1
EXHIBIT 99.3
THE SECURITY REPRESENTED BY THIS CERTIFICATE HAS BEEN ACQUIRED FOR INVESTMENT
AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF.
NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.
SYSTEMS SCIENCE INC.
NONSTATUTORY STOCK OPTION AGREEMENT
THIS NONSTATUTORY STOCK OPTION AGREEMENT (the "OPTION
AGREEMENT") is made and entered into as of _______________, 199___, by and
between Systems Science Inc. and _________________ (the "OPTIONEE").
The Company has granted to the Optionee an option to purchase
certain shares of Stock, upon the terms and conditions set forth in this Option
Agreement (the "OPTION"). The Option shall in all respects be subject to the
terms and conditions of the Systems Science Inc. 1998 Stock Option Plan (the
"PLAN"), the provisions of which are incorporated herein by reference.
1. DEFINITIONS AND CONSTRUCTION.
1.1 DEFINITIONS. Unless otherwise defined herein, capitalized
terms shall have the meanings assigned to such terms in the Plan. Whenever used
herein, the following terms shall have their respective meanings set forth
below:
(a) "DATE OF OPTION GRANT" means
_______________,199________.
(b) "NUMBER OF OPTION SHARES" means ____________ shares of
Stock, as adjusted from time to time pursuant to Section 9.
(c) "EXERCISE PRICE" means $_______ per share of Stock, as
adjusted from time to time pursuant to Section 9.
(d) "INITIAL EXERCISE DATE" means the Initial Vesting
Date.
(e) "INITIAL VESTING DATE" means the date occurring one
(1) year after (check one):
_____ the Date of Option Grant.
_____ ___________, 199____, a date not later than
the Date of Option Grant.
2
(f) "VESTED RATIO" means, on any relevant date, the ratio
determined as follows:
Vested Ratio
Prior to Initial Vesting Date 0
On Initial Vesting Date, provided the Optionee's 1/5
Service is continuous from the Date of Option Grant
until the Initial Vesting Date
Plus
For each full year of the Optionee's continuous 1/5
Service from the Initial Vesting Date until the Vested
Ratio equals 1/1, an additional
(g) "OPTION EXPIRATION DATE" means the date ten (10) years
after the Date of Option Grant.
(h) "COMPANY" means Systems Science Inc., a California
corporation, or any successor corporation thereto.
(i) "DISABILITY" means the inability of the Optionee, in
the opinion of a qualified physician acceptable to the Company, to perform the
major duties of the Optionee's position with the Participating Company Group
because of the sickness or injury of the Optionee.
(j) "SECURITIES ACT" means the Securities Act of 1933, as
amended.
(k) "SERVICE" means the Optionee's employment or service
with the Participating Company Group, whether in the capacity of an Employee, a
Director or a Consultant. The Optionee's Service shall be deemed to have
terminated if the Optionee ceases to render Service to the Participating Company
Group in such initial capacity. However, the Optionee's Service shall not be
deemed to have terminated merely because of a change in the Participating
Company for which the Optionee renders Service in such initial capacity,
provided that there is no interruption or termination of the Optionee's Service.
The Optionee's Service shall be deemed to have terminated either upon an actual
termination of Service or upon the corporation for which the Optionee performs
Service ceasing to be a Participating Company. Subject to the foregoing, the
Company, in its sole discretion, shall determine whether the Optionee's Service
has terminated and the effective date of such termination.
2
3
1.2 CONSTRUCTION. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of this Option Agreement.
2. TAX CONSEQUENCES. This Option is intended by the Company and the
Optionee to be a Nonstatutory Stock Option, and does not qualify for any special
tax benefits to the Optionee. The Optionee should consult with the Optionee's
own tax advisor regarding the tax effects of this Option.
3. ADMINISTRATION. All questions of interpretation concerning this
Option Agreement shall be determined by the Board, including any duly appointed
Committee of the Board. All determinations by the Board shall be final and
binding upon all persons having an interest in the Option. Any officer of a
Participating Company shall have the authority to act on behalf of the Company
with respect to any matter, right, obligation, or election which is the
responsibility of or which is allocated to the Company herein, provided the
officer has apparent authority with respect to such matter, right, obligation,
or election.
4. EXERCISE OF THE OPTION.
4.1 RIGHT TO EXERCISE. Except as otherwise provided herein, the
Option shall be exercisable on and after the Initial Exercise Date and prior to
the termination of the Option (as provided in Section 6) in an amount not to
exceed the Number of Option Shares multiplied by the Vested Ratio less the
number of shares previously acquired upon exercise of the Option.
Notwithstanding the foregoing, the Optionee's initial exercise of the Option
shall be in an amount not less than the lesser of one-fifth of the Number of
Option Shares or such number of Option Shares the aggregate exercise price for
which equals or exceeds five thousand dollars ($5,000.00). In no event shall the
Option be exercisable for more shares than the Number of Option Shares.
4.2 METHOD OF EXERCISE.
(a) IF COMPANY IS AN S CORPORATION. If, at the time of the
Optionee's proposed exercise of the Option, the Company is an S Corporation
within the meaning of Section 1361 of the Code (an "S CORPORATION"), the Option
may be exercised only in compliance with the requirements of Section 12 below.
The Optionee should contact the Chief Financial Officer of the Company to
ascertain whether the Company is an S Corporation.
