EXHIBIT 10.3
2003 EQUITY INCENTIVE PLAN
OF
AVANIR PHARMACEUTICALS
TABLE OF CONTENTS
PAGE
----
1. Purpose of this Plan................................................................... 1
2. Definitions and Rules of Interpretation................................................ 1
2.1 Definitions...................................................................... 1
2.2 Rules of Interpretation.......................................................... 5
3. Shares Subject to this Plan; Term of this Plan......................................... 5
3.1 Number of Award Shares........................................................... 5
3.2 Source of Shares................................................................. 5
3.3 Term of this Plan................................................................ 5
4. Administration......................................................................... 5
4.1 General.......................................................................... 5
4.2 Authority of Administrator....................................................... 6
4.3 Scope of Discretion.............................................................. 7
5. Persons Eligible to Receive Awards..................................................... 8
5.1 Eligible Individuals............................................................. 8
5.2 Limitations on Issuances to Certain Awardees..................................... 8
6. Terms and Conditions of Options........................................................ 8
6.1 Price............................................................................ 8
6.2 Term............................................................................. 8
6.3 Vesting.......................................................................... 8
6.4 Form and Method of Payment....................................................... 8
6.5 Nonassignability of Options...................................................... 9
6.6 Substitute Options............................................................... 9
6.7 Repricings....................................................................... 10
7. Stock Appreciation Rights and Stock Awards............................................. 10
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7.1 Stock Appreciation Rights........................................................ 10
7.2 StockAwards...................................................................... 11
8. Exercise of Awards..................................................................... 12
8.1 In General....................................................................... 12
8.2 Time of Exercise................................................................. 12
8.3 Issuance of Award Shares......................................................... 12
8.4 Termination...................................................................... 12
9. Certain Transactions and Events........................................................ 14
9.1 In General....................................................................... 14
9.2 Changes in Capital Structure..................................................... 14
9.3 Fundamental Transactions......................................................... 14
9.4 Changes in Control............................................................... 14
9.5 Divestiture...................................................................... 15
9.6 Dissolution...................................................................... 15
9.7 Cut-Back to Preserve Benefits.................................................... 15
10. Withholding and Tax Reporting.......................................................... 16
10.1 Tax Withholding Alternatives..................................................... 16
11. Compliance with Law.................................................................... 16
12. Amendment or Termination of this Plan or Outstanding Awards............................ 16
12.1 Amendment and Termination........................................................ 16
12.2 Shareholder Approval............................................................. 17
12.3 Effect........................................................................... 17
13. Reserved Rights........................................................................ 17
13.1 Nonexclusivity of this Plan...................................................... 17
13.2 Unfunded Plan.................................................................... 17
14. Special Arrangements Regarding Award Shares............................................ 17
14.1 Escrow of Stock Certificates..................................................... 17
14.2 Repurchase Rights................................................................ 18
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15. Beneficiaries.......................................................................... 18
16. Miscellaneous.......................................................................... 18
16.1 Governing Law.................................................................... 18
16.2 Determination of Value........................................................... 18
16.3 Reservation of Shares............................................................ 19
16.4 Electronic Communications........................................................ 19
16.5 Notices.......................................................................... 19
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2003 EQUITY INCENTIVE PLAN
OF
AVANIR PHARMACEUTICALS
1. PURPOSE OF THIS PLAN
The purpose of this 2003 Equity Incentive Plan is to enhance the
long-term shareholder value of Avanir Pharmaceuticals by offering opportunities
to eligible individuals to participate in the growth in value of the equity of
Avanir Pharmaceuticals.
2. DEFINITIONS AND RULES OF INTERPRETATION
2.1 DEFINITIONS. This Plan uses the following defined terms:
(a) "ADMINISTRATOR" means the Board, the Committee, or
any officer or employee of the Company to whom the Board or the Committee
delegates authority to administer this Plan.
(b) "AFFILIATE" means a "parent" or "subsidiary" (as each
is defined in Section 424 of the Code) of the Company and any other entity that
the Board or Committee designates as an "Affiliate" for purposes of this Plan.
(c) "APPLICABLE LAW" means any and all laws of whatever
jurisdiction, within or without the United States, and the rules of any stock
exchange or quotation system on which Shares are listed or quoted, applicable to
the taking or refraining from taking of any action under this Plan, including
the administration of this Plan and the issuance or transfer of Awards or Award
Shares.
(d) "AWARD" means a Stock Award, SAR or Nonstatutory
Option granted in accordance with the terms of this Plan.
(e) "AWARD AGREEMENT" means the document evidencing the
grant of an Award.
(f) "AWARD SHARES" means Shares covered by an outstanding
Award or purchased under an Award.
(g) "AWARDEE" means: (i) a person to whom an Award has
been granted, including a holder of a Substitute Award, and (ii) a person to
whom an Award has been transferred in accordance with all applicable
requirements of Sections 6.5 and 15.
(h) "BOARD" means the Board of Directors of the Company.
(i) "CHANGE IN CONTROL" means any transaction or event
that the Board specifies as a Change in Control under Section 9.4.
(j) "CODE" means the Internal Revenue Code of 1986.
(k) "COMMITTEE" means a committee composed of Company
Directors appointed in accordance with the Company's charter documents and
Section 4.
(l) "COMPANY" means Avanir Pharmaceuticals, a California
corporation.
(m) "COMPANY DIRECTOR" means a member of the Board.
(n) "CONSULTANT" means an individual who, or an employee
or owner of any entity that, provides bona fide services to the Company or an
Affiliate.
(o) "DIRECTOR" means a member of the Board of Directors
of the Company or an Affiliate.
(p) "DIVESTITURE" means any transaction or event that the
Board specifies as a Divestiture under Section 9.5.
(q) "DOMESTIC RELATIONS ORDER" means a "domestic
relations order" as defined in, and otherwise meeting the requirements of,
Section 414(p) of the Code, except that reference to a "plan" in that definition
shall be to this Plan.
