company may assign any repurchase right it may have, whether or not such right
is then exercisable, to one or more persons selected by the Company. Upon
request by the Company, each optionee must execute an agreement evidencing such
transfer restrictions before receiving shares and must promptly present to the
Company share certificates to have appropriate legends evidencing such transfer
restrictions placed thereon.
<PAGE> 5
(10) Standard Form of Option Agreement. Unless otherwise
provided by the Board when the option is granted, an option must comply with and
be subject to the terms and conditions set forth in the form of Immediately
Exercisable Nonstatutory Stock Option Agreement adopted by the Board. The Board
may vary the terms of any standard form of option agreement either in connection
with the grant or amendment of an individual option or in connection with the
authorization of a new standard form and may grant options which are not
immediately exercisable.
E. OPTION EXERCISE AND PAYMENT FOR SHARES.
(1) Method of Exercise. Options are exercised by written
notice to the Company stating the election to exercise the option, the number of
whole shares for which the option is being exercised and such other
representations and agreements as to the optionee's investment intent required
by the option agreement. The written notice must be signed by the optionee and
delivered in person, by certified or registered mail, return receipt requested,
by confirmed facsimile transmission, or by such other means as the Company
permits, to the Stock Plan Administrator of the Company, or other authorized
representative of the participating company group, before the option terminates,
accompanied by full payment of the aggregate exercise price for the number of
shares being purchased and an executed copy, if required by the option
agreement, of the then current forms of escrow and security agreement.
(2) Payment. Generally the exercise price for the shares
being purchased may be paid by any combination of (1) cash, check, or cash
equivalent, (2) tender to the Company of shares owned by the optionee having a
fair market value not less than the exercise price, (3) 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 (a "cashless exercise"), or (4) payment
in cash of an amount not less than the par value of the shares being acquired
and the optionee's promissory note for the balance of the exercise price if
approved by the Company. The Board may grant options which do not permit all of
these forms of consideration, which restrict one or more such forms of
consideration, or which authorize other forms of lawful consideration.
(3) Limitations on Forms of Consideration. The forms of
consideration listed above are subject to several limitations, including the
following: (1) An option may not be exercised by tender to the Company of shares
to the extent such tender of shares would constitute a violation of the
provisions of any law, regulation or agreement restricting the redemption of the
Company's stock; (2) unless otherwise provided by the Board, an option may not
be exercised by tender to the Company of shares unless such shares either have
been owned by the optionee for more than six months or were not acquired,
directly or indirectly, from the Company; (3) the Company reserves the right to
establish, decline to approve or terminate any program or procedures for the
exercise of options by means of a cashless exercise; and (4) no payment in part
with a promissory note will be permitted if the exercise of an option using a
promissory note would be a violation of any law.
(4) Certificate Registration and Fractional Shares. Unless
the exercise price is paid by means of a cashless exercise, the certificate for
the shares acquired will be registered in the name of
<PAGE> 6
the optionee, or, if applicable, in the names of the heirs of the optionee. The
Company is not required to issue fractional shares.
(5) Restrictions on Grant of the Option and Issuance of
Shares. The grant of the option and the issuance of shares are subject to
compliance with all applicable requirements of law. The option may not be
exercised if the issuance of such shares would violate any applicable securities
laws or other law or regulations or the requirements of any stock exchange or
market system upon which the shares are then listed. In addition, the option may
not be exercised unless a registration statement under the Securities Act is
then in effect with respect to the shares to be acquired or, in the opinion of
legal counsel to the Company, the such shares may be issued in accordance with
the terms of an applicable exemption from the registration requirements of the
Securities Act.
F. NONTRANSFERABILITY.
Only the optionee (or the optionee's guardian or legal
representative) may exercise an option during the optionee's lifetime. The
option is not assignable or transferable except by will or by the laws of
descent and distribution.
G. TRANSFER OF CONTROL.
If a "transfer of control" of the Company occurs, 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. Generally any options which are not assumed, substituted
for or exercised will terminate as of the date of the transfer of control.
A "transfer of control" means an "ownership change event" (as
defined below) 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 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, as the case may be. An "ownership change event" is
deemed to have occurred if any of the following occurs with respect to the
Company: (1) the direct or indirect sale or exchange in a single or series of
related transactions by the stockholders of the Company of more than 50% of the
voting stock of the Company; (2) a merger or consolidation in which the Company
is a party; (3) the sale, exchange, or transfer of all or substantially all of
the assets of the Company; or (4) a liquidation or dissolution of the Company.
H. AMENDMENT OR TERMINATION OF THE PLAN.
The Board may terminate or amend the Plan at any time but may
not adversely affect any then outstanding option or any unexercised portion
thereof, without the consent of the optionee, unless the termination or
amendment is necessary to comply with an applicable law or government
regulation.
<PAGE> 7
I. ERISA AND INTERNAL REVENUE CODE SECTION 401.
The Plan is not subject to the provisions of the Employee
Retirement Income Security Act of 1974, as amended, and is not qualified under
Section 401(a) of the Code.
J. FEDERAL INCOME TAX INFORMATION.
The tax consequences arising in connection with options are
complex and subject to change. The following summary is only a general guide to
the current United States federal income tax consequences of options granted
under the Plan and does not describe all such possible tax consequences. In
addition, an optionee's particular situation may be such that some variation of
the general rules is applicable. For example, the following summary does not
describe the tax consequences of certain transactions, such as if shares of
common stock of the Company are used to exercise an option, if shares acquired
by exercise of an option are sold to certain related parties, or if the optionee
acquires substantially identical shares within the 30-day period before or after
a sale of shares acquired upon exercise of an option. OPTIONEES SHOULD CONSULT
THEIR OWN TAX ADVISORS PRIOR TO THE EXERCISE OF ANY OPTION AND PRIOR TO THE
DISPOSITION OF ANY SHARES ACQUIRED UNDER THE PLAN.