(b) IF COMPANY IS NOT AN S CORPORATION. If, at the time of
the Optionee's proposed exercise of the Option, the Company is not an S
Corporation, the exercise of an Option shall be by written notice to the Company
which must state the election to exercise the Option, the number of whole shares
of Stock for which the Option is being exercised and such other representations
and agreements as to the Optionee's investment intent with respect to such
shares as may be required pursuant to the provisions of this Option Agreement.
The written notice must be signed by the Optionee and must be delivered in
person, by certified or registered mail, return receipt requested, by confirmed
facsimile transmission, or by such other means as the Company may permit, to the
Chief Financial Officer of the Company, or other authorized representative of
the Participating Company Group, prior to the termination of the Option as set
3
4
forth in Section 6, accompanied by (i) full payment of the aggregate Exercise
Price for the number of shares of Stock being purchased and (ii) an executed
copy, if required herein, of the then current form of escrow agreement
referenced below. The Option shall be deemed to be exercised upon receipt by the
Company of such written notice, the aggregate Exercise Price, and, if required
by the Company, such executed agreements.
4.3 PAYMENT OF EXERCISE PRICE.
(a) FORMS OF CONSIDERATION AUTHORIZED. Except as otherwise
provided below, payment of the aggregate Exercise Price for the number of shares
of Stock for which the Option is being exercised shall be made (i) in cash, by
check, or cash equivalent, (ii) by tender to the Company of whole shares of
Stock owned by the Optionee having a Fair Market Value (as determined by the
Company without regard to any restrictions on transferability applicable to such
stock by reason of federal or state securities laws or agreements with an
underwriter for the Company) not less than the aggregate Exercise Price, or
(iii) by means of a Cashless Exercise, as defined in Section 4.3(c).
(b) TENDER OF STOCK. Notwithstanding the foregoing, the
Option may not be exercised by tender to the Company of shares of Stock to the
extent such tender of Stock would constitute a violation of the provisions of
any law, regulation or agreement restricting the redemption of the Company's
stock. The Option may not be exercised by tender to the Company of shares of
Stock unless such shares either have been owned by the Optionee for more than
six (6) months or were not acquired, directly or indirectly, from the Company.
(c) CASHLESS EXERCISE. A "CASHLESS EXERCISE" means the
assignment in a form acceptable to the Company of the proceeds of a sale or loan
with respect to some or all of the shares of Stock acquired upon the exercise of
the Option pursuant to a program or procedure approved by the Company
(including, without limitation, through an exercise complying with the
provisions of Regulation T as promulgated from time to time by the Board of
Governors of the Federal Reserve System). The Company reserves, at any and all
times, the right, in the Company's sole and absolute discretion, to decline to
approve or terminate any such program or procedure.
4.4 TAX WITHHOLDING. At the time the Option is exercised, in
whole or in part, or at any time thereafter as requested by the Company, the
Optionee hereby authorizes withholding from payroll and any other amounts
payable to the Optionee, and otherwise agrees to make adequate provision for
(including by means of a Cashless Exercise to the extent permitted by the
Company), any sums required to satisfy the federal, state, local and foreign tax
withholding obligations of the Participating Company Group, if any, which arise
in connection with the Option, including, without limitation, obligations
arising upon (i) the exercise, in whole or in part, of the Option, (ii) the
transfer, in whole or in part, of any shares acquired upon exercise of the
Option, (iii) the operation of any law or regulation providing for the
imputation of interest, or (iv) the lapsing of any restriction with respect to
any shares acquired upon exercise of the Option. The Optionee is cautioned that
the Option is not exercisable unless the tax withholding obligations of the
Participating Company Group are satisfied. Accordingly, the Optionee may not be
able to exercise the Option when desired even though the Option is vested,
4
5
and the Company shall have no obligation to issue a certificate for such shares
or release such shares from any escrow provided for herein.
4.5 CERTIFICATE REGISTRATION. Except in the event the Exercise
Price is paid by means of a Cashless Exercise, the certificate for the shares as
to which the Option is exercised shall be registered in the name of the
Optionee, or, if applicable, in the names of the heirs of the Optionee.
4.6 RESTRICTIONS ON GRANT OF THE OPTION AND ISSUANCE OF SHARES.
The grant of the Option and the issuance of shares of Stock upon exercise of the
Option shall be subject to compliance with all applicable requirements of
federal, state or foreign law with respect to such securities. The Option may
not be exercised if the issuance of shares of Stock upon exercise would
constitute a violation of any applicable federal, state or foreign securities
laws or other law or regulations or the requirements of any stock exchange or
market system upon which the Stock may then be listed. In addition, the Option
may not be exercised unless (i) a registration statement under the Securities
Act shall at the time of exercise of the Option be in effect with respect to the
shares issuable upon exercise of the Option or (ii) in the opinion of legal
counsel to the Company, the shares issuable upon exercise of the Option may be
issued in accordance with the terms of an applicable exemption from the
registration requirements of the Securities Act. THE OPTIONEE IS CAUTIONED THAT
THE OPTION MAY NOT BE EXERCISED UNLESS THE FOREGOING CONDITIONS ARE SATISFIED.