(r) "EMPLOYEE" means a regular employee of the Company or
an Affiliate, including an officer or Director, who is treated as an employee in
the personnel records of the Company or an Affiliate, but not individuals who
are classified by the Company or an Affiliate as: (i) leased from or otherwise
employed by a third party, (ii) independent contractors, or (iii) intermittent
or temporary workers. The Company's or an Affiliate's classification of an
individual as an "Employee" (or as not an "Employee") for purposes of this Plan
shall not be altered retroactively even if that classification is changed
retroactively for another purpose as a result of an audit, litigation or
otherwise. An Awardee shall not cease to be an Employee due to transfers between
locations of the Company, or between the Company and an Affiliate, or to any
successor to the Company or an Affiliate that assumes the Awardee's Options
under Section 9. Neither service as a Director nor receipt of a director's fee
shall be sufficient to make a Director an "Employee."
(s) "EXCHANGE ACT" means the Securities Exchange Act of
1934.
(t) "EXECUTIVE" means, if the Company has any class of
any equity security registered under Section 12 of the Exchange Act, an
individual who is subject to Section 16 of the Exchange Act because of the
individual's relationship with the Company or an Affiliate. If the Company does
not have any class of any equity security registered under Section 12 of the
Exchange Act, "Executive" means any (i) Director, (ii)
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officer elected or appointed by the Board, or (iii) beneficial owner of more
than 10% of any class of the Company's equity securities.
(u) "EXPIRATION DATE" means, with respect to an Award,
the date stated in the Award Agreement as the expiration date of the Award or,
if no such date is stated in the Award Agreement, then the last day of the
maximum exercise period for the Award, disregarding the effect of an Awardee's
Termination or any other event that would shorten that period.
(v) "FAIR MARKET VALUE" means the value of Shares as
determined under Section 16.2.
(w) "FUNDAMENTAL TRANSACTION" means any transaction or
event described in Section 9.3.
(x) "GRANT DATE" means the date the Administrator
approves the grant of an Award. However, if the Administrator specifies that an
Award's Grant Date is a future date or the date on which a condition is
satisfied, the Grant Date for such Award is that future date or the date that
the condition is satisfied.
(y) "NONSTATUTORY OPTION" means any Option other than an
incentive stock option qualified as such under Section 422 of the Code.
(z) "OBJECTIVELY DETERMINABLE PERFORMANCE CONDITION"
shall mean a performance condition (i) that is established (A) at the time an
Award is granted or (B) no later than the earlier of (1) 90 days after the
beginning of the period of service to which it relates, or (2) before the elapse
of 25% of the period of service to which it relates, (ii) that is uncertain of
achievement at the time it is established, and (iii) the achievement of which is
determinable by a third party with knowledge of the relevant facts. Examples of
measures that may be used in Objectively Determinable Performance Conditions
include net order dollars, net profit dollars, net profit growth, net revenue
dollars, revenue growth, individual performance goals, earnings per share,
return on assets, return on equity, and other financial objectives, objective
customer satisfaction indicators and efficiency measures, each with respect to
the Company and/or an Affiliate or individual business unit.
(aa) "OFFICER" means an officer of the Company as defined
in Rule 16a-1 adopted under the Exchange Act.
(bb) "OPTION" means a right to purchase Shares of the
Company granted under this Plan.
(cc) "OPTION PRICE" means the price payable under an
Option for Shares, not including any amount payable in respect of withholding or
other taxes.
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(dd) "OPTION SHARES" means Shares covered by an
outstanding Option or purchased under an Option.
(ee) "PLAN" means this 2003 Equity Incentive Plan of
Avanir Pharmaceuticals.
(ff) "PURCHASE PRICE" means the price payable under a
Stock Award for Shares, not including any amount payable in respect of
withholding or other taxes.
(gg) "RULE 16b-3" means Rule 16b-3 adopted under Section
16(b) of the Exchange Act.
(hh) "SAR" OR "STOCK APPRECIATION RIGHT" means a right to
receive cash based on a change in the Fair Market Value of a specific number of
Shares pursuant to an Award Agreement, as described in Section 7.1.
(ii) "SECURITIES ACT" means the Securities Act of 1933.
(jj) "SHARE" means a share of the Class A Common Stock of
the Company or other securities substituted for the Class A Common Stock under
Section 9.
(kk) "STOCK AWARD" means an offer by the Company to sell
shares subject to certain restrictions pursuant to the Award Agreement as
described in Section 7.2.
(ll) "SUBSTITUTE AWARD" means a Substitute Option,
Substitute SAR or Substitute Stock Award granted in accordance with the terms of
this Plan.
(mm) "SUBSTITUTE OPTION" means an Option granted in
substitution for, or exchange or conversion of, an option granted by another
entity to purchase equity securities in the granting entity.
(nn) "SUBSTITUTE SAR" means a SAR granted in substitution
for, or exchange or conversion of, a stock appreciation right granted by another
entity with respect to equity securities in the granting entity.
(oo) "SUBSTITUTE STOCK AWARD" means a Stock Award granted
in substitution for, or exchange or conversion of, a stock award granted by
another entity to purchase equity securities in the granting entity.
(pp) "TERMINATION" means that the Awardee has ceased to
be, with or without any cause or reason, an Employee, Director or Consultant.
However, unless so determined by the Administrator, "Termination" shall not
include a change in status from an Employee, Consultant or Director to another
such status. An event that causes an
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Affiliate to cease being an Affiliate shall be treated as the "Termination" of
that Affiliate's Employees, Directors, and Consultants.
2.2 RULES OF INTERPRETATION. Any reference to a "Section," without
more, is to a Section of this Plan. Captions and titles are used for convenience
in this Plan and shall not, by themselves, determine the meaning of this Plan.
