EXHIBIT 10.4
SCIENTIFIC LEARNING CORPORATION
1999 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
ADOPTED MAY 17, 1999
APPROVED BY STOCKHOLDERS MAY 28, 1999
AMENDED OCTOBER 9, 2002
AMENDED FEBRUARY 25, 2003
APPROVED BY STOCKHOLDERS MAY 21, 2003
AMENDED MARCH 16, 2005
APPROVED BY STOCKHOLDERS JUNE __, 2005
TERMINATION DATE: MAY 17, 2009
1. PURPOSE.
(a) The purpose of the 1999 Non-Employee Directors' Stock Option Plan (the
"Plan") is to provide a means by which each member of the Board of Directors of
Scientific Learning Corporation (the "Company") who is not at the time of grant
an employee of the Company or of any Affiliate of the Company, or a holder or
representative of the holder of 10% or more of the Company's capital stock (each
such person being hereafter referred to as a "Non-Employee Director") will be
given an opportunity to purchase stock of the Company.
(b) The word "Affiliate" as used in the Plan means any parent corporation
or subsidiary corporation of the Company as those terms are defined in Sections
424(e) and (f), respectively, of the Internal Revenue Code of 1986, as amended
from time to time (the "Code").
(c) The Company, by means of the Plan, seeks to retain the services of
persons now serving as Non-Employee Directors of the Company, to secure and
retain the services of persons capable of serving in such capacity, and to
provide incentives for such persons to exert maximum efforts for the success of
the Company.
2. ADMINISTRATION.
(a) The Board of Directors of the Company (the "Board") shall administer
the Plan unless and until the Board delegates administration to a committee, as
provided in subparagraph 2(b).
(b) The Board may delegate administration of the Plan to a committee
composed of two (2) or more members of the Board (the "Committee"). If
administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, the powers theretofore possessed
by the Board, subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.
1.
3. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of paragraph 10 relating to adjustments upon
changes in stock, the stock that may be sold pursuant to options granted under
the Plan shall not exceed in the aggregate Two Hundred Fifty Thousand (250,000)
shares of the Company's common stock. If any option granted under the Plan shall
for any reason expire or otherwise terminate without having been exercised in
full, the stock not purchased under such option shall again become available for
the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
(c) Notwithstanding any provision herein to the contrary, in the event the
Plan is not approved by holders of at least two-thirds of the Company's
outstanding common stock within twelve months of the date an option is first
granted hereunder following the October 2002 amendment of the Plan, then, unless
an exemption from qualification is available with respect to such grant that
does not require compliance with the provisions of 260.140.45 of the California
Code of Regulations, any option granted hereunder which (i) followed the October
2002 amendment of the Plan and (ii) was granted at a time when the total number
of securities issuable upon exercise of all outstanding options [exclusive of
rights described in Section 260.140.40 and warrants described in Sections
260.140.43 and 260.140.44 of the California Code of Regulations, and any
purchase plan or agreement as described in Section 260.140.42 of the California
Code of Regulations (provided that the purchase plan or agreement provides that
all securities will have a purchase price of 100% of the fair value, as
determined in accordance with Section 260.140.50 of the California Code of
Regulations, of the security either at the time the person is granted the right
to purchase securities under the plan or agreement or at the time the purchase
is consummated)] and the total number of securities called for under any bonus
or similar plan or agreement exceeded 30% of the Company's then outstanding
securities, calculated on an as-converted to common stock basis, shall be void.
4. ELIGIBILITY.
Options shall be granted only to Non-Employee Directors of the Company.
5. NON-DISCRETIONARY GRANTS AND COMPENSATION.
(a) Upon the effectiveness of the registration statement for the initial
public offering (the "IPO") of the Company, each person who is then a
Non-Employee Director, and after the IPO, upon the election to the Board of
Directors of a new member who is a Non-Employee Director, automatically shall be
granted options to purchase Five Thousand (5,000) shares of common stock of the
Company (an "Initial Grant") on the terms and conditions set forth herein;
provided, however, that (unless otherwise determined by a majority of
disinterested Directors) such Initial Grant shall only be granted to
Non-Employee Directors who have not previously been granted stock options or had
the opportunity to purchase restricted stock in the Company in connection with
their service as a Director of the Company.
2.
(b) Each person who is a Non-Employee Director on any anniversary of the
IPO automatically shall, on such anniversary, be granted an option to purchase
Five Thousand (5,000) shares of common stock of the Company on the terms and
conditions set forth herein (an "Annual Grant").
6. OPTION PROVISIONS.
Each option shall be subject to the following terms and conditions:
(a) The term of each option commences on the date it is granted and,
unless sooner terminated as set forth herein, expires on the date five (5) years
from the date of grant ("Expiration Date"). If the optionee's service as a
Non-Employee Director of the Company or an employee, member of the Board of
Directors or consultant to the Company or any Affiliate terminates for any
reason or for no reason, the option shall terminate on the earlier of the
Expiration Date or the date twelve (12) months following the date of termination
of all such service; provided, however, that if such termination of service is
due to the optionee's death, the option shall terminate on the earlier of the
Expiration Date or eighteen (18) months following the date of the optionee's
death.