ACCORDINGLY, THE OPTIONEE MAY NOT BE ABLE TO EXERCISE THE OPTION WHEN DESIRED
EVEN THOUGH THE OPTION IS VESTED. The inability of the Company to obtain from
any regulatory body having jurisdiction the authority, if any, deemed by the
Company's legal counsel to be necessary to the lawful issuance and sale of any
shares subject to the Option shall relieve the Company of any liability in
respect of the failure to issue or sell such shares as to which such requisite
authority shall not have been obtained. As a condition to the exercise of the
Option, the Company may require the Optionee to satisfy any qualifications that
may be necessary or appropriate, to evidence compliance with any applicable law
or regulation and to make any representation or warranty with respect thereto as
may be requested by the Company.
4.7 FRACTIONAL SHARES. The Company shall not be required to issue
fractional shares upon the exercise of the Option.
5. NONTRANSFERABILITY OF THE OPTION. The Option may be exercised during
the lifetime of the Optionee only by the Optionee or the Optionee's guardian or
legal representative and may not be assigned or transferred in any manner except
by will or by the laws of descent and distribution. Following the death of the
Optionee, the Option, to the extent provided in Section 7, may be exercised by
the Optionee's legal representative or by any person empowered to do so under
the deceased Optionee's will or under the then applicable laws of descent and
distribution.
6. TERMINATION OF THE OPTION. The Option shall terminate and may no
longer be exercised on the first to occur of (a) the Option Expiration Date, (b)
the last date for exercising the Option following termination of the Optionee's
Service as described in Section 7, or (c) a Transfer of Control to the extent
provided in Section 8.
5
6
7. EFFECT OF TERMINATION OF SERVICE.
7.1 OPTION EXERCISABILITY.
(a) DISABILITY. If the Optionee's Service with the
Participating Company Group is terminated because of the Disability of the
Optionee, the Option, to the extent unexercised and exercisable on the date on
which the Optionee's Service terminated, may be exercised by the Optionee (or
the Optionee's guardian or legal representative) at any time prior to the
expiration of six (6) months after the date on which the Optionee's Service
terminated, but in any event no later than the Option Expiration Date.
(b) DEATH. If the Optionee's Service with the
Participating Company Group is terminated because of the death of the Optionee,
the Option, to the extent unexercised and exercisable on the date on which the
Optionee's Service terminated, may be exercised by the Optionee (or the
Optionee's legal representative, or other person who acquired the right to
exercise the Option by reason of the Optionee's death) at any time prior to the
expiration of six (6) months after the date on which the Optionee's Service
terminated, but in any event no later than the Option Expiration Date. The
Optionee's Service shall be deemed to have terminated on account of death if the
Optionee dies within three (3) months after the Optionee's termination of
Service.
(c) OTHER TERMINATION OF SERVICE. If the Optionee's
Service with the Participating Company Group terminates for any reason, except
Disability or death, the Option, to the extent unexercised and exercisable by
the Optionee on the date on which the Optionee's Service terminated, may be
exercised by the Optionee within thirty (30) days (or such other longer period
of time as determined by the Board, in its sole discretion) after the date on
which the Optionee's Service terminated, but in any event no later than the
Option Expiration Date.
7.2 EXTENSION IF EXERCISE PREVENTED BY LAW. Notwithstanding the
foregoing, if the exercise of the Option within the applicable time periods set
forth in Section 7.1 is prevented by the provisions of Section 4.6, the Option
shall remain exercisable until thirty (30) days after the date the Optionee is
notified by the Company that the Option is exercisable, but in any event no
later than the Option Expiration Date. The Company makes no representation as to
the tax consequences of any such delayed exercise. The Optionee should consult
with the Optionee's own tax advisor as to the tax consequences of any such
delayed exercise.
7.3 EXTENSION IF OPTIONEE SUBJECT TO SECTION 16(b).
Notwithstanding the foregoing, if a sale within the applicable time periods set
forth in Section 7.1 of shares acquired upon the exercise of the Option would
subject the Optionee to suit under Section 16(b) of the Exchange Act, the Option
shall remain exercisable until the earliest to occur of (i) the tenth (10th) day
following the date on which a sale of such shares by the Optionee would no
longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day
after the Optionee's termination of Service, or (iii) the Option Expiration
Date. The Company makes no representation as to the tax consequences of any such
delayed exercise. The Optionee should consult with the Optionee's own tax
advisor as to the tax consequences of any such delayed exercise.
6
7
7.4 LEAVE OF ABSENCE. For purposes of Section 7.1, the Optionee's
Service with the Participating Company Group shall not be deemed to terminate if
the Optionee takes any military leave, sick leave, or other bona fide leave of
absence approved by the Company of ninety (90) days or less. In the event of a
leave of absence in excess of ninety (90) days, the Optionee's Service shall be
deemed to terminate on the ninety-first (91st) day of such leave unless the
Optionee's right to reemployment with the Participating Company Group remains
guaranteed by statute or contract. Notwithstanding the foregoing, unless
otherwise designated by the Company (or required by law), a leave of absence
shall not be treated as Service for purposes of determining the Optionee's
Vested Ratio.
8. TRANSFER OF CONTROL.
8.1 DEFINITIONS.
(a) An "OWNERSHIP CHANGE EVENT" shall be deemed to have
occurred if any of the following occurs with respect to the Company:
(i) the direct or indirect sale or exchange in a
single or series of related transactions by the shareholders of the Company of
more than fifty percent (50%) of the voting stock of the Company;
(ii) a merger or consolidation in which the Company
is a party;
(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", as defined in the Plan,
generally means one or more related Ownership Change Events after which the
shareholders do not own, directly or indirectly, more than fifty percent (50%)
of the outstanding stock of the Company or, in the case of an asset transfer,
the transferee corporation(s).