Except when otherwise indicated by the context, the singular includes the plural
and vice versa. Any reference to a statute is also a reference to the applicable
rules and regulations adopted under that statute. Any reference to a statute,
rule or regulation, or to a section of a statute, rule or regulation, is a
reference to that statute, rule, regulation, or section as amended from time to
time, both before and after the effective date of this Plan and including any
successor or substitute provisions.
3. SHARES SUBJECT TO THIS PLAN; TERM OF THIS PLAN
3.1 NUMBER OF AWARD SHARES. Subject to adjustment under Section 9,
the maximum number of Shares that may be issued under this Plan is 2,500,000, as
increased on the first January 1 after the effective date of this Plan and each
January 1 thereafter by a number of Shares equal to the least of: (a) 5% of the
number of Shares issued and outstanding on the immediately preceding December
31, or (b) a number of Shares set by the Board. When an Award is granted, the
maximum number of Shares that may be issued under this Plan shall be reduced by
the number of Shares covered by that Award. If an Award later terminates or
expires without having been exercised in full, the maximum number of Shares that
may be issued under this Plan shall be increased by the number of Shares covered
by, but not purchased under, that Award. The repurchase of Shares by the Company
pursuant to a Stock Award that has not vested in full shall not increase the
maximum number of Shares that may be issued under this Plan.
3.2 SOURCE OF SHARES. Award Shares may be: (a) Shares that have
never been issued, (b) Shares that have been issued but are no longer
outstanding, or (c) Shares that are outstanding and are acquired to discharge
the Company's obligation to deliver Award Shares.
3.3 TERM OF THIS PLAN
(a) This Plan shall be effective on, and Awards may be
granted under this Plan after, the date it has been adopted by the Board.
(b) This Plan has no termination date. However, it
terminates as provided in Section 12.
4. ADMINISTRATION
4.1 GENERAL
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(a) The Board shall have ultimate responsibility for
administering this Plan. The Board may delegate certain of its responsibilities
to a Committee, which shall consist of at least two members of the Board. The
Board or the Committee may further delegate its responsibilities to any Employee
of the Company or any Affiliate. Where this Plan specifies that an action is to
be taken or a determination made by the Board, only the Board may take that
action or make that determination. Where this Plan specifies that an action is
to be taken or a determination made by the Committee, only the Committee may
take that action or make that determination. Where this Plan references the
"Administrator," the action may be taken or determination made by the Board, the
Committee, or other Administrator. Notwithstanding anything herein to the
contrary, only the Board or the Committee may approve grants of Awards to
Executives, and an Administrator other than the Board or the Committee may grant
Awards only within guidelines established by the Board or Committee. All actions
and determinations by any Administrator are subject to the provisions of this
Plan.
(b) So long as the Company has registered and outstanding
a class of equity securities under Section 12 of the Exchange Act, the Committee
shall consist of Company Directors who are "Non-Employee Directors" as defined
in Rule 16b-3.
4.2 AUTHORITY OF ADMINISTRATOR. Subject to the other provisions of
this Plan, the Administrator shall have the authority to:
(a) grant Awards, including Substitute Awards;
(b) determine the Fair Market Value of Shares;
(c) determine the Option Price and the Purchase Price of
Awards;
(d) select the Awardees;
(e) determine the times Awards are granted;
(f) determine the number of Shares subject to each Award;
(g) determine the methods of payment that may be used to
purchase Award Shares;
(h) determine the methods of payment that may be used to
satisfy withholding tax obligations;
(i) determine the other terms of each Award, including
but not limited to the time or times at which Awards may be exercised, whether
and under what conditions an Award is assignable;
(j) modify or amend any Award;
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(k) authorize any person to sign any Award Agreement or
other document related to this Plan on behalf of the Company;
(l) determine the form of any Award Agreement or other
document related to this Plan, and whether that document, including signatures,
may be in electronic form;
(m) interpret this Plan and any Award Agreement or
document related to this Plan;
(n) correct any defect, remedy any omission, or reconcile
any inconsistency in this Plan, any Award Agreement or any other document
related to this Plan;
(o) adopt, amend, and revoke rules and regulations under
this Plan, including rules and regulations relating to sub-plans and Plan
addenda;
(p) adopt, amend, and revoke special rules and procedures
which may be inconsistent with the terms of this Plan, set forth (if the
Administrator so chooses) in sub-plans regarding, for example, the operation and
administration of this Plan and the terms of Awards, if and to the extent
necessary or useful to accommodate non-U.S. Applicable Laws and practices as
they apply to Awards and Award Shares held by, or granted or issued to, persons
working or resident outside of the United States or employed by Affiliates
incorporated outside the United States;
(q) determine whether a transaction or event should be
treated as a Change in Control, a Divestiture or neither;
(r) determine the effect of a Fundamental Transaction
and, if the Board determines that a transaction or event should be treated as a
Change in Control or a Divestiture, then the effect of that Change in Control or
Divestiture; and
(s) make all other determinations the Administrator deems
necessary or advisable for the administration of this Plan.
4.3 SCOPE OF DISCRETION. Subject to the last sentence of this
Section 4.3, on all matters for which this Plan confers the authority, right or
power on the Board, the Committee, or other Administrator to make decisions,
that body may make those decisions in its sole and absolute discretion. Those
decisions will be final, binding and conclusive. In making its decisions, the
Board, Committee or other Administrator need not treat all persons eligible to
receive Awards, all Awardees, all Awards or all Award Shares the same way.
Notwithstanding anything herein to the contrary, and except as provided in
Section 12.3, the discretion of the Board, Committee or other Administrator is
subject to the specific provisions and specific limitations of this Plan, as
well as all rights conferred on specific Awardees by Award Agreements and other
agreements.