(b) The exercise price of each option shall be equal to one hundred
percent (100%) of the Fair Market Value of the stock (as such term is defined in
subsection 9(d)) subject to such option on the date such option is granted.
(c) The optionee may elect to make payment of the exercise price under one
of the following alternatives:
(i) Payment of the exercise price per share in cash at the time of
exercise;
(ii) Provided that at the time of the exercise the Company's common
stock is publicly traded and quoted regularly in The Wall Street Journal,
payment by delivery of shares of common stock of the Company already owned by
the optionee, held for the period required to avoid a charge to the Company's
reported earnings, and owned free and clear of any liens, claims, encumbrances
or security interest, which common stock shall be valued at its Fair Market
Value on the date preceding the date of exercise; or
(iii) Payment pursuant to a program developed under Regulation T as
promulgated by the Federal Reserve Board which results in the receipt of cash
(or check) by the Company either prior to the issuance of shares of the
Company's common stock or pursuant to the terms of irrevocable instructions
issued by the optionee prior to the issuance of shares of the Company's common
stock.
(iv) Payment by a combination of the methods of payment specified in
subparagraph 6(c)(i) through 6(c)(iii) above.
(d) An option shall not be transferable except by will or by the laws of
descent and distribution and, to the extent provided in the option agreement, to
such further extent as
3.
permitted by Section 260.140.41(d) of Title 10 of the California Code of
Regulations at the time of the grant of the option, and shall be exercisable
during the lifetime of the optionee only by the optionee. If the option does not
provide for transferability, then the option shall not be transferable except by
will or by the laws of descent and distribution and shall be exercisable during
the lifetime of the optionee only by the optionee. Notwithstanding the
foregoing, the optionee may, by delivering written notice to the Company, in a
form satisfactory to the Company, designate a third party who, in the event of
the death of the optionee, shall thereafter be entitled to exercise the option.
(e) The Initial Grant shall be fully vested at the time of grant.
(f) The Annual Grant shall be fully vested at the time of grant.
(g) The Company may require any optionee, or any person to whom an option
is transferred under subparagraph 6(d), as a condition of exercising any such
option: (i) to give written assurances satisfactory to the Company as to the
optionee's knowledge and experience in financial and business matters; and (ii)
to give written assurances satisfactory to the Company stating that such person
is acquiring the stock subject to the option for such person's own account and
not with any present intention of selling or otherwise distributing the stock.
These requirements, and any assurances given pursuant to such requirements,
shall be inoperative if (i) the issuance of the shares upon the exercise of the
option has been registered under a then currently-effective registration
statement under the Securities Act of 1933, as amended (the "Securities Act"),
or (ii) as to any particular requirement, a determination is made by counsel for
the Company that such requirement need not be met in the circumstances under the
then applicable securities laws. The Company may require any optionee to provide
such other representations, written assurances or information that the Company
shall determine is necessary, desirable or appropriate to comply with applicable
securities laws as a condition of granting an option to the optionee or
permitting the optionee to exercise the option. The Company may, upon advice of
counsel to the Company, place legends on stock certificates issued under the
Plan as such counsel deems necessary or appropriate in order to comply with
applicable securities laws, including, but not limited to, legends restricting
the transfer of the stock.
(h) Notwithstanding anything to the contrary contained herein, an option
may not be exercised unless the shares issuable upon exercise of such option are
then registered under the Securities Act or, if such shares are not then so
registered, the Company has determined that such exercise and issuance would be
exempt from the registration requirements of the Securities Act.
7. COVENANTS OF THE COMPANY.
(a) During the terms of the options granted under the Plan, the Company
shall keep available at all times the number of shares of stock required to
satisfy such options.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock upon exercise of the options granted under the
Plan; provided however, that this
4.
undertaking shall not require the Company to register under the Securities Act
either the Plan, any option granted under the Plan, or any stock issued or
issuable pursuant to any such option. If, after reasonable efforts, the Company
is unable to obtain from any such regulatory commission or agency the authority
which counsel for the Company deems necessary for the lawful issuance and sale
of stock under the Plan, the Company shall be relieved from any liability for
failure to issue and sell stock upon exercise of such options.
8. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to options granted under the Plan
shall constitute general funds of the Company.
9. MISCELLANEOUS.
(a) Neither an optionee nor any person to whom an option is transferred
under subparagraph 6(d) shall be deemed to be the holder of, or to have any of
the rights of a holder with respect to, any shares subject to such option unless
and until such person has satisfied all requirements for exercise of the option
pursuant to its terms.
