Exhibit 10.5
PHOTON DYNAMICS, INC.
AMENDED AND RESTATED
1995 STOCK OPTION PLAN
1. Establishment, Purpose and Definitions.
(A) There is hereby adopted the 1995 Stock Option Plan (the "PLAN")
of Photon Dynamics, Inc. (the "COMPANY").
(B) The purpose of the Plan is to provide a means whereby eligible
individuals (as defined in Section 4 below) can acquire Common Stock of the
Company (the "STOCK"). The Plan provides employees (including officers and
directors who are employees) of the Company and its Affiliates an opportunity to
purchase shares of Stock pursuant to options which may qualify as incentive
stock options (referred to as "INCENTIVE STOCK OPTIONS") under Section 422 of
the Internal Revenue Code of 1986, as amended (the "CODE"), and employees,
officers, directors, independent contractors, and consultants of the Company and
of its Affiliates an opportunity to purchase shares of Stock pursuant to options
which are not described in Sections 422 or 423 of the Code (referred to as
"NONQUALIFIED STOCK OPTIONS").
(C) The term "AFFILIATES" as used in the Plan means parent or
subsidiary corporations, as defined in Sections 424(e) and (f) of the Code (but
substituting "the Company" for "employer corporation"), including parents or
subsidiaries which become such after adoption of the Plan.
2. Administration of the Plan.
(A) The Plan shall be administered by the Board of Directors of the
Company (the "BOARD"). Subject to Section 2(e) below, the Board may delegate the
responsibility for administering the Plan to a committee, under such terms and
conditions as the Board shall determine (the "COMMITTEE"). The Committee shall
consist of two or more members of the Board or such lesser number of members of
the Board as permitted by Rule 16b-3 promulgated under the Securities Exchange
Act of 1934, as amended ("RULE 16B-3"). Except as permitted by Rule 16b-3, none
of the members of the Committee shall receive, while serving on the Committee,
or during the one-year period preceding appointment to the Committee, a grant or
award of equity securities under (i) the Plan or (ii) any other plan of the
Company or its Affiliates under which the participants are entitled to acquire
Stock (including restricted Stock), stock options, stock bonuses, related rights
or stock appreciation rights of the Company or any of its Affiliates, other than
pursuant to the grant of automatic options provided in Section 7 below and
pursuant to transactions in any such other plan which do not disqualify a
director from being a disinterested person under Rule 16b-3. The limitations set
forth in this Section 2(a) shall automatically incorporate any additional
requirements that may in the future be necessary for the Plan to comply with
Rule 16b-3. Members of the Committee shall serve at the pleasure of the Board.
The Committee shall select one of its members as chairman, and shall hold
meetings at such times and places as it may determine. A majority of the
Committee shall constitute a quorum and acts of the Committee at which a
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quorum is present, or acts reduced to or approved in writing by all of the
members of the Committee, shall be the valid acts of the Committee. If the Board
does not delegate administration of the Plan to the Committee, then each
reference in this Plan to "the Committee" shall be construed to refer to the
Board.
(B) Except for options granted to Non-Employee Directors pursuant to
Section 7, the Committee shall determine which eligible individuals (as defined
in Section 4 below) shall be granted options under the Plan, the timing of such
grants, the terms thereof (including any restrictions on the Stock), and the
number of shares subject to such options.
(C) Except for options granted to Non-Employee Directors pursuant to
Section 7, the Committee may amend the terms of any outstanding option granted
under this Plan, but any amendment which would adversely affect the optionee's
rights under an outstanding option shall not be made without the optionee's
written consent. The Committee may, with the optionee's written consent, cancel
any outstanding stock option or accept any outstanding stock option in exchange
for a new option. Notwithstanding the foregoing, the Committee may (i) reduce
the exercise price of outstanding options, (ii) cancel outstanding options and
replace them with options with a lower exercise price or (iii) accept
outstanding stock options in exchange for new options with a lower exercise
price only with the prior approval of the Company's shareholders.
(D) The Committee shall have the sole authority, in its absolute
discretion, to adopt, amend, and rescind such rules and regulations as, in its
opinion, may be advisable in the administration of the Plan, to construe and
interpret the Plan, the rules and the regulations, and the instruments
evidencing options or Stock granted under the Plan. All decisions,
determinations, and interpretations of the Committee shall be binding on all
participants. Notwithstanding the foregoing, the Committee shall not exercise
any discretionary functions with respect to options granted to Non-Employee
Directors pursuant to Section 7.
