LINEO, INC.
EMPLOYEE STOCK PURCHASE PLAN
1. DEFINITIONS
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" means common stock, par value $.001 per share, of the
Company.
"Company" means Lineo, Inc., a Delaware corporation, and any Participating
Subsidiaries.
"Compensation" means regular straight time earnings plus compensation for
overtime, incentive bonuses and other additional compensation, except to
the extent that any such item is specifically excluded by the Plan
Administrator such as ordinary compensation income recognized attributable
to an exercise of a non-qualified stock option, an early disposition of a
qualified stock option or any ordinary income recognized attributable to
stock acquired pursuant to the ESPP.
"ESPP" means this Lineo, Inc. Employee Stock Purchase Plan.
"Fair Market Value" of the Common Stock as of any day means the closing
price (rounded to the next highest cent in the case of fractions of a cent)
of the Common Stock as reported on such day or, if such day is not a
trading day of the Nasdaq Stock Market, the next trading day as reported by
the Nasdaq Stock Market, except that the "Fair Market Value" of the Common
Stock as of the beginning of the first Purchase Period shall be the public
offering price of the Common Stock in connection with the Company's initial
public offering on such date. If the Common Stock of the Company is not
admitted to trading on any of the aforesaid dates for which closing prices
of the stock are to be determined, then reference shall be made to the fair
market value of the stock on that date, as determined on such basis as
shall be established or specified for the purpose by the Plan
Administrator.
"Participant" means an employee of the Company or a Participating
Subsidiary who is regularly scheduled to work a minimum of fifteen (15)
hours per week, who has met the eligibility requirements in Section 7 and
has filed an Enrollment Agreement and such other documents as are required
under Section 8.
"Participating Subsidiary" means any corporation which is a "subsidiary
corporation" of the Company within the meaning of Code Section 424(e) and
is designated as a participant in the Plan by the Plan Administrator.
"Plan Administrator" means the Board of Directors of the Company, or any
committee established pursuant to Section 4 to administer the ESPP.
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"Purchase Period" means a twelve-month period commencing on each January 1
or July 1, except the first Purchase Period that shall commence and end as
provided in Section 6.
"Purchase Date" means each December 31 and June 30 within or at the end of
a Purchase Period, or, if such date does not occur on a business day, then
the first business day immediately preceding such date.
2. PURPOSE
The purpose of this ESPP is to enable Participants to acquire a larger
personal proprietary interest in the Company, and to encourage Participants to
remain in the employ of the Company and have a personal interest in the success
of the Company. This ESPP is intended to constitute an "employee stock purchase
plan" as defined in Code Section 423, and shall be interpreted and administered
to further that intent.
This ESPP is intended to provide Common Stock for investment and not for
resale. The Company does not, however, intend to restrict or influence the
conduct of any Participant's affairs. A Participant, therefore, may sell Common
Stock that is purchased under this ESPP at any time, subject to compliance with
any applicable federal or state tax and securities laws. THE EMPLOYEE ASSUMES
THE RISK OF ANY MARKET FLUCTUATIONS IN THE PRICE OF THE SHARES.
3. GOVERNMENTAL REGULATIONS
The Company's obligation to sell and deliver shares of Common Stock under
the ESPP is subject to the approval of any governmental authority required in
connection with the authorization, issuance or sale of such shares.
4. ADMINISTRATION
Primary authority for administration of the Plan is held by the Board of
Directors, but the Board of Directors, in its discretion, may establish a
committee composed of members of the Board of Directors or employees of the
Company to administer the Plan which shall have such of the power and authority
vested in the Board of Directors under the Plan as the Board of Directors may
delegate to it, including the power and authority to interpret any provision of
the Plan. The Board of Directors or any committee established pursuant to this
Section 4 is referred to herein as the "Plan Administrator." It is the intention
of the Company that the ESPP and the administration hereof comply in all
respects with Section 16(b) of the Securities Exchange Act of 1934 and Section
423(b) of the Code.
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5. STOCK SUBJECT TO THE ESPP
There are reserved for issuance under the ESPP 2,000,000 shares of Common
Stock which may be purchased by Participants pursuant to the ESPP, subject to
adjustment as provided in Section 17.
6. PURCHASE PERIODS
This ESPP will be administered based on annual Purchase Periods commencing
January 1 and July 1 of each calendar year and ending twelve months later on
December 31 or June 30, respectively; provided, however, that the first Purchase
Period will begin on the effective date of the Company's registration statement
filed in connection with the Company's initial public offering and end on
December 31, 2002, or if earlier, a date that is exactly 27 months after the
beginning of such first Purchase Period. The second Purchase Period shall begin
on the next January 1 or July 1 following the beginning of the first Purchase
Period and end twelve months later, and so forth.