8.2 EFFECT OF TRANSFER OF CONTROL ON OPTION. In the event of a
Transfer of Control, the surviving, continuing, successor, or purchasing
corporation or parent corporation thereof, as the case may be (the "ACQUIRING
CORPORATION"), may either assume the Company's rights and obligations under the
Option or substitute for the Option a substantially equivalent option for the
Acquiring Corporation's stock. If the Option is not assumed or substituted for
by the Acquiring Corporation in connection with the Transfer of Control, the
Option shall terminate and cease to be outstanding effective as of the date of
the Transfer of Control to the extent the Option is not exercised. In such
event, the Company will give written notice to the holder of the Option of the
pending Transfer of Control and the corresponding termination of the Option not
less than fifteen (15) days prior to the proposed effective date of such
Transfer of Control, and the holder of the Option shall have the right to
exercise the Option to the extent then exercisable prior to such effective date.
Notwithstanding the foregoing, if the corporation the stock of which is subject
to the Option immediately prior to an Ownership Change Event described in
Section 8.1(a)(i) constituting a Transfer of Control is the surviving or
continuing corporation and
7
8
immediately after such Ownership Change Event less than fifty percent (50%) of
the total combined voting power of its voting stock is held by another
corporation or by other corporations that are members of an affiliated group
within the meaning of Section 1504(a) of the Code without regard to the
provisions of Section 1504(b) of the Code, the Option shall not terminate unless
the Board otherwise provides in its sole discretion.
9. ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of any
stock dividend, stock split, reverse stock split, recapitalization, combination,
reclassification, or similar change in the capital structure of the Company,
appropriate adjustments shall be made in the number, Exercise Price and class of
shares of stock subject to the Option but the sale of additional Shares for fair
market value as determined by the Board shall not result in any adjustment of
the Option. If a majority of the shares which are of the same class as the
shares that are subject to the Option are exchanged for, converted into, or
otherwise become (whether or not pursuant to an Ownership Change Event) shares
of another corporation (the "NEW SHARES"), the Board may unilaterally amend the
Option to provide that the Option is exercisable for New Shares. In the event of
any such amendment, the Number of Option Shares and the Exercise Price shall be
adjusted in a fair and equitable manner, as determined by the Board, in its sole
discretion. Notwithstanding the foregoing, any fractional share resulting from
an adjustment pursuant to this Section 9 shall be rounded up or down to the
nearest whole number, as determined by the Board, and in no event may the
Exercise Price be decreased to an amount less than the par value, if any, of the
stock subject to the Option. The adjustments determined by the Board pursuant to
this Section 9 shall be final, binding and conclusive.
10. RIGHTS AS A SHAREHOLDER, EMPLOYEE OR CONSULTANT. The Optionee shall
have no rights as a shareholder with respect to any shares covered by the Option
until the date of the issuance of a certificate for the shares for which the
Option has been exercised (as evidenced by the appropriate entry on the books of
the Company or of a duly authorized transfer agent of the Company). No
adjustment shall be made for dividends, distributions or other rights for which
the record date is prior to the date such certificate is issued, except as
provided in Section 9. Nothing in this Option Agreement shall confer upon the
Optionee any right to continue in the Service of a Participating Company or
interfere in any way with any right of the Participating Company Group to
terminate the Optionee's Service as an Employee or Consultant, as the case may
be, at any time.
11. RIGHT OF FIRST REFUSAL.
11.1 GRANT OF RIGHT OF FIRST REFUSAL. Except as provided in
Section 11.7 below, in the event the Optionee, the Optionee's legal
representative, or other holder of shares acquired upon exercise of the Option
proposes to sell, exchange, transfer, pledge, or otherwise dispose of any shares
acquired upon exercise of the Option (the "TRANSFER SHARES") to any person or
entity, including, without limitation, any shareholder of the Participating
Company Group, the Company shall have the right to repurchase the Transfer
Shares under the terms and subject to the conditions set forth in this Section
11 (the "RIGHT OF FIRST REFUSAL").
8
9
11.2 NOTICE OF PROPOSED TRANSFER.
(a) WRITTEN NOTICE. Prior to any proposed transfer of the
Transfer Shares, the Optionee shall give a written notice (the "TRANSFER
NOTICE") to the Company describing fully the proposed transfer, including the
number of Transfer Shares, the name and address of the proposed transferee (the
"PROPOSED TRANSFEREE") and, if the transfer is voluntary, the proposed transfer
price, and containing such information necessary to show the bona fide nature of
the proposed transfer, including the investment intent of the Proposed
Transferee. In the event of a bona fide gift or involuntary transfer, the
proposed transfer price shall be deemed to be the Fair Market Value of the
Transfer Shares, as determined by the Board in good faith. The Optionee may not
transfer Transfer Shares to more than one Proposed Transferee in any one
transaction. The Transfer Notice shall be signed by both the Optionee and the
Proposed Transferee and must constitute a binding commitment of the Optionee and
the Proposed Transferee for the transfer of the Transfer Shares to the Proposed
Transferee subject only to the Right of First Refusal.