(E) Notwithstanding the foregoing provisions of this Section 2,
grants of options to any "COVERED EMPLOYEE," as such term is defined by Section
162(m) of the Code shall be made only by a subcommittee of the Committee which,
in addition to meeting other applicable requirements of this Section 2, is
composed solely of two or more "outside directors," within the meaning of
Section 162(m) of the Code and the regulations thereunder (the "SUBCOMMITTEE")
to the extent necessary to qualify such grants as "performance-based
compensation" under Section 162(m). In case of such grants to Covered Employees,
references to the "Committee" shall be deemed to be references to the
Subcommittee as specified above.
3. Stock Subject to the Plan.
(A) The aggregate number of shares of Common Stock of the Company
available for grant of options under the Plan shall be [2,990,943] shares. If an
option is surrendered (except surrender for shares of Stock) or for any other
reason ceases to be exercisable in whole or in part, the shares which were
subject to such option but as to which the option had not been exercised shall
continue to be available under the Plan.
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(B) If there is any change in the Stock subject to any option
granted under the Plan, through merger, consolidation, reorganization,
recapitalization, reincorporation, stock split, stock dividend (in excess of two
percent (2%)), or other change in the capital structure of the Company,
appropriate adjustments shall be made by the Committee in order to preserve but
not to increase the benefits to the individual, including adjustments to the
number and kind of shares and the price per share subject to outstanding
options.
4. Eligible Individuals. The persons eligible to participate in the Plan
(other than pursuant to Section 7) are such employees, officers, independent
contractors, and consultants of the Company or an Affiliate as the Committee, in
its discretion, shall designate from time to time. Notwithstanding the
foregoing, only employees of the Company or an Affiliate (including officers and
directors who are bona fide employees) shall be eligible to receive incentive
stock options. Except for grants pursuant to Section 7, such eligible
individuals shall not include Non-Employee Directors.
5. The Option Price. Except as provided in Section 7, the exercise price
of each stock option shall not be less than the per share fair market value of
the Stock subject to such option on the date the option is granted.
Notwithstanding the foregoing, in the case of an incentive stock option granted
to a person possessing more than ten percent of the combined voting power of the
Company or an Affiliate, the exercise price shall be not less than 110 percent
(110%) of the fair market value of the Stock on the date the option is granted.
The exercise price of an option shall be subject to adjustment to the extent
provided in Section 3(b) above.
6. Terms and Conditions of Options.
(A) Each option granted pursuant to the Plan will be evidenced by a
written Stock Option Agreement executed by the Company and the person to whom
such option is granted.
(B) The Committee shall determine the term of each option granted
under the Plan; provided, however, that (i) the term of each option shall not be
more than ten (10) years, (ii) in the case of an incentive stock option granted
to a person possessing more than ten percent (10%) of the combined voting power
of the Company or an Affiliate, the term of each incentive stock option shall be
no more than five (5) years, and (iii) the term of an option granted pursuant to
Section 7 shall be as provided in Section 7.
(C) In the case of incentive stock options, the aggregate fair
market value (determined as of the time such option is granted) of the Stock
with respect to which incentive stock options are exercisable for the first time
by an eligible employee in any calendar year (under this Plan and any other
plans of the Company or its Affiliates) shall not exceed $100,000. If the
aggregate fair market value of the Stock with respect to which incentive stock
options are exercisable by an optionee for the first time during any calendar
year exceeds $100,000, such options shall be treated as nonqualified options to
the extent required by Section 422 of the Code. The rule set forth in the
preceding sentence shall be applied by taking options into account in the order
in which they were granted.
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(D) Except for grants to Non-Employee Directors pursuant to
Section 7, which shall be granted on the form of Stock Option Agreement attached
hereto as Exhibit A, the Stock Option Agreement may contain such other terms,
provisions, and conditions as may be determined by the Committee not
inconsistent with this Plan. If an option, or any part thereof is intended to
qualify as an incentive stock option, the Stock Option Agreement shall contain
those terms and conditions which are necessary to so qualify it.
(E) The maximum number of shares of Stock with respect to which
options may be granted to any individual per calendar year under the Plan shall
be 250,000 shares, subject to adjustment pursuant to Section 3(b). To the extent
required by Section 162(m) of the Code or the regulations thereunder, in
applying the foregoing limitation with respect to an employee, if any option is
canceled, the canceled option shall continue to count against the maximum number
of shares for which options may be granted to the employee under this
Section 6(e). For this purpose, the repricing of an option shall be treated as a
cancellation of the existing option and the grant of a new option.
