EXHIBIT 99.3
DIGITAL ISLAND
STOCK OPTION AGREEMENT
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RECITALS
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A. The Board has adopted the Plan for the purpose of retaining the
services of selected Employees, non-employee members of the Board or of the
board of directors of any Parent or Subsidiary and consultants and other
independent advisors who provide services to the Corporation (or any Parent or
Subsidiary).
B. Optionee is to render valuable services to the Corporation (or a Parent
or Subsidiary), and this Agreement is executed pursuant to, and is intended to
carry out the purposes of, the Plan in connection with the Corporation's grant
of an option to Optionee.
C. All capitalized terms in this Agreement shall have the meaning assigned
to them in the attached Appendix.
NOW, THEREFORE, it is hereby agreed as follows:
1. Grant of Option. The Corporation hereby grants to Optionee, as of
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the Grant Date, an option to purchase up to the number of Option Shares
specified in the Grant Notice. The Option Shares shall be purchasable from
time to time during the option term specified in Paragraph 2 at the Exercise
Price.
2. Option Term. This option shall have a maximum term of ten (10) years
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measured from the Grant Date and shall accordingly expire at the close of
business on the Expiration Date, unless sooner terminated in accordance with
Paragraph 5 or 6.
3. Limited Transferability.
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(a) This option shall be neither transferable nor assignable by
Optionee other than by will or by the laws of inheritance following Optionee's
death and may be exercised, during Optionee's lifetime, only by Optionee.
However, Optionee may designate one or more persons as the beneficiary or
beneficiaries of this option, and this option shall, in accordance with such
designation, automatically be transferred to this beneficiary or beneficiaries
upon the Optionee's death while holding such option. Such beneficiary or
beneficiaries shall take the transferred option subject to all the terms and
conditions of this Agreement, including (without limitation) the limited time
period during which this option may, pursuant to Paragraph 5, be exercised
following Optionee's death.
(b) If this option is designated a Non-Statutory Option in the Grant
Notice, then this option may, in connection with the Optionee's estate plan,
be assigned in whole or in part during Optionee's lifetime to one or more
members of Optionee's immediate family or to a trust established for the
exclusive benefit of one or more such family members. The assigned portion
shall be exercisable only by the person or persons who acquire a proprietary
interest in the option pursuant to such assignment. The terms applicable to
the assigned portion shall be the same as those in effect for this option
immediately prior to such assignment.
4. Dates of Exercise. This option shall become exercisable for the Option
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Shares in one or more installments as specified in the Grant Notice. As the
option becomes exercisable for such installments, those installments shall
accumulate and the option shall remain exercisable for the accumulated
installments until the Expiration Date or sooner termination of the option term
under Paragraph 5 or 6.
5. Cessation of Service. The option term specified in Paragraph 2 shall
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terminate (and this option shall cease to be outstanding) prior to the
Expiration Date should any of the following provisions become applicable:
(a) Should Optionee cease to remain in Service for any reason (other
than death, Permanent Disability or Misconduct) while holding this option,
then Optionee shall have a period of three (3) months (commencing with the
date of such cessation of Service) during which to exercise this option, but
in no event shall this option be exercisable at any time after the Expiration
Date.
(b) Should Optionee die while holding this option, then the personal
representative of Optionee's estate or the person or persons to whom the
option is transferred pursuant to Optionee's will or in accordance with the
laws of inheritance shall have the right to exercise this option. However, if
Optionee has designated one or more beneficiaries of this option, then those
persons shall have the exclusive right to exercise this option following
Optionee's death. Any such right to exercise this option shall lapse, and this
option shall cease to be outstanding, upon the earlier of (i) the expiration of
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the twelve (12)-month period measured from the date of Optionee's death or (ii)
the Expiration Date.
(c) Should Optionee cease Service by reason of Permanent Disability
while holding this option, then Optionee shall have a period of twelve (12)
months (commencing with the date of such cessation of Service) during which to
exercise this option. In no event shall this option be exercisable at any time
after the Expiration Date.
(d) During the limited period of post-Service exercisability, this
option may not be exercised in the aggregate for more than the number of
Option Shares for which the option is exercisable at the time of Optionee's
cessation of Service. Upon the expiration of such limited exercise period or
(if earlier) upon the Expiration Date, this option shall terminate and cease
to be outstanding for any exercisable Option Shares for which the option has
not been exercised. However, this option shall, immediately upon Optionee's
cessation of Service for any reason, terminate and cease to be outstanding
with respect to any Option Shares for which this option is not otherwise at
that time exercisable.