(b) BONA FIDE GIFT OR INVOLUNTARY TRANSFER. In the event
of a bona fide gift or involuntary transfer, the proposed transfer price shall
be deemed to be the Fair Market Value of the Transfer Shares, as determined by
the Board in good faith. If the Optionee disagrees with the valuation determined
by the Board, the Optionee may, by giving written notice to the Company within
ten (10) days after being informed of the valuation, request that the value of
the shares at issue be determined by an independent appraiser. The Company shall
select an appraiser to determine the value of such shares within fifteen (15)
days after the Company's actual receipt of the Optionee's notice disputing the
valuation determined by the Board. Such appraiser shall be subject to the
approval of the Optionee, which approval the Optionee shall not unreasonably
withhold or delay. The Optionee's approval or refusal to approve the appraiser
must be given before the appraiser announces a valuation. The value of such
shares, as determined by the appraiser, shall be conclusively binding on all of
the parties concerned. The expenses of appraisal shall be borne equally by the
Company and the Optionee. Any time required to resolve a valuation dispute shall
be added to the time periods in which the Company may exercise its Right of
First Refusal.
(c) BONA FIDE TRANSFER. If the Company determines that the
information provided by the Optionee in the Transfer Notice is insufficient to
establish the bona fide nature of a proposed voluntary transfer, the Company
shall give the Optionee written notice of the Optionee's failure to comply with
the procedure described in this Section 11, and the Optionee shall have no right
to transfer the Transfer Shares without first complying with the procedure
described in this Section 11. The Optionee shall not be permitted to transfer
the Transfer Shares if the proposed transfer is not bona fide.
11.3 EXERCISE OF RIGHT OF FIRST REFUSAL If the Company determines
the proposed transfer to be bona fide, the Company shall have the right to
purchase all, but not less than all, of the Transfer Shares (except as the
Company and the Optionee otherwise agree) at the purchase price and on the terms
set forth in the Transfer Notice by delivery to the Optionee of a notice of
exercise of the Right of First Refusal within thirty (30) days after the date
the Transfer Notice is delivered to the Company. The Company's exercise or
failure to exercise the Right of
9
10
First Refusal with respect to any proposed transfer described in a Transfer
Notice shall not affect the Company's right to exercise the Right of First
Refusal with respect to any proposed transfer described in any other Transfer
Notice, whether or not such other Transfer Notice is issued by the Optionee or
issued by a person other than the Optionee with respect to a proposed transfer
to the same Proposed Transferee. If the Company exercises the Right of First
Refusal, the Company and the Optionee shall thereupon consummate the sale of the
Transfer Shares to the Company on the terms set forth in the Transfer Notice
within sixty (60) days after the date the Transfer Notice is delivered to the
Company (unless a longer period is offered by the Proposed Transferee);
provided, however, that in the event the Transfer Notice provides for the
payment for the Transfer Shares other than in cash, the Company shall have the
option of paying for the Transfer Shares by the present value cash equivalent of
the consideration described in the Transfer Notice as reasonably determined by
the Company. For purposes of the foregoing cancellation of any indebtedness of
the Optionee to any Participating Company shall be treated as payment to the
Optionee in cash to the extent of the unpaid principal and any accrued interest
canceled.
11.4 FAILURE TO EXERCISE RIGHT OF FIRST REFUSAL. If the Company
fails to exercise the Right of First Refusal in full (or to such lesser extent
as the Company and the Optionee otherwise agree) within the period specified in
Section 11.4 above, the Optionee may conclude a transfer to the Proposed
Transferee of the Transfer Shares on the terms and conditions described in the
Transfer Notice, provided such transfer occurs not later than ninety (90) days
following delivery to the Company of the Transfer Notice. The Company shall have
the right to demand further assurances from the Optionee and the Proposed
Transferee (in a form satisfactory to the Company) that the transfer of the
Transfer Shares was actually carried out on the terms and conditions described
in the Transfer Notice. No Transfer Shares shall be transferred on the books of
the Company until the Company has received such assurances, if so demanded, and
has approved the proposed transfer and investment intent as bona fide. Any
proposed transfer on terms and conditions different from those described in the
Transfer Notice, as well as any subsequent proposed transfer by the Optionee,
shall again be subject to the Right of First Refusal and shall require
compliance by the Optionee with the procedure described in this Section 11.
11.5 TRANSFEREES OF TRANSFER SHARES. All transferees of the
Transfer Shares or any interest therein, other than the Company, shall be
required as a condition of such transfer to agree in writing (in a form
satisfactory to the Company) that such transferee shall receive and hold such
Transfer Shares or interest therein subject to the Right of First Refusal, any
underwriter's lockup, the S Corporation restrictions and this Section 11
providing for the Right of First Refusal with respect to any subsequent
transfer. Any sale or transfer of any shares acquired upon exercise of the
Option shall be void unless the provisions of this Section 11 are met.
11.6 TRANSFERS NOT SUBJECT TO RIGHT OF FIRST REFUSAL. The Right
of First Refusal shall not apply to any transfer or exchange of the shares
acquired upon exercise of the Option if such transfer or exchange is in
connection with an Ownership Change Event. If the consideration received
pursuant to such transfer or exchange consists of stock of a Participating
Company, such consideration shall remain subject to the Right of First Refusal
unless the provisions of Section 11.9 below result in a termination of the Right
of First Refusal.