(b) Nothing in the Plan or in any instrument executed pursuant thereto
shall confer upon any Non-Employee Director any right to continue in the service
of the Company or any Affiliate in any capacity or shall affect any right of the
Company, its Board or shareholders or any Affiliate, to remove any Non-Employee
Director pursuant to the Company's Bylaws and the provisions of Delaware general
corporation law.
(c) In connection with each option made pursuant to the Plan, it shall be
a condition precedent to the Company's obligation to issue or transfer shares to
a Non-Employee Director, or to evidence the removal of any restrictions on
transfer, that such Non-Employee Director make arrangements satisfactory to the
Company to insure that the amount of any federal, state or local withholding tax
required to be withheld with respect to such sale or transfer, or such removal
or lapse, is made available to the Company for timely payment of such tax.
(d) As used in this Plan, "Fair Market Value" means, as of any date, the
value of the common stock of the Company determined as follows:
(i) If the common stock is listed on any established stock exchange
or a national market system, including without limitation the Nasdaq National
Market or The Nasdaq SmallCap, or is quoted on the OTC Bulletin Board, the Fair
Market Value of a share of common stock shall be the closing sales price for
such stock (or the closing bid, if no sales were reported) as quoted on such
system, exchange or board (or the exchange with the greatest volume of trading
in common stock) on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other source as
the Board deems reliable; or
(ii) In the absence of an established market for the common stock,
the Fair Market Value shall be determined in good faith by the Board and to the
extent that the Company
5.
is subject to Section 260.140.50 of Title 10 of the California Code of
Regulations ("Section 260.140.50") at the time the option is granted, in a
manner consistent with Section 260.140.50.
(e) To the extent required by Section 260.140.46 of Title 10 of the
California Code of Regulations, the Company shall deliver financial statements
to Participants at least annually. This Section 14 shall not apply to key
Employees whose duties in connection with the Company assure them access to
equivalent information.
10. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject to
any option granted under the Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the Plan and outstanding options will
be appropriately adjusted in the class(es) and maximum number of shares subject
to the Plan and the class(es) and number of shares and price per share of stock
subject to outstanding options. The Board shall make such adjustments, and the
determination of the Board shall be final, binding and conclusive. (The
conversion of any convertible securities of the Company shall not be treated as
a "transaction not involving the receipt of consideration by the Company.")
(b) In the event of: (1) a dissolution, liquidation, or sale of all or
substantially all of the assets of the Company; (2) a merger or consolidation in
which the Company is not the surviving corporation; or (3) a reverse merger in
which the Company is the surviving corporation but the shares of the Company's
common stock outstanding immediately preceding the merger are converted by
virtue of the merger into other property, whether in the form of securities,
cash or otherwise, then (i) any surviving or acquiring corporation shall assume
any options outstanding under the Plan or shall substitute similar options
(including an option to acquire the same consideration paid to the shareholders
in the transaction described in this subparagraph 10(b)) for those outstanding
under the Plan, or (ii) in the event any surviving corporation or acquiring
corporation refuses to assume such options or to substitute similar options for
those outstanding under the Plan, then such options shall be terminated if not
exercised prior to such event.
(c) In the event of the acquisition by any person, entity or group within
the meaning of Section 13(d) or 14(d) of the Exchange Act, or any comparable
successor provisions (excluding any employee benefit plan, or related trust,
sponsored or maintained by the Company or any Affiliate of the Company) of the
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act, or comparable successor rule) of securities of the Company
representing at least fifty percent (50%) of the combined voting power entitled
to vote in the election of directors, then, with respect to options held by
persons whose continuous service has not terminated, the vesting of such options
(and, if applicable, the time during which such options may be exercised) shall
be accelerated immediately upon the happening of such event.
6.
11. AMENDMENT OF THE PLAN.
(a) The Board at any time, and from time to time, may amend the Plan
and/or some or all outstanding options granted under the Plan. However, except
as provided in paragraph 10 relating to adjustments upon changes in stock, no
amendment shall be effective unless approved by the shareholders of the Company
to the extent shareholder approval is necessary for the Plan to satisfy the
requirements of Rule 16b-3 under the Exchange Act or any Nasdaq or securities
exchange listing requirements.
(b) Rights and obligations under any option granted before any amendment
of the Plan shall not be impaired by such amendment unless (i) the Company
requests the consent of the person to whom the option was granted and (ii) such
person consents in writing.
12. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless sooner
terminated, the Plan shall terminate ten (10) years after the date adopted by
the Board. No options may be granted under the Plan while the Plan is suspended
or after it is terminated.
(b) Suspension or termination of the Plan shall not impair rights and
obligations under any option granted while the Plan is in effect, except with
the consent of the person to whom the option was granted.
13. EFFECTIVE DATE OF PLAN; CONDITIONS OF EXERCISE.
(a) The Plan shall become effective on the same day that the Company's
initial public offering of shares of common stock becomes effective, subject to
the condition subsequent that the shareholders of the Company approve the Plan.
(b) No option granted under the Plan shall be exercised or exercisable
unless and until the condition of subparagraph 13(a) above has been met.
7.