(e) Should Optionee's Service be terminated for Misconduct or should
Optionee otherwise engage in any Misconduct while this option is outstanding,
then this option shall terminate immediately and cease to remain outstanding.
6. Special Acceleration of Option.
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(a) This option, to the extent outstanding at the time of a
Corporate Transaction but not otherwise fully exercisable, shall automatically
accelerate so that this option shall, immediately prior to the effective date
of such Corporate Transaction, become exercisable for all of the Option Shares
at the time subject to this option and may be exercised for any or all of
those Option Shares as fully vested shares of Common Stock. No such
acceleration of this option shall occur, however, if and to the extent: (i)
this option is, in connection with the Corporate Transaction, to be assumed by
the successor corporation (or parent thereof) or (ii) this option is to be
replaced with a cash incentive program of the successor corporation which
preserves the spread existing at the time of the Corporate Transaction on the
Option Shares for which this option is not otherwise at that time exercisable
(the excess of the Fair Market Value of those Option Shares over the aggregate
Exercise Price payable for such shares) and provides for subsequent payout in
accordance with the same option exercise/vesting schedule set forth in the
Grant Notice.
(b) Immediately following the Corporate Transaction, this option
shall terminate and cease to be outstanding, except to the extent assumed by
the successor corporation (or parent thereof) in connection with the Corporate
Transaction.
(c) If this option is assumed in connection with a Corporate
Transaction, then this option shall be appropriately adjusted, immediately
after such Corporate Transaction, to apply to the number and class of
securities which would have been issuable to Optionee in consummation of such
Corporate Transaction had the option been exercised immediately prior to such
Corporate Transaction, and appropriate adjustments shall also be made to the
Exercise Price, provided the aggregate Exercise Price shall remain the same.
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(d) This Agreement shall not in any way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise change its capital
or business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.
7. Adjustment in Option Shares. Should any change be made to the Common
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Stock by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Corporation's receipt of
consideration, appropriate adjustments shall be made to (i) the total number
and/or class of securities subject to this option and (ii) the Exercise Price
in order to reflect such change and thereby preclude a dilution or enlargement
of benefits hereunder.
8. Stockholder Rights. The holder of this option shall not have any
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stockholder rights with respect to the Option Shares until such person shall
have exercised the option, paid the Exercise Price and become a holder of record
of the purchased shares.
9. Manner of Exercising Option.
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(a) In order to exercise this option with respect to all or any part
of the Option Shares for which this option is at the time exercisable,
Optionee (or any other person or persons exercising the option) must take the
following actions:
(i) Execute and deliver to the Corporation a Notice of Exercise
for the Option Shares for which the option is exercised.
(ii) Pay the aggregate Exercise Price for the purchased shares
in one or more of the following forms:
(A) cash or check made payable to the Corporation;
(B) a promissory note payable to the Corporation, but only
to the extent authorized by the Plan Administrator in accordance
with Paragraph 13;
(C) shares of Common Stock held by Optionee (or any other
person or persons exercising the option) for the requisite period
necessary to avoid a charge to the Corporation's earnings for
financial reporting purposes and valued at Fair Market Value on the
Exercise Date; or
(D) through a special sale and remittance procedure
pursuant to which Optionee (or any other person or persons
exercising the option) shall concurrently provide irrevocable
instructions (i) to a Corporation-designated brokerage firm to
effect the immediate sale of the purchased shares and remit to the
Corporation, out of the sale proceeds available on the settlement
date, sufficient funds to cover the aggregate Exercise Price payable
for the purchased shares plus all applicable Federal, state and
local income and employment taxes required to be withheld by the
Corporation by reason of such exercise and (ii) to the Corporation
to deliver the certificates for the purchased shares directly to
such brokerage firm in order to complete the sale.
Except to the extent the sale and remittance procedure is
utilized in connection with the option exercise, payment of the
Exercise Price must accompany the Notice of Exercise delivered to the
Corporation in connection with the option exercise.
(iii) Furnish to the Corporation appropriate documentation that
the person or persons exercising the option (if other than Optionee) have
the right to exercise this option.
(iv) Make appropriate arrangements with the Corporation (or
Parent or Subsidiary employing or retaining Optionee) for the
satisfaction of all Federal, state and local income and employment tax
withholding requirements applicable to the option exercise.