10
11
11.7 ASSIGNMENT OF RIGHT OF FIRST REFUSAL The Company shall have
the right to assign the Right of First Refusal at any time, whether or not there
has been an attempted transfer, to one or more persons as may be selected by the
Company.
11.8 EARLY TERMINATION OF RIGHT OF FIRST REFUSAL. The other
provisions of this Option Agreement notwithstanding, the Right of First Refusal
shall terminate and be of no further force and effect upon (a) the occurrence of
a Transfer of Control, unless the Acquiring Corporation assumes the Company's
rights and obligations under the Option or substitutes a substantially
equivalent option for the Acquiring Corporation's stock for the Option, or (b)
the existence of a public market for the class of shares subject to the Right of
First Refusal. A "PUBLIC MARKET" shall be deemed to exist if (i) such stock is
listed on a national securities exchange (as that term is used in the Exchange
Act) or (ii) such stock is traded on the over-the-counter market and prices
therefor are published daily on business days in a recognized financial journal.
12. S CORPORATION STATUS.
12.1 EFFECT OF S CORPORATION STATUS ON OPTION. The Optionee
acknowledges that the Company has elected to be classified as an S Corporation
for federal and state income tax purposes and, following the exercise of the
Option with respect to all or any part of the shares of Stock subject to the
Option, agrees to provide to the Company, immediately upon the Company's
request, such properly signed consents or other documents as, in the opinion of
counsel for the Company, may be necessary or useful to maintaining the Company's
status as an S Corporation. Except with the written consent of the Company
specifically referring to this Section 12, the following provisions set forth in
this Section 12 (the "S CORPORATION PROVISIONS") shall apply to the exercise of
the Option and the shares of Stock acquired upon exercise of the Option until
such time as the Company ceases to qualify as an S Corporation.
12.2 METHOD OF EXERCISE.
(a) ADVANCE NOTICE OF INTENT TO EXERCISE. The Optionee
shall give written notice (the "ADVANCE NOTICE") of the Optionee's intent to
exercise the Option, which must be received by the Company no later than ten
(10) days prior to the date on which such exercise is proposed to be effective
(the "PROPOSED EXERCISE DATE"). The Advance Notice shall be in a form approved
by the Company and must state the election to exercise the Option, the Proposed
Exercise Date, the number of whole shares of Stock for which the Option is to be
exercised, such information as required by the Company to enable the Company to
determine whether the proposed exercise of the Option may cause the Company to
cease to qualify as an S Corporation, and such other representations and
agreements as to the Optionee's investment intent with respect to such shares as
may be required pursuant to the provisions of this Option Agreement. The Advance
Notice must be signed by the Optionee and must be delivered in person, by
certified or registered mail, return receipt requested, by confirmed facsimile
transmission, or by such other means as the Company may permit, to the Chief
Financial Officer of the Company, or other authorized representative of the
Participating Company Group, at least thirty (30) days prior to the termination
of the Option (as provided in Section 6). Except as otherwise permitted by the
Company, the Optionee's failure to comply with the requirements of
11
12
this Section 12.2(a) shall extend the Proposed Exercise Date to a date at least
thirty (30) days following the Company's receipt of an Advance Notice which
complies in full with such requirements. If the Proposed Exercise Date, as
extended pursuant to the preceding sentence, would follow the termination of the
Option as provided in Section 6, the Option shall terminate at the time provided
in Section 6, and the Company shall not be required to make any payment to the
Optionee that would otherwise be required pursuant to Section 12.2(b) below. The
provisions of this Section 12.2 shall cease to apply as provided in Section 12.7
below, and thereafter the Option may be exercised pursuant to Section 4.2(b)
above.
(b) GRANT OF OPTION REDEMPTION RIGHT. If, following its
receipt of the Optionee's Advance Notice, the Company determines, in its sole
discretion, that the Optionee's exercise of the Option may cause the Company to
cease to qualify as an S Corporation, the Company shall so notify the Optionee
(a "DISQUALIFICATION NOTICE") no later than five (5) days prior to the Proposed
Exercise Date. Following receipt of a Disqualification Notice, the Optionee may
withdraw the Optionee's Advance Notice. If, following receipt of a
Disqualification Notice, the Optionee does not withdraw the Optionee's Advance
Notice, the Company shall have the right (the "OPTION REDEMPTION RIGHT") to
cancel the Option for the number of shares set forth in the Optionee's Advance
Notice in exchange for payment to the Optionee of an amount equal to the excess,
if any, of (i) the fair market value, determined as of the Proposed Exercise
Date by the Company in good faith, of the number of shares of Stock set forth in
the Optionee's Advance Notice over (ii) the aggregate Exercise Price for such
shares (the "OPTION REDEMPTION PRICE"). The Optionee hereby agrees that the
Company may withhold from the Option Redemption Price, or the Optionee shall
otherwise make adequate provision for, the foreign, federal, state and local tax
withholding obligations of the Participating Company Group, if any, which arise
in connection with the payment of the Option Redemption Price. If the Company
exercises its Option Redemption Right, the Company shall cancel the Option,
effective as of the Proposed Exercise Date, for the number of shares of Stock
set forth in the Optionee's Advance Notice and shall pay the Option Redemption
Price (reduced by any applicable withholding tax) to the Optionee in cash within
thirty (30) days following the Proposed Exercise Date. For purposes of the
foregoing, cancellation of any indebtedness of the Optionee to the Company shall
be treated as payment to the Optionee in cash to the extent of the unpaid
principal and any accrued interest canceled.