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5. PERSONS ELIGIBLE TO RECEIVE AWARDS
5.1 ELIGIBLE INDIVIDUALS. Awards (including Substitute Awards) may
be granted to, and only to, Employees, Directors and Consultants, including to
prospective Employees, Directors and Consultants conditioned on the beginning of
their service to or for the Company or an Affiliate.
5.2 LIMITATIONS ON ISSUANCES TO CERTAIN AWARDEES. Notwithstanding
any other provision of this Plan, no Award may be granted under this Plan to any
Executive if:
(i) the effect of such grant would be to cause the number
of Shares issued or issuable to Executives, as a group, upon the grant or
exercise of such Award, to exceed 50% of the total Shares issued or issuable
under this Plan in the first three years (the "INITIAL PERIOD") following
adoption of this Plan; or
(ii) the effect of such grant would be to cause the number
of Shares issued or issuable to Executives, as a group, upon the grant or
exercise of such Award, to exceed 50% of the total Shares issued or issuable
under this Plan in any 12 month period following the Initial Period.
6. TERMS AND CONDITIONS OF OPTIONS
The following rules apply to all Options:
6.1 PRICE. No Option may have an Option Price less than 85% of the
Fair Market Value of the Shares on the Grant Date.
6.2 TERM. No Option shall be exercisable after its Expiration
Date. No Option may have an Expiration Date that is more than ten years after
its Grant Date.
6.3 VESTING. Options shall be exercisable: (a) on the Grant Date,
(b) in accordance with a schedule related to the Grant Date, the date the
Optionee's directorship, employment or consultancy begins, or a different date
specified in the Option Agreement, or (c) upon the achievement of Objectively
Determinable Performance Conditions. No Option granted to an individual who is
subject to the overtime pay provisions of the Fair Labor Standards Act may be
exercised before the expiration of six months after the Grant Date.
6.4 FORM AND METHOD OF PAYMENT.
(a) The Administrator shall determine the acceptable form
and method of payment for exercising an Option.
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(b) Acceptable forms of payment for all Option Shares are
cash, check or wire transfer, denominated in U.S. dollars except as specified by
the Administrator for non-U.S. Employees or non-U.S. sub-plans.
(c) In addition, the Administrator may permit payment to
be made by any of the following methods:
(i) other Shares, or the designation of other
Shares, which (A) are "mature" shares for purposes of avoiding variable
accounting treatment under generally accepted accounting principles (generally
mature shares are those that have been owned by the Optionee for more than six
months on the date of surrender), and (B) have a Fair Market Value on the date
of surrender equal to the Option Price of the Shares as to which the Option is
being exercised;
(ii) provided that a public market exists for the
Shares, consideration received by the Company under a procedure under which a
licensed broker-dealer advances funds on behalf of an Optionee or sells Option
Shares on behalf of an Optionee (a "CASHLESS EXERCISE PROCEDURE"), provided that
if the Company extends or arranges for the extension of credit to an Optionee
under any Cashless Exercise Procedure, no Officer or Director may participate in
that Cashless Exercise Procedure;
(iii) any combination of the methods of payment
permitted by any paragraph of this Section 6.4.
(d) The Administrator may also permit any other form or
method of payment for Option Shares permitted by Applicable Law.
6.5 NONASSIGNABILITY OF OPTIONS. Except as determined by the
Administrator, no Option shall be assignable or otherwise transferable by the
Optionee except by will or by the laws of descent and distribution. However,
Options may be transferred and exercised in accordance with a Domestic Relations
Order and may be exercised by a guardian or conservator appointed to act for the
Optionee.
6.6 SUBSTITUTE OPTIONS. The Board may cause the Company to grant
Substitute Options in connection with the acquisition by the Company or an
Affiliate of equity securities of any entity (including by merger, tender offer,
or other similar transaction) or of all or a portion of the assets of any
entity. Any such substitution shall be effective on the effective date of the
acquisition. Unless and to the extent specified otherwise by the Board,
Substitute Options shall have the same terms and conditions as the options they
replace, except that (subject to Section 9) Substitute Options shall be Options
to purchase Shares rather than equity securities of the granting entity and
shall have an Option Price determined by the Board.
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6.7 REPRICINGS. Options may be repriced, replaced or regranted,
through cancellation or modification without shareholder approval.
7. STOCK APPRECIATION RIGHTS AND STOCK AWARDS
7.1 STOCK APPRECIATION RIGHTS. The following rules apply to SARs:
(a) GENERAL. SARs may be granted either alone, in
addition to, or in tandem with other Awards granted under the Plan. The
Administrator may grant SARs to eligible participants subject to terms and
conditions not inconsistent with this Plan and determined by the Administrator.
The specific terms and conditions applicable to the Awardee shall be provided
for in the Award Agreement. SARs shall be exercisable, in whole or in part, at
such times as the Administrator shall specify in the Award Agreement. The grant
or vesting of a SAR may be made contingent on the achievement of Objectively
Determinable Performance Conditions.
(b) EXERCISE OF SARs. Upon the exercise of an SAR, in
whole or in part, an Awardee shall be entitled to a payment in an amount equal
to the excess of the Fair Market Value of a fixed number of Shares covered by
the exercised portion of the SAR on the date of exercise, over the Fair Market
Value of the Shares covered by the exercised portion of the SAR on the Grant
Date. The amount due to the Awardee upon the exercise of a SAR will be paid in
cash or Shares over the period or periods specified in the Award Agreement. An
Award Agreement may place limits on the amount that may be paid over any
specified period or periods upon the exercise of a SAR, on an aggregate basis or
as to any Awardee. A SAR shall be considered exercised when the Company receives
written notice of exercise in accordance with the terms of the Award Agreement
from the person entitled to exercise the SAR. If a SAR has been granted in
tandem with an Option, upon the exercise of the SAR the number of shares that
may be purchased pursuant to the Option shall be reduced by the number of shares
with respect to which the SAR is exercised.