(b) As soon as practical after the Exercise Date, the Corporation
shall issue to or on behalf of Optionee (or any other person or persons
exercising this option) a certificate for the purchased Option Shares, with
the appropriate legends affixed thereto.
(c) In no event may this option be exercised for any fractional
shares.
10. Compliance with Laws and Regulations.
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(a) The exercise of this option and the issuance of the Option
Shares upon such exercise shall be subject to compliance by the Corporation
and Optionee with all applicable requirements of law relating thereto and with
all applicable regulations of any stock exchange (or the Nasdaq National
Market, if applicable) on which the Common Stock may be listed for trading at
the time of such exercise and issuance.
(b) The inability of the Corporation to obtain approval from any
regulatory body having authority deemed by the Corporation to be necessary to
the lawful issuance and sale of any Common Stock pursuant to this option shall
relieve the Corporation of any liability with respect to the non-issuance or
sale of the Common Stock as to which such approval shall not have been
obtained. The Corporation, however, shall use its best efforts to obtain all
such approvals.
11. Successors and Assigns. Except to the extent otherwise provided in
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Paragraphs 3 and 6, the provisions of this Agreement shall inure to the benefit
of, and be binding upon, the Corporation and its successors and assigns and
Optionee, Optionee's assigns, the legal representatives, heirs and legatees of
Optionee's estate and any beneficiaries of this option designated by Optionee.
12. Notices. Any notice required to be given or delivered to the
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Corporation under the terms of this Agreement shall be in writing and
addressed to the Corporation at its principal corporate offices. Any notice
required to be given or delivered to Optionee shall be in writing and
addressed to Optionee at the address indicated below Optionee's signature line
on the Grant Notice. All notices shall be deemed effective upon personal
delivery or upon deposit in the U.S. mail, postage prepaid and properly
addressed to the party to be notified.
13. Financing. The Plan Administrator may, in its absolute discretion and
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without any obligation to do so, permit Optionee to pay the Exercise Price for
the purchased Option Shares by delivering a full-recourse promissory note
payable to the Corporation. The terms of any such promissory note (including
the interest rate, the requirements for collateral and the terms of repayment)
shall be established by the Plan Administrator in its sole discretion.
14. Construction. This Agreement and the option evidenced hereby are
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made and granted pursuant to the Plan and are in all respects limited by and
subject to the terms of the Plan. All decisions of the Plan Administrator with
respect to any question or issue arising under the Plan or this Agreement
shall be conclusive and binding on all persons having an interest in this
option.
15. Governing Law. The interpretation, performance and enforcement of
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this Agreement shall be governed by the laws of the State of California
without resort to that State's conflict-of-laws rules.
16. Excess Shares. If the Option Shares covered by this Agreement
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exceed, as of the Grant Date, the number of shares of Common Stock which may
without stockholder approval be issued under the Plan, then this option shall
be void with respect to those excess shares, unless stockholder approval of an
amendment sufficiently increasing the number of shares of Common Stock
issuable under the Plan is obtained in accordance with the provisions of the
Plan.
17. Additional Terms Applicable to an Incentive Option. In the event this
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option is designated an Incentive Option in the Grant Notice, the following
terms and conditions shall also apply to the grant:
(a) This option shall cease to qualify for favorable tax treatment
as an Incentive Option if (and to the extent) this option is exercised for one
or more Option Shares: (A) more than three (3) months after the date Optionee
ceases to be an Employee for any reason other than death or Permanent
Disability or (B) more than twelve (12) months after the date Optionee ceases
to be an Employee by reason of Permanent Disability.
(b) No installment under this option shall qualify for favorable
tax treatment as an Incentive Option if (and to the extent) the aggregate Fair
Market Value (determined at the Grant Date) of the Common Stock for which such
installment first becomes exercisable hereunder would, when added to the
aggregate value (determined as of the respective date or dates of grant) of
the Common Stock or other securities for which this option or any other
Incentive Options granted to Optionee prior to the Grant Date (whether under
the Plan or any other option plan of the Corporation or any Parent or
Subsidiary) first become exercisable during the same calendar year, exceed One
Hundred Thousand Dollars ($100,000) in the aggregate. Should such One Hundred
Thousand Dollar ($100,000) limitation be exceeded in any calendar year, this
option shall nevertheless become exercisable for the excess shares in such
calendar year as a Non-Statutory Option.