7. ELIGIBILITY
Any employee who has completed thirty (30) days employment and who is
employed on the date his or her participation is to begin shall be eligible to
participate in Purchase Periods beginning after such thirty (30) day period.
For purposes of participation in the ESPP, a person on leave of absence
shall be deemed to be an employee for the first ninety (90) days of such leave
of absence and such person's employment shall be deemed to have terminated at
the close of business on the 90th day of such leave of absence unless such
person shall have returned to regular full-time or part-time employment (as the
case may be) prior to the close of business on such 90th day. Termination by the
Company of a person's leave of absence, other than termination of such leave of
absence on return to full time or part time employment, shall terminate a
person's employment for all purposes of the ESPP and shall terminate such
person's participation in the ESPP and right to purchase shares of stock
pursuant to the ESPP.
8. PARTICIPATION
An eligible employee may become a Participant by completing, signing and
filing an Enrollment Agreement authorizing payroll deductions and any other
necessary papers with the Company at least ten (10) days prior to the
commencement of the particular Purchase Period in which he or she wishes to
participate. An employee shall not participate in a new Purchase Period while
such employee is a Participant in an earlier Purchase Period unless such
employee withdraws or discontinues his or her participation in such earlier
Purchase Period pursuant to Section 12 and becomes a Participant in the later
Purchase Period by satisfying the requirements of this Section 8 and so long as
the limitations of Section 11 are not exceeded.
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9. PAYROLL DEDUCTIONS
At the time a Participant files his or her Enrollment Agreement, he or she
may elect to have from 1% to 20% (1% to 25% election with respect to the portion
of the first Purchase Period ending December 31, 2000, with any percentage
election in excess of 20% for this period automatically reverting to the maximum
allowable percentage election of 20% and any percentage 20% or less election
remaining unchanged effective January 1, 2001) (in whole percentage points) of
his or her Compensation deducted and applied to the purchase of shares of Common
Stock pursuant to this ESPP. An amount equal to the elected percentage of the
Participant's Compensation will be deducted on each regular pay day falling
within the Purchase Period. All amounts will be deducted from a Participant's
Compensation on an after-tax basis. No interest will be paid on payroll
deductions accumulated under the ESPP. A Participant may discontinue
participation or withdraw from the ESPP as provided in Section 12 and may alter
the amount of his or her payroll deductions or make any other changes during a
Purchase Period, subject to the limitations of Section 11, by completing and
delivering to the Company an ESPP Change Notice. Any such changes shall be made
by the Company as soon as reasonably practicable.
If a Participant goes on a leave of absence, such Participant shall have
the right, subject to the provisions of Section 7, to elect: (a) to withdraw his
or her accumulated payroll deductions pursuant to Section 12; (b) to discontinue
payroll deductions but remain a Participant in the ESPP during such leave of
absence, or (c) remain a Participant in the ESPP during such leave of absence,
authorizing deductions to be made from payments by the Company to the
Participant during such leave of absence and undertaking to make cash payments
to the Company at the end of each payroll period to the extent that amounts
payable by the Company to such Participant are insufficient to meet such
Participant's authorized Plan deductions.
10. PURCHASE OF COMMON STOCK
Unless a Participant withdraws from the ESPP prior to a particular Purchase
Date as provided in Section 12, on each Purchase Date, a Participant's
accumulated payroll deductions will, subject to the limitations in Section 11
and the termination provisions of Section 16, be applied toward the purchase of
shares of Common Stock at a purchase price equal to the lesser of:
(a) 85% of the Fair Market Value of the Common Stock on the first business
day of the Purchase Period; or
(b) 85% of the Fair Market Value of the Common Stock on the Purchase Date,
in either event rounded to the nearest whole cent.
Shares of Common Stock may be purchased under the ESPP only with a
Participant's accumulated payroll deductions. Fractional shares cannot be
purchased. The Company will return to the Participant any portion of a
Participant's accumulated payroll deductions not used
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for the purchase of Common Stock at the end of a Purchase Period. Upon a
Participant's withdrawal from the ESPP pursuant to Section 12, the Company will
return to the Participant the Participant's accumulated payroll deductions as
provided in Section 12.
