EXHIBIT 10.6
INCENTIVE STOCK OPTION
JONATHAN MORGAN, Optionee:
On JULY 26, 2004 (the "Grant Date"), First Virtual Communications, Inc.
(the "Company"), pursuant to its 1997 Equity Incentive Plan, as amended (the
"Plan"), has granted to you, the optionee named above, an option to purchase
shares of the common stock of the Company ("Common Stock"). This option is
intended to qualify to the full extent permitted by law as an "incentive stock
option" within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"). To the extent required to comply with the above code, a
portion of the shares within this grant may be designated non-qualified shares.
The grant hereunder is in connection with and in furtherance of the
Company's compensatory benefit plan for participation of the Company's employees
(including officers), directors or consultants. Defined terms not explicitly
defined in this agreement but defined in the Plan shall have the same
definitions as in the Plan.
The details of your option are as follows:
1. TOTAL NUMBER OF SHARES SUBJECT TO THIS OPTION. The total number of
shares of Common Stock subject to this option is 300,000.
2. VESTING. All of the underlying shares subject to this Option shall
vest (become exercisable) on July 26, 2008, the fourth anniversary following the
grant date. Additionally, the Option is a Performance-Accelerated Option having
the performance milestones as defined below ("Milestones") upon the satisfaction
of each of which, the vesting as to certain shares will be accelerated as shown:
MILESTONE 1: Q4 2004 QUARTERLY OPERATING PROFIT(1) OF $50,000 OR GREATER
Upon successful attainment of Milestone 1, the executive will
immediately vest in options to purchase 25,000 shares effective
January 1, 2005 and the executive will begin to vest in options to
purchase 75,000 shares in equal monthly installments such that the
75,000 shares are fully vested on the fourth anniversary of the
Grant Date.
MILESTONE 2: Q1 AND Q2 2005 AGGREGATE OPERATING PROFIT FOR THE TWO
QUARTERLY PERIODS OF $500,000 OR GREATER
Upon successful attainment of Milestone 2, the executive will
immediately vest in options to purchase 25,000 shares effective July
1, 2005 and the executive will begin to vest in options to purchase
75,000 shares in equal monthly installments such that the 75,000
shares are fully vested on the fourth anniversary of the Grant Date.
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(1) Operating Profit: Operating profit is defined as net income for the
appropriate period as calculated under US GAAP, including the impact of any
executive or employee bonuses or incentive compensation, but excluding the
actual incremental expenses (as defined below) incurred as a result of the
special investigation of the audit committee (as defined below), which were
recognized in the related period.
Incremental Expenses: Incremental expenses incurred as a result of the special
investigation of the audit committee, include costs incurred by Morrison &
Foerster, Huron Consulting, ADI, PricewaterhouseCoopers, Heller Ehrman, Woodruff
- - Sawyer (D&O Insurance only) which would not have otherwise been incurred had
the investigation not been initiated.
MILESTONE 3: FY 2005 ANNUAL OPERATING PROFIT OF $1,000,000 OR GREATER
Upon successful attainment of Milestone 3, the executive will
immediately vest in options to purchase 25,000 shares effective
January 1, 2006 and the executive will begin to vest in options to
purchase 75,000 shares in equal monthly installments such that the
75,000 shares are fully vested on the fourth anniversary of the
Grant Date.
3. EFFECT OF EXECUTIVE OFFICERS' CHANGE OF CONTROL AGREEMENT
Notwithstanding anything to the contrary herein or in the Executive
Officers' Change of Control Agreement in effect at any time between the Company
and Optionee, in the event of a Change of Control (as that term is defined in
the Change of Control Agreement) the following shall apply:
(a) prior to the occurrence of a Milestone if that Milestone was
attained, then the entire portion of this option that is subject to that
particular Milestone shall be accelerated in accordance with the Change of
Control Agreement; and
(b) in the event that a Change of Control occurs after the
occurrence of a Milestone without that Milestone having been attained, then the
entire portion of this option that is subject to that particular Milestone would
not accelerate pursuant to the provisions of the Change of Control Agreement.
4. EXERCISE PRICE AND METHOD OF PAYMENT.
(a) EXERCISE PRICE. The exercise price of this option is $0.93 per
share, being not less than the fair market value of the Common Stock on the date
of grant of this option.
(b) METHOD OF PAYMENT. Payment of the exercise price per share is
due in full upon exercise of all or any part of each installment which has
accrued to you. You may elect, to the extent permitted by applicable statutes
and regulations, to make payment of the exercise price under one of the
following alternatives:
(i) Payment of the exercise price per share in cash
(including check) at the time of exercise;
(ii) Payment pursuant to a program developed under Regulation
T as promulgated by the Federal Reserve Board which, prior to the issuance of
Common Stock, results in either the receipt of cash (or check) by the Company or
the receipt of irrevocable instructions to pay the aggregate exercise price to
the Company from the sales proceeds;
(iii) Provided that at the time of exercise the Company's
Common Stock is publicly traded and quoted regularly in the Wall Street Journal,
payment by delivery of already-owned shares of Common Stock, held for the period
required to avoid a charge to the Company's reported earnings, and owned free
and clear of any liens, claims, encumbrances or security interests, which Common
Stock shall be valued at its fair market value on the date of exercise; or
(iv) Payment by a combination of the methods of payment
permitted by subparagraph 4(b)(i) through 4(b)(iii) above.