(c) NONASSIGNABILITY OF SARs. Except as determined by the
Administrator, no SAR shall be assignable or otherwise transferable by the
Awardee except by will or by the laws of descent and distribution.
Notwithstanding anything herein to the contrary, SARs may be transferred and
exercised in accordance with a Domestic Relations Order.
(d) SUBSTITUTE SARs. The Board may cause the Company to
grant Substitute SARs in connection with the acquisition by the Company or an
Affiliate of equity securities of any entity (including by merger) or all or a
portion of the assets of any entity. Any such substitution shall be effective on
the effective date of the acquisition. Unless and to the extent specified
otherwise by the Board, Substitute SARs shall have the same terms and conditions
as the options they replace, except that (subject to Section 9) Substitute SARs
shall be exercisable with respect to the Fair Market Value
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of Shares rather than equity securities of the granting entity and shall be on
terms that, as determined by the Board in its sole and absolute discretion,
properly reflects the substitution.
(e) REPRICINGS. An SAR may be repriced, replaced or
regranted, through cancellation or modification without shareholder approval.
7.2 STOCK AWARDS. The following rules apply to all Stock Awards:
(a) GENERAL. The specific terms and conditions of a Stock
Award applicable to the Awardee shall be provided for in the Award Agreement.
The Award Agreement shall state the number of Shares that the Awardee shall be
entitled to receive or purchase, the terms and conditions on which the Shares
shall vest, the price to be paid, if any, and, if applicable, the time within
which the Awardee must accept such offer. The offer shall be accepted by
execution of the Award Agreement. The grant or vesting of a Stock Award may be
made contingent on achievement of Objectively Determinable Performance
Conditions.
(b) RIGHT OF REPURCHASE. If so provided in the Award
Agreement, Award Shares acquired pursuant to a Stock Award may be subject to
repurchase by the Company or an Affiliate if not vested in accordance with the
Award Agreement.
(c) FORM OF PAYMENT. The Administrator shall determine
the acceptable form and method of payment for exercising a Stock Award.
Acceptable forms of payment for all Award Shares are cash, check or wire
transfer, denominated in U.S. dollars except as specified by the Administrator
for non-U.S. Employees or non-U.S. sub-plans. In addition, the Administrator may
permit payment to be made by any of the methods permitted with respect to the
exercise of Options pursuant to Section 6.4.
(d) NONASSIGNABILITY OF STOCK AWARDS. Except as
determined by the Administrator, no Stock Award shall be assignable or otherwise
transferable by the Awardee except by will or by the laws of descent and
distribution. Notwithstanding anything to the contrary herein, Stock Awards may
be transferred and exercised in accordance with a Domestic Relations Order.
(e) SUBSTITUTE STOCK AWARD. The Board may cause the
Company to grant Substitute Stock Awards in connection with the acquisition by
the Company or an Affiliate of equity securities of any entity (including by
merger) or all or a portion of the assets of any entity. Unless and to the
extent specified otherwise by the Board, Substitute Stock Awards shall have the
same terms and conditions as the stock awards they replace, except that (subject
to Section 9) Substitute Stock Awards shall be Stock Awards to purchase Shares
rather than equity securities of the granting entity and shall have a Purchase
Price that, as determined by the Board in its sole and absolute discretion,
11
properly reflects the substitution. Any such Substituted Stock Award shall be
effective on the effective date of the acquisition.
8. EXERCISE OF AWARDS
8.1 IN GENERAL. An Award shall be exercisable in accordance with
this Plan and the Award Agreement under which it is granted.
8.2 TIME OF EXERCISE. Options and Stock Awards shall be considered
exercised when the Company receives: (a) written notice of exercise from the
person entitled to exercise the Option or Stock Award, (b) full payment, or
provision for payment, in a form and method approved by the Administrator, for
the Shares for which the Option or Stock Award is being exercised, and (c) with
respect to Nonstatutory Options, payment, or provision for payment, in a form
approved by the Administrator, of all applicable withholding taxes due upon
exercise. An Award may not be exercised for a fraction of a Share. SARs shall be
considered exercised when the Company receives written notice of the exercise
from the person entitled to exercise the SAR.
8.3 ISSUANCE OF AWARD SHARES. The Company shall issue Award Shares
in the name of the person properly exercising the Award. If the Awardee is that
person and so requests, the Award Shares shall be issued in the name of the
Awardee and the Awardee's spouse. The Company shall endeavor to issue Award
Shares promptly after an Award is exercised or after the Grant Date of a Stock
Award, as applicable. Until Award Shares are actually issued, as evidenced by
the appropriate entry on the stock register of the Company, the Awardee will not
have the rights of a shareholder with respect to those Award Shares, even though
the Awardee has completed all the steps necessary to exercise the Award. No
adjustment shall be made for any dividend, distribution, or other right for
which the record date precedes the date the Award Shares are issued, except as
provided in Section 10.
8.4 TERMINATION
(a) IN GENERAL. Except as provided in an Award Agreement
or in writing by the Administrator, including in an Award Agreement, and as
otherwise provided in Sections 8.4(b), (c), and (d), after an Awardee's
Termination, the Awardee's Awards shall be exercisable to the extent (but only
to the extent) they are vested on the date of that Termination and only during
the three months after the Termination, but in no event after the Expiration
Date. To the extent the Awardee does not exercise an Award within the time
specified for exercise, the Award shall automatically terminate.
(b) LEAVES OF ABSENCE. Unless otherwise provided in the
Award Agreement, no Award may be exercised more than three months after the
beginning of a leave of absence, other than a personal or medical leave approved
by an authorized representative of the Company with employment guaranteed upon
return. Awards shall
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not continue to vest during a leave of absence, unless otherwise determined by
the Administrator with respect to an approved personal or medical leave with
employment guaranteed upon return.