(c) FAILURE TO EXERCISE OPTION REDEMPTION RIGHT. If,
following receipt of the Optionee's Advance Notice, the Company does not give
the Optionee a Disqualification Notice or otherwise does not exercise the Option
Redemption Right, the Optionee may exercise the Option effective as of the
Proposed Exercise Date by delivering to the Company on or before the Proposed
Exercise Date (but in any event no later than the termination of the Option as
provided in Section 6) (i) full payment of the aggregate Exercise Price for the
number of shares of Stock being purchased, as set forth in the Optionee's
Advance Notice, and (ii) an executed copy, if required herein, of the then
current form of escrow agreement referenced in this Option Agreement. If the
Optionee fails to deliver full payment of the aggregate Exercise Price for the
number of shares of Stock being purchased on or before the Proposed Exercise
Date, the Optionee may only exercise the Option by again complying with the
requirements of Section 12.2(a).
12
13
12.3 RESTRICTION ON TRANSFER. No transfer of any shares acquired
by the Optionee pursuant to the Option, whether voluntary or involuntary, shall
be effective unless the Optionee's shares are transferred to a transferee who is
a permitted shareholder of an S Corporation with a bona fide investment intent
(a "PERMITTED TRANSFEREE").
12.4 RESTRICTION ON OTHER ACTION. The Optionee shall not take any
action or fail to take any action which shall result in the Company being unable
to maintain the Company's status as an S Corporation. This provision shall
require, without limitation, that the Optionee notify the Company prior to the
Optionee ceasing to qualify as an eligible shareholder of an S Corporation.
12.5 TRANSFER BY TRUST. If any transfer by the Optionee is by
operation of law or by right of succession under a revocable trust, the
transferees shall be obligated to make such transfers as shall reasonably be
necessary, in the opinion of counsel for the Company, to avoid termination of
the Company's status as an S Corporation.
12.6 OTHER RESTRICTIONS. The provisions of this Section 12 are in
addition to the provisions of Sections 11 hereof. By way of example and not
limitation, a transfer by divorce or otherwise to a Permitted Transferee
pursuant to this Section 12 shall be subject to the Right of First Refusal set
forth in Section 11 hereof.
12.7 TERMINATION OF RESTRICTIONS. The restrictions imposed by
this Section 12 shall terminate upon the occurrence of the first of any of the
following events: (i) the written agreement of the Company and the Optionee
terminating such restrictions, (ii) the bankruptcy, receivership or complete
dissolution of the Company, (iii) the existence of a public market, as defined
in Section 11.9, for the class of shares subject to the S Corporation
Provisions, or (iv) a revocation of the Company's S Corporation status pursuant
to Section 1362(d) of the Code.
13. ESCROW.
13.1 ESTABLISHMENT OF ESCROW. To ensure that the S Corporation
Provisions will be followed, the Company may require the Optionee to deposit the
certificate evidencing the shares which the Optionee purchases upon exercise of
the Option with an agent designated by the Company under the terms and
conditions of an escrow agreement approved by the Company. If the Company does
not require such deposit as a condition of exercise of the Option, the Company
reserves the right at any time to require the Optionee to so deposit the
certificate in escrow. Upon the occurrence of an Ownership Change Event or a
change, as described in Section 9, in the character or amount of any of the
outstanding stock of the corporation the stock of which is subject to the
provisions of this Option Agreement, any and all new, substituted or additional
securities or other property to which the Optionee is entitled by reason of the
Optionee's ownership of shares of Stock acquired upon exercise of the Option
that remain, following such Ownership Change Event or change described in
Section 9, subject to the Right of First Refusal, shall be immediately subject
to the escrow to the same extent as such shares of Stock immediately before such
event. The Company shall bear the expenses of the escrow.
13
14
13.2 DELIVERY OF SHARES TO OPTIONEE. As soon as practicable after
the expiration of the S Corporation Provisions, the escrow agent shall deliver
to the Optionee the shares and any other property no longer subject to such
restrictions.
13.3 NOTICES AND PAYMENTS. In the event the shares and any other
property held in escrow are subject to the Company's exercise of the Right of
First Refusal, the notices required to be given to the Optionee shall be given
to the escrow agent, and any payment required to be given to the Optionee shall
be given to the escrow agent. Within thirty (30) days after payment by the
Company, the escrow agent shall deliver the shares and any other property which
the Company has purchased to the Company and shall deliver the payment received
from the Company to the Optionee.
14. STOCK DISTRIBUTIONS SUBJECT TO OPTION AGREEMENT. If, from time to
time, there is any stock dividend, stock split or other change, as described in
Section 9, in the character or amount of any of the outstanding stock of the
corporation the stock of which is subject to the provisions of this Option
Agreement, then in such event any and all new, substituted or additional
securities to which the Optionee is entitled by reason of the Optionee's
ownership of the shares acquired upon exercise of the Option shall be
immediately subject to the Right of First Refusal, and the S Corporation
Provisions with the same force and effect as the shares subject to the Right of
First Refusal and the S Corporation Provisions immediately before such event.