11. LIMITATIONS ON SHARE PURCHASES
During any calendar year, the maximum value of the Common Stock that may be
purchased by a Participant under all Purchase Periods of the ESPP and all other
Code Section 423 plans of the Company and its subsidiaries is $25,000, said
value to be determined on the basis of the Fair Market Value of the Common Stock
on the first business day of the Purchase Period and in accordance with the
requirements of Code Section 423(b)(8). The foregoing limitation is intended to
and shall be interpreted in such a manner as will comply with Code Section
423(b)(8). In addition, no Participant shall be permitted to subscribe for any
shares under the ESPP if such Participant, immediately after such subscription,
owns shares that account for (including all shares that may be purchased under
outstanding subscriptions under the ESPP and any other outstanding options to
purchase shares of Common Stock) five percent (5%) or more of the total combined
voting power or value of all classes of shares of the Company or its
subsidiaries, taking into account the stock ownership rules in Code Section
424(d).
12. WITHDRAWAL AND DISCONTINUANCE
A Participant may withdraw from the ESPP, in whole but not in part, prior
to a particular Purchase Date by completing the "discontinue and withdraw"
section of an ESPP Change Notice and delivering the ESPP Change Notice to the
Company no later than seven days prior to the Purchase Date, in which event the
Company will refund the entire balance of his accumulated payroll deductions as
soon as practicable thereafter.
To re-enter the ESPP, a Participant who has previously withdrawn must file
a new Enrollment Agreement in accordance with Section 8. His re-entry into the
ESPP cannot, however, become effective before the beginning of the next Purchase
Period following his withdrawal.
A Participant may elect to discontinue his payroll deductions during the
course of a particular Purchase Period, at any time prior to the last day of the
pay period (pay periods end on the Friday before each pay day) during such
Purchase Period, by completing the "discontinue" section of an ESPP Change
Notice and delivering the ESPP Change Notice to the Company, and such election
will not constitute a withdrawal for purpose of this Section 12. In the event
that a Participant elects to discontinue his payroll deductions pursuant to this
Section 12, the Participant will continue to participate in such Purchase Period
and will be entitled to purchase from the Company such number of full shares of
Common Stock as set forth in and in accordance with Section 10.
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13. ISSUANCE OF COMMON STOCK TO CUSTODIAL ACCOUNTS
The shares of Common Stock purchased by a Participant will be issued
electronically by the Company's transfer agent to the Participant's custodial
account as soon as practicable after each Purchase Date. Common Stock purchased
under the ESPP will be issued only in the name of the Participant (or, if his
authorization so designates, in the name of the Participant and another person
of legal age as joint tenants with rights of survivorship). The custodial
account of Participants shall be maintained by a bank, broker-dealer or similar
custodian appointed by the Plan Administrator that has agreed to hold such
shares for the accounts of the respective Participants. Fees and expenses of the
bank, broker-dealer or similar custodian shall be paid by the Company or
allocated among the respective Participants in such manner as the Plan
Administrator determines. A Participant or his legal representative may sell
Common Stock from his custodial account at any time; however, any sale within
two (2) years of the first day of the Purchase Period and one (1) year of the
Purchase Date will be treated by the Company as a disqualifying disposition
under the Code and be reported on the Participant's tax Form W-2.
14. WITHHOLDING TAXES
In connection with the purchase of shares of Common Stock under the ESPP,
the Company (a) shall not issue a certificate for such shares until it has
received payment from the Participant of any required withholding tax in cash or
by the retention or acceptance upon delivery thereof by the Participant of
shares of Common Stock sufficient in Fair Market Value to cover the amount of
such withholding tax and (b) shall have the right to retain or sell without
notice, or to demand surrender of, shares of Common Stock in value sufficient to
cover any withholding tax. The Company shall have the right to withhold from any
payroll deductions made by the Participant under the ESPP an amount equal to any
required withholding tax. In either case, the Company shall make payment (or
reimburse itself for payment made) to the appropriate taxing authority of an
amount in cash equal to the amount of such withholding tax, remitting any
balance to the Participant. For purposes of this Section 14, the value of shares
of Common Stock so retained or surrendered shall be equal to the Fair Market
Value of such shares on the date that the amount of the withholding tax is to be
determined (the "Tax Date"), and the value of shares of Common Stock so sold
shall be the actual net sale price per share (after deduction of commissions)
received by the Company. Further, to the extent required by applicable tax laws,
the Company shall require the Participant to pay withholding taxes in connection
with a disposition of any shares acquired under the ESPP that does not occur
after the date that is both two years after the date of the beginning of the
applicable Purchase Period (the option grant date) and one year after the
applicable Purchase Date (the option exercise date). In connection with the
payment of such withholding taxes, the Company shall have the same rights as
those granted immediately above. Notwithstanding the foregoing, the Participant
may elect, subject to approval by the Plan Administrator, to satisfy the
obligation to pay any withholding tax, in whole or in part, by providing the
Company with funds sufficient to enable the Company to pay such withholding tax
or by having the Company retain or accept upon delivery thereof by the
Participant shares of Common Stock sufficient in Fair Market Value to cover the
amount of
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such withholding tax. Each election by a Participant to have shares retained or
to deliver shares for this purpose must be in writing and made on or prior to
the Tax Date.