(c) DEATH OR DISABILITY. Unless otherwise provided by the
Administrator, if an Awardee's Termination is due to death or disability (as
determined by the Administrator), all Awards, to the extent exercisable on the
date of the Termination, may be exercised for one year after the Termination,
but in no event after the Expiration Date. In the case of a Termination due to
death, an Award may be exercised as provided in Section 15. In the case of
Termination due to disability, if a guardian or conservator has been appointed
to act for the Awardee and has been granted this authority as part of that
appointment, then such guardian or conservator may exercise the Award on behalf
of the Awardee. Death or disability occurring after an Awardee's Termination
shall not cause the Termination to be treated as having occurred due to death or
disability. To the extent an Award is not exercised within the time specified
for its exercise, the Award shall automatically terminate.
(d) DIVESTITURE. If an Awardee's Termination is due to a
Divestiture, the Board may take any one or more of the actions described in
Section 9.3 or 9.4 with respect to the Awardee's Awards.
(e) TERMINATION FOR CAUSE. If an Awardee's Termination is
due to Cause, as hereinafter defined, all of the Awardee's Awards shall
automatically terminate and cease to be exercisable and the Administrator may
rescind any and all exercises of Awards by the Awardee that occurred after the
first event constituting Cause. "Cause" means employment-related dishonesty,
fraud, misconduct or disclosure or misuse of confidential information, or other
employment-related conduct that has, or is, likely to cause significant injury
to the Company, an Affiliate, or any of their respective employees, officers or
directors (including, without limitation, commission of a felony or similar
offense), in each case as determined by the Administrator, in its good faith
judgment, which determination shall be conclusive and binding.
(f) CONSULTING OR EMPLOYMENT RELATIONSHIP. Nothing in
this Plan or in any Award Agreement, and no Award or the fact that Award Shares
remain subject to repurchase rights, shall: (A) interfere with or limit the
right of the Company or any Affiliate to terminate the employment or consultancy
of any Awardee at any time, whether with or without cause or reason, and with or
without the payment of severance or any other compensation or payment, or (B)
interfere with the application of any provision in any of the Company's or any
Affiliate's charter documents or Applicable Law relating to the election,
appointment, term of office, or removal of a Director.
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9. CERTAIN TRANSACTIONS AND EVENTS
9.1 IN GENERAL. Except as provided in this Section 9, no change in
the capital structure of the Company, merger, sale or other disposition of
assets or a subsidiary, change in control, issuance by the Company of shares of
any class of securities or securities convertible into shares of any class of
securities, exchange or conversion of securities, or other transaction or event
shall require or be the occasion for any adjustments of the type described in
this Section 9. Additional provisions with respect to the foregoing transactions
are set forth in Section 12.3.
9.2 CHANGES IN CAPITAL STRUCTURE. In the event of any stock split,
reverse stock split, recapitalization, combination or reclassification of stock,
stock dividend, spin-off, or similar change to the capital structure of the
Company (not including a Fundamental Transaction or Change in Control), the
Board shall make whatever adjustments it concludes are appropriate to: (a) the
number and type of Awards that may be granted under this Plan, (b) the number
and type of Options that may be granted to any individual under this Plan, (c)
the terms of any SAR, (d) the Purchase Price of any Stock Award, (e) the Option
Price and number and class of securities issuable under each outstanding Option,
and (f) the repurchase price of any securities substituted for Award Shares that
are subject to repurchase rights. The specific adjustments shall be determined
by the Board. Unless the Board specifies otherwise, any securities issuable as a
result of any such adjustment shall be rounded down to the next lower whole
security. The Board need not adopt the same rules for each Award or each
Awardee.
9.3 FUNDAMENTAL TRANSACTIONS. If the Company merges with another
entity in a transaction in which the Company is not the surviving entity or if,
as a result of any other transaction or event, other securities are substituted
for the Shares or Shares may no longer be issued pursuant to Awards (each a
"FUNDAMENTAL Transaction"), then, notwithstanding any other provision of this
Plan, the Board shall do one or more of the following contingent on the closing
or completion of the Fundamental Transaction: (a) arrange for the substitution,
in exchange for Awards, of options to purchase equity securities other than
Shares (including, if appropriate, equity securities of an entity other than the
Company) (an "assumption" of Awards) on such terms and conditions as the Board
determines are appropriate, (b) accelerate the vesting and termination of
outstanding Awards, in whole or in part, so that Awards can be exercised before
or otherwise in connection with the closing or completion of the Fundamental
Transaction or event but then terminate, (c) cancel or arrange for the
cancellation of Awards in exchange for cash payments to Awardees, and (d) either
arrange for any repurchase rights of the Company with respect to Award Shares to
apply to the securities issued in substitution for Shares or terminate
repurchase rights on Award Shares. The Board need not adopt the same rules for
each Award or each Awardee.
9.4 CHANGES IN CONTROL. The Board may also, but need not, specify
that other transactions or events constitute a "CHANGE IN CONTROL". The Board
may do that either
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before or after the transaction or event occurs. Examples of transactions or
events that the Board may treat as Changes in Control are: (a) the Company or an
Affiliate is a party to a merger, consolidation, amalgamation, or other
transaction in which the beneficial shareholders of the Company, immediately
before the transaction, beneficially own securities representing 50% or less of
the total combined voting power or value of the Company immediately after the
transaction, (b) any person or entity, including a "group" as contemplated by
Section 13(d)(3) of the Exchange Act, acquires securities holding 30% or more of
the total combined voting power or value of the Company, or (c) as a result of
or in connection with a contested election of Company Directors, the persons who
were Company Directors immediately before the election cease to constitute a
majority of the Board. In connection with a Change in Control, notwithstanding
any other provision of this Plan, the Board may, but need not, take any one or
more of the actions described in Section 9.3. In addition, the Board may extend
the date for the exercise of Awards (but not beyond their original Expiration
Date). The Board need not adopt the same rules for each Award or each Awardee.