15. WITHHOLDING UPON EXERCISE OF OPTION. Optionee understands that, upon
exercise of the Option, the Optionee will recognize income for tax purposes in
an amount equal to the excess of the then fair market value of the shares over
the exercise price. The Company will be required to withhold tax with respect to
such exercise as set forth in Section 4.4 hereof.
16. LEGENDS. The Company may at any time place legends referencing the
Right of First Refusal and any applicable federal, state or foreign securities
law restrictions on all certificates representing shares of stock subject to the
provisions of this Option Agreement. The Optionee shall, at the request of the
Company, promptly present to the Company any and all certificates representing
shares acquired pursuant to the Option in the possession of the Optionee in
order to carry out the provisions of this Section. Unless otherwise specified by
the Company, legends placed on such certificates may include, but shall not be
limited to, the following:
16.1 "THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN
ACCORDANCE WITH RULE 144 OR RULE 701 UNDER THE ACT, OR THE COMPANY RECEIVES AN
OPINION OF COUNSEL FOR THE COMPANY STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT
OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF SUCH ACT."
16.2 Any legend required to be placed thereon by the Commissioner
of Corporations of the State of California.
14
15
16.3 "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
RIGHT OF FIRST REFUSAL IN FAVOR OF THE CORPORATION OR ITS ASSIGNEE SET FORTH IN
AN AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED HOLDER, OR SUCH HOLDER'S
PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF
THIS CORPORATION."
17. PUBLIC OFFERING. The Optionee hereby agrees that in the event of any
underwritten public offering of stock, including an initial public offering of
stock, made by the Company pursuant to an effective registration statement filed
under the Securities Act, the Optionee shall not offer, sell, contract to sell,
pledge, hypothecate, grant any option to purchase or make any short sale of, or
otherwise dispose of any shares of stock of the Company or any rights to acquire
stock of the Company for such period of time from and after the effective date
of such registration statement as may be established by the underwriter for such
initial public offering; provided, however, that such period of time shall not
exceed one hundred eighty (180) days from the effective date of the registration
statement to be filed in connection with such public offering. The foregoing
limitation shall not apply to shares registered in the public offering under the
Securities Act. The foregoing limitation shall remain in effect for the two (2)
year period immediately following the effective date of the Company's initial
public offering and shall thereafter terminate and cease to have any force or
effect. The Optionee shall be subject to this Section provided and only if the
officers and directors of the Company are also subject to similar arrangements.
18. BINDING EFFECT. Subject to the restrictions on transfer set forth
herein, this Option Agreement shall inure to the benefit of and be binding upon
the parties hereto and their respective heirs, executors, administrators,
successors and assigns.
19. TERMINATION OR AMENDMENT. The Board may terminate or amend the Plan
or the Option at any time; provided, however, that except as provided in Section
8.2 in connection with a Transfer of Control, no such termination or amendment
may adversely affect the Option or any unexercised portion hereof without the
consent of the Optionee unless such termination or amendment is necessary to
comply with any applicable law or government regulation. No amendment or
addition to this Option Agreement shall be effective unless in writing.
20. INTEGRATED AGREEMENT. This Option Agreement constitutes the entire
understanding and agreement of the Optionee and the Participating Company Group
with respect to the subject matter contained herein and there are no agreements,
understandings, restrictions, representations, or warranties among the Optionee
and the Participating Company Group with respect to such subject matter other
than those as set forth or provided for herein or therein. To the extent
contemplated herein or therein, the provisions of this Option Agreement shall
survive any exercise of the Option and shall remain in full force and effect.
15
16
21. APPLICABLE LAW. This Option Agreement shall be governed by the laws
of the State of California as such laws are applied to agreements between
California residents entered into and to be performed entirely within the State
of California.
SYSTEMS SCIENCE INC.
By: ____________________________________
Title:__________________________________
The Optionee represents that the Optionee is familiar with the
terms and provisions of this Option Agreement, including the Right of First
Refusal set forth in Section 11, and the S Corporation Provisions set forth in
Section 13, and hereby accepts the Option subject to all of the terms and
provisions thereof. The Optionee hereby agrees to accept as binding, conclusive
and final all decisions or interpretations of the Board upon any questions
arising under this Option Agreement.
OPTIONEE
Date: ____________________________ ________________________________________
16
17
CONSENT OF SPOUSE
The undersigned, being the spouse of the above-named Optionee,
does hereby acknowledge that the undersigned has read and is familiar with the
provisions of the above Option Agreement. The undersigned is aware that Section
11 provides a right of first refusal in favor of the Company upon certain
changes in record ownership of shares acquired upon exercise of the Option (the
"SHARES"), including, without limitation, any change pursuant to a decree of
divorce or marital separation, and that the provisions of Section 13 set forth
certain restrictions necessary or useful in maintaining the Company's status as
an S Corporation.
I hereby agree that my interest, if any, in the Shares will be
irrevocably bound by the Option Agreement and further understand and agree that
any community property interest I may have in the Shares will be similarly bound
by the Option Agreement.
I am aware that the legal, financial and related matters
contained in the Option Agreement are complex and that I am free to seek
independent professional guidance or counsel with respect to this Consent. I
have either sought such guidance or counsel or determined after reviewing the
Option Agreement carefully that I waive such right.
Dated: ___________________________ ________________________________________
17