15. TRANSFERABILITY
A Participant's rights under the ESPP, including rights to accumulated
payroll deductions, may not be pledged, assigned, encumbered or otherwise
transferred for any reason other than by will or the laws of descent and
distribution. Any such attempt will be treated as an election by the Participant
to withdraw from the ESPP.
16. TERMINATING EVENTS
Upon (a) the dissolution or liquidation of the Company, (b) a merger or
other reorganization of the Company with one or more corporations as a result of
which the Company will not be a surviving corporation, (c) the sale of all or
substantially all of the assets of the Company or a material division of the
Company, (d) a sale or other transfer, pursuant to a tender offer or otherwise,
of more than fifty percent (50%) of the then outstanding shares of Common Stock
of the Company, (e) an acquisition by the Company resulting in an extraordinary
expansion of the Company's business or the addition of a material new line of
business, or (f) any exchange that is subject to this Section 16 (any of such
events is herein referred to as a "Terminating Event"), the Plan Administrator
may but shall not be required to:
(a) make provision for the continuation of the Participants' rights
under the ESPP on such terms and conditions as the Plan Administrator
determines to be appropriate and equitable, including where applicable, but
not limited to, an arrangement for the substitution on an equitable basis,
for each share of Common Stock that could otherwise be purchased at the end
of the Purchase Periods in progress at the time of the Terminating Event,
of any consideration payable with respect to each then outstanding share of
Common Stock in connection with the Terminating Event; or
(b) terminate all rights of Participants under the ESPP for such
Purchase Periods and --
(i) return to the Participants all of their payroll deductions
for such Purchase Periods; and
(ii) for each share of Common Stock, if any, that could otherwise
be purchased under the ESPP by a Participant at the end of
such Purchase Periods (determined by assuming that payroll
deductions at the rate elected by the Participant were
continued to the end of the Purchase Periods and used to
purchase shares based on the Fair Market Value of the Common
Stock on the first day of the Purchase Periods) and with
respect to which (A) the purchase price at which such share
could be purchased (determined with reference
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only to the Fair Market Value of the Common Stock on the
first day of the Purchase Periods) is exceeded by (B) the
Fair Market Value on the date of the Terminating Event of a
share of Common Stock, as determined by the Plan
Administrator, pay to the Participant an amount equal to
such excess.
The Plan Administrator shall make all determinations necessary or advisable
in connection with Terminating Events, and its determinations shall, in the
absence of fraud or patent mistake, be conclusive and binding on all persons
with any interest in the ESPP.
17. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
In the event of any changes in the outstanding stock of the Company by
reason of stock dividends, stock splits, recapitalizations, mergers,
consolidations, combinations or exchanges of shares, split-ups, split-offs,
spin-offs, liquidations or other similar changes in capitalization, or any
distribution to stockholders other than cash dividends, the Plan Administrator
shall make such adjustments, if any, in light of the change or distribution as
the Plan Administrator in its sole discretion shall determine to be appropriate
in the number and class of shares and the purchase prices of the Common Stock
which may be purchased by Participants during the Purchase Periods then in
process. In the event of any such change in the outstanding Common Stock of the
Company, the aggregate number and class of shares available under the ESPP and
the maximum number of shares which may be purchased and their purchase price
shall be appropriately adjusted by the Plan Administrator.
Upon the happening of an event specified in this Section 17, the class and
aggregate number of shares available under the ESPP, as set forth in Section 5
shall be appropriately adjusted to reflect the event. Notwithstanding the
foregoing, such adjustments shall be made only to the extent that the Plan
Administrator, based on advice of counsel for the Company, determines that such
adjustments will not constitute a change requiring shareholder approval under
Code Section 423(b)(2).