7. Stock Options for Non-Employee Directors.
(A) All grants of options pursuant to this Section 7 shall be
automatic and nondiscretionary and shall be made strictly in accordance with the
provisions of this Section 7. No person shall have any discretion to select
which Non-Employee Directors shall be granted options or to determine the number
of shares of Stock to be covered by options granted to Non-Employee Directors,
the timing of such option grants or the exercise price thereof.
(B) An option to purchase 20,000 shares of Stock shall be granted
("INITIAL GRANT") to each director who is not an officer of the Company or an
affiliate of a five percent (5%) or greater shareholder (or shareholders) of the
Company ("NON-EMPLOYEE DIRECTOR"), such Initial Grant to be made to Non-Employee
Directors elected or appointed to the Board upon the date each such Non-Employee
Director first becomes a Non-Employee Director following the approval date of
the Plan by the shareholders. In addition, immediately following each annual
meeting of the Company's shareholders, each Non-Employee Director who continues
as a Non-Employee Director following such annual meeting shall be granted an
option to purchase 7,500 shares of Stock ("SUBSEQUENT GRANT"); provided that no
Subsequent Grant shall be made to any Non-Employee Director who has not served
as a director of the Company, as of the time of such annual meeting, for at
least one (1) year. Each such Subsequent Grant shall be made on the date of the
annual shareholders' meeting in question. If any option ceases to be exercisable
in whole or in part, the shares which were subject to such option but as to
which the option had not been exercised shall continue to be available under the
Plan. All options granted to Non-Employee Directors shall be nonqualified stock
options.
(C) The exercise price per share of Stock covered by each option
shall be the per share fair market value of the Stock on the date the option is
granted. The exercise price of an option granted under the Plan shall be subject
to adjustment to the extent provided in Section 3(b) hereof. The term of each
option shall be for ten (10) years.
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(D) Each Initial Grant shall be vested and exercisable as to
twenty-five percent (25%) of the shares covered thereby on each anniversary of
the date of grant, so that each Initial Grant will be fully vested and
exercisable four (4) years after its grant date. Each Subsequent Grant shall
become vested and exercisable as to 8.33% of the shares covered thereby each
month following the date of the grant so that each Subsequent Grant will be
fully vested and exercisable one (1) year after its grant date.
8. Use of Proceeds. Cash proceeds realized from the sale of Stock pursuant
to options granted under the Plan shall constitute general funds of the Company.
9. Amendment, Suspension, or Termination of the Plan.
(A) The Board may at any time amend, suspend, or terminate the Plan
as it deems advisable; provided that such amendment, suspension or termination
complies with all applicable requirements of state and federal law, including
any applicable requirement that the Plan or an amendment to the Plan be approved
by the shareholders, and provided further that, except as provided in
Section 3(b) above, the Board shall in no event amend the Plan in the following
respects without the consent of shareholders then sufficient to approve the Plan
in the first instance:
(I) To increase the maximum number of shares of Stock subject
to stock options issued under the Plan; or
(II) To change the designation or class of persons eligible to
receive incentive stock options under the Plan.
(B) No option may be granted nor any Stock issued under the Plan
during any suspension or after the termination of the Plan, and no amendment,
suspension, or termination of the Plan shall, without the affected individual's
consent, alter or impair any rights or obligations under any options previously
granted under the Plan. The Plan shall terminate on the tenth anniversary of the
date of adoption of the Plan, unless previously terminated by the Board pursuant
to this Section 9.
(C) Notwithstanding the provisions of Section 9(a) and 9(b) above,
the provisions set forth in Section 7 of the Plan (and any other sections of the
Plan that affect the formula award terms of option grants to Non-Employee
Directors required to be specified in the Plan by Rule 16b-3) shall not be
amended periodically and in no event more than once every six (6) months, other
than to comport with changes to the Code, the Employee Retirement Income
Security Act of 1974, as amended, or any applicable rules and regulations
thereunder.
10. Assignability of Options. To the extent required by Rule 16b-3, no
option granted pursuant to this Plan shall be transferable by the holder except
by the operation of law or by will or the laws of descent and distribution;
provided that, if Rule 16b-3 is amended after the date of the Board's adoption
of the Plan to permit broader transferability of options under Rule 16b-3,
options granted under Section 7 to Non-Employee Directors shall be transferable
to the extent provided in the option agreement covering the option, and the
Committee shall have discretion to amend any such outstanding option to provide
for broader transferability of the option as the Committee may authorize within
the limitations of Rule
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16b-3. Notwithstanding the foregoing, if required by the Code, each incentive
stock option under the Plan shall be transferable by the optionee only by will
or the laws of descent and distribution, and, during the optionee's lifetime,
shall be exercisable only by the optionee. In the event of any Rule 16b-3
permitted transfer of an option hereunder, the transferee shall be entitled to
exercise the option in the same manner and only to the same extent as the
optionee (or his personal representative or the person who would have acquired
the right to exercise the option by bequest or intestate succession) would have
been entitled to exercise the option under Sections 6, 7 and 11 had the option
not been transferred.