9.5 DIVESTITURE. If the Company or an Affiliate sells or otherwise
transfers equity securities of an Affiliate to a person or entity other than the
Company or an Affiliate, or leases, exchanges or transfers all or any portion of
its assets to such a person or entity, then the Board may specify that such
transaction or event constitutes a "DIVESTITURE". In connection with a
Divestiture, notwithstanding any other provision of this Plan, the Board may,
but need not, take one or more of the actions described in Section 9.3 or 9.4
with respect to Awards or Award Shares held by, for example, Employees,
Directors or Consultants for whom that transaction or event results in a
Termination. The Board need not adopt the same rules for each Award or each
Awardee.
9.6 DISSOLUTION. If the Company adopts a plan of dissolution, the
Board may cause Awards to be fully vested and exercisable (but not after their
Expiration Date) before the dissolution is completed but contingent on its
completion and may cause the Company's repurchase rights on Award Shares to
lapse upon completion of the dissolution. The Board need not adopt the same
rules for each Award or each Awardee. Notwithstanding anything herein to the
contrary, in the event of a dissolution of the Company, to the extent not
exercised before the earlier of the completion of the dissolution or their
Expiration Date, Awards shall terminate immediately prior to the dissolution.
9.7 CUT-BACK TO PRESERVE BENEFITS. If the Administrator determines
that the net after-tax amount to be realized by any Awardee, taking into account
any accelerated vesting, termination of repurchase rights, or cash payments to
that Awardee in connection with any transaction or event set forth in this
Section 9, would be greater if one or more of those steps were not taken or
payments were not made with respect to that Awardee's Awards or Award Shares,
then, and to that extent, one or more of those steps shall not be taken and
payments shall not be made.
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10. WITHHOLDING AND TAX REPORTING
10.1 TAX WITHHOLDING ALTERNATIVES
(a) GENERAL. Whenever Award Shares are issued or become
free of restrictions, the Company may require the Awardee to remit to the
Company an amount sufficient to satisfy any applicable tax withholding
requirement, whether the related tax is imposed on the Awardee or the Company.
The Company shall have no obligation to deliver Award Shares or release Award
Shares from an escrow or permit a transfer of Award Shares until the Awardee has
satisfied those tax withholding obligations. Whenever payment in satisfaction of
Awards is made in cash, the payment will be reduced by an amount sufficient to
satisfy all tax withholding requirements.
(b) METHOD OF PAYMENT. The Awardee shall pay any required
withholding using the forms of consideration described in Section 6.4(b), except
that, in the discretion of the Administrator, the Company may also permit the
Awardee to use any of the forms of payment described in Section 6.4(c). The
Administrator, in its sole discretion, may also permit Award Shares to be
withheld to pay required withholding. If the Administrator permits Award Shares
to be withheld, the Fair Market Value of the Award Shares withheld, as
determined as of the date of withholding, shall not exceed the amount determined
by the applicable minimum statutory withholding rates.
11. COMPLIANCE WITH LAW
The grant of Awards and the issuance and subsequent transfer of Award
Shares shall be subject to compliance with all Applicable Law, including all
applicable securities laws. Awards may not be exercised, and Award Shares may
not be transferred, in violation of Applicable Law. Thus, for example, Awards
may not be exercised unless: (a) a registration statement under the Securities
Act is then in effect with respect to the related Award Shares, or (b) in the
opinion of legal counsel to the Company, those Award Shares may be issued in
accordance with an applicable exemption from the registration requirements of
the Securities Act and any other applicable securities laws. The failure or
inability of the Company to obtain from any regulatory body the authority
considered by the Company's legal counsel to be necessary or useful for the
lawful issuance of any Award Shares or their subsequent transfer shall relieve
the Company of any liability for failing to issue those Award Shares or
permitting their transfer. As a condition to the exercise of any Award or the
transfer of any Award Shares, the Company may require the Awardee to satisfy any
requirements or qualifications that may be necessary or appropriate to comply
with or evidence compliance with any Applicable Law.
12. AMENDMENT OR TERMINATION OF THIS PLAN OR OUTSTANDING AWARDS
12.1 AMENDMENT AND TERMINATION. The Board may at any time amend,
suspend, or terminate this Plan.
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12.2 SHAREHOLDER APPROVAL. The Company shall obtain the approval of
the Company's shareholders for any amendment to this Plan if shareholder
approval is necessary to comply with any Applicable Law.
12.3 EFFECT. No amendment, suspension, or termination of this Plan,
and no modification of any Award even in the absence of an amendment,
suspension, or termination of this Plan, shall impair any existing contractual
rights of any Awardee unless the affected Awardee consents to the amendment,
suspension, termination, or modification. Notwithstanding anything herein to the
contrary, no such consent shall be required if the Board determines, in its sole
and absolute discretion, that the amendment, suspension, termination, or
modification: (a) is required or advisable in order for the Company, this Plan
or the Award to satisfy Applicable Law, to meet the requirements of any
accounting standard or to avoid any adverse accounting treatment, or (b) in
connection with any transaction or event described in Section 9, is in the best
interests of the Company or its shareholders. The Board may, but need not, take
the tax consequences to affected Awardees into consideration in acting under the
preceding sentence. Those decisions will be final, binding and conclusive.
Termination of this Plan shall not affect the Administrator's ability to
exercise the powers granted to it under this Plan with respect to Awards granted
before the termination of this Plan.
13. RESERVED RIGHTS
13.1 NONEXCLUSIVITY OF THIS PLAN. This Plan shall not limit the
power of the Company or any Affiliate to adopt other incentive arrangements
including, for example, the grant or issuance of stock, stock options, or other
equity-based rights under other plans.