18. TERMINATION OF EMPLOYEE'S RIGHTS
Subject to the provisions of Section 20, a Participant's rights under the
ESPP will terminate if he or she for any reason (including death, disability or
voluntary or involuntary termination of employment) ceases to be an employee of
the Company. To the extent that the rights of a Participant terminate in
accordance with this Section 18, any of the Participant's accumulated payroll
deductions will be promptly returned to the Participant or in the case of the
Participant's death, to his or her beneficiary as provided in Section 19 below.
The ESPP does not, directly or indirectly, create any right for the benefit of
any employee or class of employees to preferentially purchase any Common Stock
under the ESPP, or create in any employee or class of employees any right with
respect to continuation of employment by the Company, and it shall not be deemed
to interfere in any way with the Company's right to terminate, or otherwise
modify, an employee's employment at any time.
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19. DESIGNATION OF BENEFICIARY
A Participant may designate a beneficiary who is to receive any accumulated
payroll deductions upon the Participant's death. Such designation may be changed
by the Participant at any time by completing the "beneficiary designation"
section of an ESPP Change Notice and delivering the ESPP Change Notice to the
Plan Administrator. Upon the death of a Participant and upon receipt by the
Company of proof of identity, the Company shall deliver such accumulated payroll
deductions to such beneficiary. In the event of the death of a Participant and
in the absence of a beneficiary validly designated under the Plan who is living
at the time of such Participant's death, the Company shall deliver such
accumulated payroll deductions to the executor or personal representative of the
Participant's estate or if no executor or personal representative has been
appointed (to the knowledge of the Company), the Company, in its discretion, may
deliver such accumulated payroll deductions to the spouse or to any one or more
dependents of the Participant as the Company may designate. No beneficiary
shall, prior to the death of the Participant by whom he or she has been
designated, acquire any interest in the Participant's accumulated payroll
deductions.
20. TERMINATION AND AMENDMENTS TO ESPP
The ESPP may be terminated at any time by the Plan Administrator but,
except as provided in Section 16, such termination shall not affect the rights
of Participants under the ESPP for the Purchase Period in progress at the time
of termination. The ESPP will terminate in any case when all or substantially
all of the unissued shares of Common Stock reserved for the purposes of the ESPP
have been purchased. If at any time shares of Common Stock reserved for the
purpose of the ESPP remain available for purchase but not in sufficient number
to satisfy all then unfilled purchase requirements, the available shares shall
be apportioned among Participants in proportion to the respective amounts of
their accumulated payroll deductions, and the ESPP shall terminate. Upon such
termination or any other termination of the ESPP, all accumulated payroll
deductions not used to purchase shares of Common Stock will be refunded to the
Participants entitled thereto. The ESPP may be terminated, modified or amended
by the shareholders of the Company. The Board of Directors of the Company may
also terminate this ESPP, or modify or amend the ESPP in such respects as it
shall deem advisable in order to conform to any change in any law or regulation
applicable thereto, or in other respects; however, to the extent required by
applicable law or regulation, shareholder approval will be required for any
amendment which will (a) increase the total number of shares which may be issued
under the ESPP, (b) change the class of persons eligible to purchase Common
Stock under the ESPP, (c) materially increase the benefits accruing to
Participants under the ESPP, or (d) otherwise require shareholder approval under
any applicable law or regulation.
21. INFORMATION TO PARTICIPANTS
A Participant in the ESPP shall not have any rights as a shareholder of the
Company on account of shares of Common Stock that may be purchased under the
ESPP prior to the time such shares are actually purchased by and issued to the
Participant. Notwithstanding the
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foregoing, the Company shall deliver to each Participant under the ESPP who does
not otherwise receive such materials (a) a copy of the Company's annual
financial statements, together with management's discussion and analysis of
financial condition and results of operations for the fiscal year, and (b) a
copy of all reports, proxy statements and other communications distributed to
the Company's security holders generally.
22. APPROVAL OF STOCKHOLDERS
The ESPP will become effective on the effective date of the Company's
registration statement filed in connection with the Company's initial public
offering, subject to approval by the holders of a majority of the shares of the
Company present or represented by proxy at an annual meeting of the stockholders
of the Company held within one year after the date on which the ESPP is adopted
by the Board of Directors of the Company. The ESPP shall also be subject to
approval by the stockholders of the Company in a manner that complies with
Section 423(b)(2) of the Code. If the ESPP is not so approved, it shall not
become effective, and all payroll deductions of Participants accumulated under
the ESPP will be promptly returned to the Participants.
Date Approved by Board of Directors: August 29, 2000.
Date Approved by Shareholders: _______________, 2000.
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