5. WHOLE SHARES. This option may not be exercised for any number of
shares which would require the issuance of anything other than whole shares.
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6. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the contrary
contained herein, this option may not be exercised unless the shares issuable
upon exercise of this option are then registered under the Securities Act of
1933, as amended (the "Act"), or, if such shares are not then so registered, the
Company has determined that such exercise and issuance would be exempt from the
registration requirements of the Act.
7. TERM. The term of this Option commences on the date of grant as set
forth in the Notice and expires on the tenth anniversary of said Grant Date (the
"Expiration Date"), unless this Option expires sooner as set forth below or in
the Plan. In no event may this Option be exercised on or after the Expiration
Date. Following the date of termination of Optionee's continuous status as an
Employee, Officer, Director or Consultant with the Company or an Affiliate
("Continuous Status") for any or no reason (such final day of Continuous Status,
the "Termination Date"), this Option shall be exercisable only as to shares of
Common Stock that were vested as of the Termination Date as provided in
paragraph 2 of this Option and then only for the applicable period specified in
(i) and (ii) below (the "Post-Termination Exercise Period"). This Option shall
terminate prior to the Expiration Date as follows: (i) in the case of an
Optionee who is an Employee or Consultant, ninety (90) days after the
Termination Date, or (ii) in the case of an Optionee who is an Officer or
Director, nine (9) months after the Termination Date, unless:
(a) Your termination of Continuous Status as an Employee, Officer,
Director or Consultant is due to your disability. This Option will then expire
on the earlier of the Expiration Date set forth above or six (6) months
following such termination of Continuous Status as an Employee, Officer,
Director or Consultant. You should be aware that if your disability is not
considered a permanent and total disability within the meaning of Section
422(c)(6) of the Code, and you exercise this Option more than three (3) months
following the date of your termination of employment, your exercise will be
treated for tax purposes as the exercise of a "nonstatutory stock option"
instead of an "incentive stock option."
(b) Your termination of Continuous Status as an Employee, Officer,
Director or Consultant is due to your death or your death occurs within thirty
(30) days following your termination of Continuous Status as an Employee,
Officer, Director or Consultant for any other reason. This Option will then
expire on the earlier of the Expiration Date set forth above or eighteen (18)
months after your death.
(c) If during any part of the Post Termination Exercise Period you
may not exercise your option solely because of the condition set forth in
paragraph 6 above, then this Option will not expire until the earlier of the
Expiration Date set forth above or until this Option shall have been exercisable
for an aggregate period equal to the applicable Post-Termination Period after
your termination of Continuous Status as an Employee, Officer, Director or
Consultant.
(d) If your exercise of the Option within thirty (30) days after
termination of your Continuous Status with the Company or with an Affiliate of
the Company would result in liability under section 16(b) of the Securities
Exchange Act of 1934, then your option will expire on the earlier of (i) the
Expiration Date set forth above, (ii) the tenth (10th) day after the last date
upon which exercise would result in such liability or (iii) six (6) months and
ten (10) days after the termination of your Continuous Status with the Company
or an Affiliate of the Company.
However, this Option may be exercised following termination of Continuous
Status only as to that number of shares as to which it was vested on the
Termination Date under the provisions of paragraph 2 of this Option.
In order to obtain the federal income tax advantages associated with an
"incentive stock option," the Code requires that at all times beginning on the
date of grant of the Option and ending on the day three (3) months before the
date of the Option's exercise, you must be an Employee of the Company or an
Affiliate of the Company, except in the event of your death or permanent and
total disability. The
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Company has provided for extended exercisability of your option under certain
circumstances for your benefit, but cannot guarantee that your option will
necessarily be treated as an "incentive stock option" if you provide services to
the Company or an Affiliate of the Company as a consultant or if you exercise
your option more than three (3) months after the date your employment with the
Company and all Affiliates of the Company terminates.
8. EXERCISE.
(a) This option may be exercised, to the extent specified above,
by delivering a notice of exercise (in a form designated by the Company)
together with the exercise price to the Secretary of the Company, or to such
other person as the Company may designate, during regular business hours,
together with such additional documents as the Company may then require pursuant
to subsection 11(e) of the Plan.