13.2 UNFUNDED PLAN. This Plan shall be unfunded. Although
bookkeeping accounts may be established with respect to Awardees, any such
accounts will be used merely as a convenience. The Company shall not be required
to segregate any assets on account of this Plan, the grant of Awards, or the
issuance of Award Shares. The Company and the Administrator shall not be deemed
to be a trustee of stock or cash to be awarded under this Plan. Any obligations
of the Company to any Awardee shall be based solely upon contracts entered into
under this Plan, such as Award Agreements. No such obligations shall be deemed
to be secured by any pledge or other encumbrance on any assets of the Company.
Neither the Company nor the Administrator shall be required to give any security
or bond for the performance of any such obligations.
14. SPECIAL ARRANGEMENTS REGARDING AWARD SHARES
14.1 ESCROW OF STOCK CERTIFICATES. To enforce any restrictions on
Award Shares, the Administrator may require their holder to deposit the
certificates representing Award Shares, with stock powers or other transfer
instruments approved by the Administrator endorsed in blank, with the Company or
an agent of the Company to hold
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in escrow until the restrictions have lapsed or terminated. The Administrator
may also cause a legend or legends referencing the restrictions to be placed on
the certificates.
14.2 REPURCHASE RIGHTS
(a) GENERAL. If a Stock Award is subject to vesting
conditions, the Company shall have the right, during the seven months after the
Awardee's Termination, to repurchase any or all of the Award Shares that were
unvested as of the date of that Termination. The repurchase price shall be
determined by the Administrator in accordance with this Section 14.2 which shall
be either (i) the Purchase Price for the Award Shares (minus the amount of any
cash dividends paid or payable with respect to the Award Shares for which the
record date precedes the repurchase) or (ii) the lower of (A) the Purchase Price
for the Shares or (B) the Fair Market Value of those Award Shares as of the date
of the Termination. The repurchase price shall be paid in cash. The Company may
assign this right of repurchase.
(b) PROCEDURE. The Company or its assignee may choose to
give the Awardee a written notice of exercise of its repurchase rights under
this Section 14.2. However, the Company's failure to give such a notice shall
not affect its rights to repurchase Award Shares. The Company must, however,
tender the repurchase price during the period specified in this Section 14.2 for
exercising its repurchase rights in order to exercise such rights.
15. BENEFICIARIES
An Awardee may file a written designation of one or more beneficiaries
who are to receive the Awardee's rights under the Awardee's Awards after the
Awardee's death. An Awardee may change such a designation at any time by written
notice. If an Awardee designates a beneficiary, the beneficiary may exercise the
Awardee's Awards after the Awardee's death. If an Awardee dies when the Awardee
has no living beneficiary designated under this Plan, the Company shall allow
the executor or administrator of the Awardee's estate to exercise the Award or,
if there is none, the person entitled to exercise the Option under the Awardee's
will or the laws of descent and distribution. In any case, no Award may be
exercised after its Expiration Date.
16. MISCELLANEOUS
16.1 GOVERNING LAW. This Plan, the Award Agreements and all other
agreements entered into under this Plan, and all actions taken under this Plan
or in connection with Awards or Award Shares, shall be governed by the
substantive laws, but not the choice of law rules, of the State of California.
16.2 DETERMINATION OF VALUE. Fair Market Value shall be determined
as follows:
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(a) LISTED STOCK. If the Shares are traded on any
established stock exchange or quoted on a national market system, Fair Market
Value shall be the closing sales price for the Shares as quoted on that stock
exchange or system for the date the value is to be determined (the "VALUE DATE")
as reported in The Wall Street Journal or a similar publication. If no sales are
reported as having occurred on the Value Date, Fair Market Value shall be that
closing sales price for the last preceding trading day on which sales of Shares
are reported as having occurred. If no sales are reported as having occurred
during the five trading days before the Value Date, Fair Market Value shall be
the closing bid price for Shares on the Value Date. If Shares are listed on
multiple exchanges or systems, Fair Market Value shall be based on sales or bid
prices on the primary exchange or system on which Shares are traded or quoted.
(b) STOCK QUOTED BY SECURITIES DEALER. If Shares are
regularly quoted by a recognized securities dealer but selling prices are not
reported on any established stock exchange or quoted on a national market
system, Fair Market Value shall be the mean between the high bid and low asked
prices on the Value Date. If no prices are quoted for the Value Date, Fair
Market Value shall be the mean between the high bid and low asked prices on the
last preceding trading day on which any bid and asked prices were quoted.
(c) NO ESTABLISHED MARKET. If Shares are not traded on
any established stock exchange or quoted on a national market system and are not
quoted by a recognized securities dealer, the Administrator (following
guidelines established by the Board or Committee) will determine Fair Market
Value in good faith. The Administrator will consider the following factors, and
any others it considers significant, in determining Fair Market Value: (i) the
price at which other securities of the Company have been issued to purchasers
other than Employees, Directors, or Consultants, (ii) the Company's
shareholder's equity, prospective earning power, dividend-paying capacity, and
non-operating assets, if any, and (iii) any other relevant factors, including
the economic outlook for the Company and the Company's industry, the Company's
position in that industry, the Company's goodwill and other intellectual
property, and the values of securities of other businesses in the same industry.
16.3 RESERVATION OF SHARES. During the term of this Plan, the
Company will at all times reserve and keep available such number of Shares as
are still issuable under this Plan.
16.4 ELECTRONIC COMMUNICATIONS. Any Award Agreement, notice of
exercise of an Award, or other document required or permitted by this Plan may
be delivered in writing or, to the extent determined by the Administrator,
electronically. Signatures may also be electronic if permitted by the
Administrator.
16.5 NOTICES. Unless the Administrator specifies otherwise, any
notice to the Company under any Option Agreement or with respect to any Awards
or Award Shares
19
shall be in writing (or, if so authorized by Section 16.4, communicated
electronically), shall be addressed to the Secretary of the Company, and shall
only be effective when received by the Secretary of the Company.
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