11. Payment Upon Exercise of Options.
(A) Payment of the purchase price upon exercise of any option
granted under this Plan shall be made in cash, by optionee's personal check,
certified check, bank draft, or postal or express money order payable to the
order of the Company in lawful money of the United States (collectively, "CASH
CONSIDERATION"); provided, however, that, except for options granted under
Section 7, the Committee, in its sole discretion, may permit an optionee to pay
the exercise price in whole or in part (i) with shares of Stock owned by the
optionee or with shares of Stock withheld from the shares otherwise deliverable
to the optionee upon exercise of the option; (ii) by delivery on a form
prescribed by the Committee of an irrevocable direction to a securities broker
approved by the Committee to sell shares of Stock and deliver all or a portion
of the proceeds to the Company in payment for the Stock; (iii) by delivery of
the optionee's promissory note with such recourse, interest, security, and
redemption provisions as the Committee in its discretion determines appropriate;
or (iv) in any combination of the foregoing. The exercise price of any options
granted under Section 7 shall be paid in Cash Consideration, the consideration
specified in clauses (i) or (ii) of the preceding sentence, or in any
combination thereof. Any Stock used to exercise options shall be valued at its
fair market value on the date of the exercise of the option. In addition, the
Committee, in its sole discretion, may authorize the surrender by an optionee of
all or part of an unexercised option (excluding options granted under Section 7
above) and authorize a payment in consideration thereof of an amount equal to
the difference between the aggregate fair market value of the Stock subject to
such option and the aggregate option price of such Stock. In the Committee's
discretion, such payment may be made in cash, shares of Stock with a fair market
value on the date of surrender equal to the payment amount, or some combination
thereof.
(B) In the event that the exercise price of an option is satisfied
by shares withheld from the shares of Stock otherwise deliverable to the
optionee, the Committee may issue the optionee an additional option, with terms
identical to the option agreement under which the option was exercised,
entitling the optionee to purchase additional shares of Stock equal to the
number of shares so withheld but at an exercise price equal to the fair market
value of the Stock on the grant date of the new option; provided, however, that
no such additional options may be granted with respect to options granted
pursuant to Section 7 above. Any additional option shall be subject to the
provisions of Section 6(e) above.
12. Withholding Taxes.
(A) No Stock shall be delivered under the Plan to any participant
until the participant has made arrangements acceptable to the Committee (or in
case of exercise of
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options granted to Covered Employees, the Subcommittee) for the satisfaction of
federal, state, and local income and social security tax withholding
obligations, including, without limitation, obligations incident to the receipt
of Stock under the Plan or to the failure to satisfy the conditions for
treatment as incentive stock options under applicable tax law. Upon exercise of
a stock option, the Company shall withhold from the optionee an amount
sufficient to satisfy federal, state and local income and social security tax
withholding obligations.
(B) In the event that such tax withholding is satisfied by the
Company or the optionee's employer withholding shares of Stock otherwise
deliverable to the optionee, the Committee may issue the optionee an additional
option, with terms identical to the option agreement under which the option was
exercised, entitling the optionee to purchase additional shares of Stock equal
to the number of shares so withheld but at an exercise price equal to the fair
market value of the Stock on the grant date of the new option; provided,
however, that no such additional options may be granted with respect to options
granted pursuant to Section 7 above. Any additional option shall be subject to
the provisions of Section 6(e) above.