(1) Tax Consequences to Optionees. An optionee does not
realize taxable income when an option is granted. Upon the exercise of an
option, the optionee recognizes ordinary income on the "determination date"
(defined below) equal to the excess of the fair market value of the shares
acquired on the determination date over the price paid to acquire such shares.
Such income generally is subject to withholding of taxes. In general, upon the
disposition of the shares, any gain or loss, based on the difference between the
amount realized and the fair market value of the shares on the determination
date, will be capital gain or loss and taxed at a rate determined by the length
of time the shares were held:
20% (long-term) if held for more than 12 months.
39.6% (short-term) if held for not more than 12 months.
(2) Determination Date. Generally, the "determination date"
is the date on which the shares are acquired. The determination date for
unvested shares is the date on which the shares vest. If the optionee is an
insider and the grant of the option under the Plan is not exempt from the
application of Section 16(b) and shares are acquired by exercising the option
within six months of its grant date, the determination date is the later of the
date the shares vest or the date a sale of the shares by the insider is no
longer subject to suit under Section 16(b). If the determination date is after
the date on which the shares are acquired, the optionee may elect, under Section
83(b) of the Code, to have the exercise date be the determination date by filing
an election with the Internal Revenue Service not later than 30 days after the
date the shares are acquired.
(3) Tax Consequences to the Company. The Company is
generally entitled to a deduction equal to the amount of ordinary income
recognized by the optionee as a result of the exercise of an option, except to
the extent such deduction is limited by applicable provisions of the Code or the
regulations thereunder
<PAGE> 8
(4) Other Taxes. The above discussion is only a summary of
certain aspects of the highly complex United States federal income tax rules
applicable to options and does not deal with other taxes which may affect an
optionee, such as state and local income taxes, estate, gift and inheritance
taxes and taxes of countries other than the United States of America. Each
optionee should obtain and must rely on the advice of his or her own tax advisor
with respect to such matters.
K. RESTRICTIONS ON RESALE.
(1) Rule 144. Optionees with the power to manage and direct
the policies of the Company, relatives of such optionees, and trusts, estates,
corporations, or other organizations controlled by the foregoing persons may be
deemed to be "affiliates" of the Company. Affiliates generally are obligated to
resell shares in compliance with Rule 144 promulgated by the Securities and
Exchange Commission under the Securities Act of 1933, as amended, which requires
sales to be effected in "broker's transactions," as defined in such Rule, and
limits the number of shares which may be sold in any three-month period to no
more than the greater of 1% of the outstanding shares of the common stock of the
Company or the average weekly reported volume of trading in shares of the common
stock of the Company during the four calendar weeks preceding the filing of the
required notice of the proposed sale. However, since the shares have been
registered under the Securities Act of 1933, as amended, affiliates reselling
shares in compliance with Rule 144 are not subject to the holding period
requirement of Rule 144.
(2) Section 16(b). Section 16(b) permits the recovery by the
Company of any profit realized by an insider from each purchase and subsequent
sale, or sale and subsequent purchase, of shares of common stock of the Company
within any period of less than six months. If Rule 16b-3 is not complied with,
any sale by the insider of shares of the common stock of the Company within a
period of less than six months either before or after the date of grant of an
option under the Plan may subject the insider to recovery by the Company of any
"short-swing" profits realized. Optionees should consult their own legal
advisors prior to the disposition of any shares of the common stock of the
Company in order to ascertain the precise application of Section 16 of the
Exchange Act to their particular situation.
(3) Rule 10b-5. All optionees are subject to Rule 10b-5
under the Exchange Act, which prohibits any person from engaging in fraudulent
practices in connection with the purchase or sale of securities. This rule
generally prohibits optionees from buying or selling the Company's securities
using material information about the Company which has not yet been released to
the public. Before buying or selling any stock of the Company and, in
particular, before selling stock of the Company acquired under the Plan,
optionees should consult the Company regarding the applicability of any Company
"trading window policies" prohibiting trading in the Company's stock by certain
persons during specified periods of the year when material inside information is
likely to be held by such persons prior to its release to the public.
L. STOCK PURCHASE RIGHTS.
<PAGE> 9
On September 18, 1996 the Board declared a dividend distribution
of one preferred stock purchase right (each a "Right" and collectively the
"Rights") on each share of the common stock of the Company outstanding on
October 2, 1996. Until the occurrence of certain events, each share of common
stock of the Company issued pursuant to the Plan will include a Right. The
Rights entitle the stockholders to purchase stock in the Company in the event of
certain hostile efforts to acquire control of the Company. The Rights will
expire at the close of business on September 17, 2006, unless earlier redeemed
or exchanged by the Company. The terms of the Rights, which are set forth in the
Rights Agreement dated September 18, 1996 by and between the Company and First
National Bank of Boston, are described in the Company's registration statement
on Form 8-A filed on October 10, 1996, which is incorporated by reference in the
Company's registration statement for the securities offered under this Plan.
M. ADDITIONAL INFORMATION.
Additional information about the Plan and the Plan
administrators may be obtained from the Company at 894 Ross Drive, Sunnyvale, CA
94089, 408/541-1500.
<PAGE> 1
EXHIBIT 99.5
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 seven hundred forty thousand (740,000) 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.
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