(b) By exercising this option you agree that:
(i) as a precondition to the completion of any exercise of
this option, the Company may require you to enter an arrangement providing for
the payment by you to the Company of any tax withholding obligation of the
Company arising by reason of (1) the exercise of this option; (2) the lapse of
any substantial risk of forfeiture to which the shares are subject at the time
of exercise; or (3) the disposition of shares acquired upon such exercise; and
(ii) you will notify the Company in writing within fifteen
(15) days after the date of any disposition of any of the shares of the Common
Stock issued upon exercise of this option that occurs within two (2) years after
the date of this option grant or within one (1) year after such shares of Common
Stock are transferred upon exercise of this option.
9. TRANSFERABILITY. This option is not transferable, except by will or
by the laws of descent and distribution, and is exercisable during your life
only by you. Notwithstanding the foregoing, by delivering written notice to the
Company, in a form satisfactory to the Company, you may designate a third party
who, in the event of your death, shall thereafter be entitled to exercise this
option.
10. OPTION NOT A SERVICE CONTRACT. This option is not an employment
contract and nothing in this option shall be deemed to create in any way
whatsoever any obligation on your part to continue in the employ of the Company,
or of the Company to continue your employment with the Company. In addition,
nothing in this option shall obligate the Company or any Affiliate of the
Company, or their respective shareholders, Board of Directors, officers or
employees to continue any relationship which you might have as a Director or
Consultant for the Company or Affiliate of the Company.
11. NOTICES. Any notices provided for in this option or the Plan shall
be given in writing and shall be deemed effectively given upon receipt or, in
the case of notices delivered by the Company to you, five (5) days after deposit
in the United States mail, postage prepaid, addressed to you at the address
specified below or at such other address as you hereafter designate by written
notice to the Company.
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12. GOVERNING PLAN DOCUMENT. This option is subject to all the
provisions of the Plan, a copy of which is attached hereto and its provisions
are hereby made a part of this option, including without limitation the
provisions of Section 6 of the Plan relating to option provisions, and is
further subject to all interpretations, amendments, rules and regulations which
may from time to time be promulgated and adopted pursuant to the Plan. In the
event of any conflict between the provisions of this option and those of the
Plan, the provisions of the Plan shall control.
Dated the 13th day of September, 2004.
FIRST VIRTUAL COMMUNICATIONS, INC.
By /s/ Truman Cole
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Duly authorized on behalf of the
Board of Directors
ATTACHMENTS:
First Virtual Communications, Inc. 1997 Equity Incentive Plan
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ACKNOWLEDGEMENT
The undersigned:
(a) Acknowledges receipt of the foregoing option and the
attachments referenced therein and understands that all rights and liabilities
with respect to this option are set forth in the option and the Plan; and
(b) Acknowledges that as of the date of grant of this option, it
sets forth the entire understanding between the undersigned optionee and the
Company and its Affiliates regarding the acquisition of stock in the Company and
supersedes all prior oral and written agreements on that subject with the
exception of (i) the options and any other stock awards previously granted and
delivered to the undersigned under stock award plans of the Company.
/s/ JONATHAN MORGAN
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JONATHAN MORGAN
September 13, 2004
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DATE
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ADDENDUM TO NOTICE OF GRANT OF STOCK OPTION
AND STOCK OPTION AGREEMENT
To: JONATHAN MORGAN
Effective JULY 26, 2004, you have been granted option number 1000232 to buy
300,000 shares of common stock of First Virtual Communications, Inc. (the
"Company") at $0.93 per share (the "Option"), subject to the terms and
conditions of the Notice of Grant of Stock Option, the 1997 Equity Incentive
Plan, as amended, and the Option Agreement (together, the "Option Documents"),
each of which documents are incorporated herein by this reference.
At the time the Option was granted to you, the Company had suspended the use of
all registration statements filed with the SEC pursuant to which the Company
issues shares of capital stock, including the registration statements filed with
the SEC on Form S-8 covering employee stock plans and the issuance of shares of
the Company's Common Stock thereunder.
Notwithstanding anything to the contrary contained in the Option Documents, and
notwithstanding the fact that you may be vested in shares thereunder, by signing
this Addendum below, you hereby acknowledge that you may not exercise the Option
while the Company is unable to issue the shares upon such exercise in compliance
with all applicable securities laws, that is, until the Company is once again
current in its filings as required by the SEC and the applicable registration
statements on Form S-8 are once again declared effective.
You also acknowledge your understanding that the Company cannot be certain when
it will (and can provide no assurances that it will be able to) comply with
applicable securities laws in order to permit exercise of the Option once the
shares are vested or at any time prior to expiration of the Option.
Your stock options under the Option will continue to vest on their regular
vesting schedule for so long as you continue to be employed by or to serve as an
officer, director or consultant with the Company.
This prohibition on exercising options will continue until the Company is once
again current in its filings as required by the SEC. You will be notified
immediately when the Company can again begin processing option exercises.
ACKNOWLEDGED:
/s/ Jonathan Morgan
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Optionee
September 13, 2004
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Date
Attachments: Notice of Grant of Stock Option 1000232
Form of Stock Option Agreement
1997 Equity Incentive Plan