13. Change in Control.
(A) For purposes of this Section 13, a "CHANGE IN CONTROL" shall be
deemed to occur upon:
(I) The direct or indirect acquisition by any person or
related group of persons (other than an acquisition from or by the Company or by
a Company-sponsored employee benefit plan or by a person that directly or
indirectly controls, is controlled by, or is under common control with, the
Company) of beneficial ownership (within the meaning of Rule 13d-3 of the
Securities Exchange Act of 1934, as amended) of securities possessing more than
fifty percent (50%) of the total combined voting power of the Company's
outstanding Stock;
(II) A change in the composition of the Board over a period of
thirty-six (36) months or less such that a majority of the Board members cease,
by reason of one or more contested elections for Board membership, or by one or
more actions by written consent of the shareholders, to be comprised of
individuals who either (A) have been Board members continuously since the
beginning of such period or (B) have been elected or nominated for election as
Board members during such period by at least a majority of the Board members
described in clause (A) who are still in office at the time such election or
nomination was approved by the Board;
(III) Approval by the Company's shareholders of a merger or
consolidation in which the Company is not the surviving entity, except for a
transaction the principal purpose of which is to change the state in which the
Company is incorporated;
(IV) Approval by the Company's shareholders of (A) the sale,
transfer or other disposition of all or substantially all the assets of the
Company (including the capital stock of the Company's subsidiary corporations)
or (B) the complete liquidation or dissolution of the Company; or
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(V) Approval by the Company's shareholders of any reverse
merger in which the Company survives as an entity but in which securities
possessing more than fifty percent (50%) of the total combined voting power of
the Company's outstanding securities are transferred to a person or persons
different from those who held such securities immediately prior to such merger.
For the purposes of this Section 13, "Approval by the
Company's shareholders" shall mean approval by a majority of those shares of
Stock voting at a shareholders' meeting at which a quorum is present excluding
shares beneficially owned (within the meaning of Rule 13d-3 under the Securities
Exchange Act of 1934, as amended) by the Non-Employee Directors.
(B) Except for options granted to Non-Employee Directors under
Section 7, the Committee may provide in any stock option agreement (or in an
amendment thereto) that, in the event of any Change in Control, any outstanding
options covered by such an agreement shall be fully vested, nonforfeitable and
shall become exercisable, as of the date of the Change in Control.
(C) If the Committee determines to incorporate a Change in Control
provision in any option agreement hereunder, the agreement shall provide that,
(i) in the event of a Change in Control described in clauses (i), (ii) and (v)
of paragraph (a) above, the option shall remain exercisable for the remaining
term of the option and (ii) in the event of a Change in Control described in
clauses (iii) or (iv) of paragraph (a) above, the option shall terminate as of
the effective date of the merger, disposition of assets, liquidation or
dissolution described therein.
(D) As to any options granted under Section 7 to Non-Employee
Directors, (i) in the event of a Change in Control described in clauses (i),
(ii) or (v) of paragraph (a) above, any such outstanding options under the Plan
shall become fully vested and remain exercisable for the remaining term of such
options and (ii) in the event of a Change in Control described in clauses (iii)
or (iv) of paragraph (a) above, outstanding options under the Plan shall
terminate as of the effective date of the merger, disposition of assets,
liquidation or dissolution described therein.
(E) Notwithstanding the foregoing provisions of this Section 13, an
outstanding option may not be accelerated under this Section 13 if and to the
extent (i) such option is, in connection with the transaction giving rise to a
Change of Control, either to be assumed by the successor or parent thereof or to
be replaced with a comparable option to purchase shares of the capital stock of
the successor corporation or parent thereof, or (ii) such option is to be
replaced with a cash incentive program of the successor corporation that
preserves the option spread existing at the time of the corporate transaction
giving rise to the Change of Control and provides for subsequent payment in
accordance with the same vesting schedule applicable to such option.
14. Shareholder Approval. The Plan and any options granted pursuant to
Section 7 and options granted to Covered Employees hereunder shall become
effective only upon approval by the holders of a majority of the Company's
shares voting (in person or by proxy) at a shareholders' meeting held within
twelve (12) months of the Board's adoption of the
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Plan. The Committee may grant stock options under the Plan prior to the
shareholders' meeting, but until shareholder approval of the Plan is obtained
within the period provided above, all options described in this Section 14
previously granted above, shall terminate.
15. Rule 16b-3 Compliance. Transactions under the Plan are intended to
comply with all applicable conditions of Rule 16b-3 or its successors under the
Securities Exchange Act of 1934, as amended. To the extent any provision of the
Plan or action by the Board or the Committee fails to so comply, it shall be
deemed null and void, to the extent permitted by law and deemed advisable by the
Board or the Committee. Moreover, in the event the Plan does not include a
provision required by Rule 16b-3 to be stated therein in order to qualify the
grants under Section 7 hereof as grants under a nondiscretionary formula under
Rule 16b-3, such provision (other than one relating to eligibility requirements,
or the price and amount of awards) shall be deemed automatically to be
incorporated by reference into the Plan with respect to grants of options to
Non-Employee Directors.
16. Applicable Law. The laws of the State of California will govern all
matters relating to this Plan except to the extent such laws are superseded by
the laws of the United States.
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