(c) Should the exercisability of this option be accelerated upon a
Corporate Transaction, then this option shall qualify for favorable tax
treatment as an Incentive Option only to the extent the aggregate Fair Market
Value (determined at the Grant Date) of the Common Stock for which this option
first becomes exercisable in the calendar year in which the Corporate
Transaction occurs does not, when added to the aggregate value (determined as
of the respective date or dates of grant) of the Common Stock or other
securities for which this option
or one or more other Incentive Options granted to Optionee prior to the Grant
Date (whether under the Plan or any other option plan of the Corporation or
any Parent or Subsidiary) first become exercisable during the same calendar
year, exceed One Hundred Thousand Dollars ($100,000) in the aggregate. Should
the applicable One Hundred Thousand Dollar ($100,000) limitation be exceeded
in the calendar year of such Corporate Transaction, the option may
nevertheless be exercised for the excess shares in such calendar year as a Non-
Statutory Option.
(d) Should Optionee hold, in addition to this option, one or more
other options to purchase Common Stock which become exercisable for the first
time in the same calendar year as this option, then the foregoing limitations
on the exercisability of such options as Incentive Options shall be applied on
the basis of the order in which such options are granted.
EXHIBIT I
NOTICE OF EXERCISE
I hereby notify Digital Island, Inc. (the "Corporation") that I
elect to purchase shares of the Corporation's Common Stock (the
"Purchased Shares") at the option exercise price of $ per share (the
"Exercise Price") pursuant to that certain option (the "Option") granted to me
under the Corporation's 1999 Stock Incentive Plan on , .
Concurrently with the delivery of this Exercise Notice to the
Corporation, I shall hereby pay to the Corporation the Exercise Price for the
Purchased Shares in accordance with the provisions of my agreement with the
Corporation (or other documents) evidencing the Option and shall deliver
whatever additional documents may be required by such agreement as a condition
for exercise. Alternatively, I may utilize the special broker-dealer sale and
remittance procedure specified in my agreement to effect payment of the Exercise
Price.
____________________, ________
Date
________________________________
Optionee
Address:________________________
________________________________
Print name in exact manner it is
to appear on the stock
certificate: ________________________________
Address to which certificate is to
be sent, if different from
address above: ________________________________
________________________________
Social Security Number: ________________________________
APPENDIX
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The following definitions shall be in effect under the Agreement:
A. Agreement shall mean this Stock Option Agreement.
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B. Board shall mean the Corporation's Board of Directors.
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C. Common Stock shall mean shares of the Corporation's common stock.
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D. Code shall mean the Internal Revenue Code of 1986, as amended.
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E. Corporate Transaction shall mean either of the following stockholder-
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approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing more
than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or
persons different from the persons holding those securities immediately
prior to such transaction, or
(ii) the sale, transfer or other disposition of all or substantially
all of the Corporation's assets in complete liquidation or dissolution of
the Corporation.
F. Corporation shall mean Digital Island, Inc. a Delaware corporation, and
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any successor corporation to all or substantially all of the assets or voting
stock of Digital Island, Inc. which shall by appropriate action adopt the Plan.
G. Employee shall mean an individual who is in the employ of the
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Corporation (or any Parent or Subsidiary), subject to the control and
direction of the employer entity as to both the work to be performed and the
manner and method of performance.
H. Exercise Date shall mean the date on which the option shall have been
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exercised in accordance with Paragraph 9 of the Agreement.
I. Exercise Price shall mean the exercise price per Option Share as
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specified in the Grant Notice.
J. Expiration Date shall mean the date on which the option expires as
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specified in the Grant Notice.
K. Fair Market Value per share of Common Stock on any relevant date shall
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be determined in accordance with the following provisions:
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(i) If the Common Stock is at the time traded on the Nasdaq National
Market, then the Fair Market Value shall be deemed equal to the closing
selling price per share of Common Stock on the date in question, as the
price is reported by the National Association of Securities Dealers on
the Nasdaq National Market. If there is no closing selling price for the
Common Stock on the date in question, then the Fair Market Value shall be
the closing selling price on the last preceding date for which such
quotation exists, or
(ii) If the Common Stock is at the time listed on any Stock Exchange,
then the Fair Market Value shall be deemed equal to the closing selling
price per share of Common Stock on the date in question on the Stock
Exchange determined by the Plan Administrator to be the primary market
for the Common Stock, as such price is officially quoted in the composite
tape of transactions on such exchange. If there is no closing selling
price for the Common Stock on the date in question, then the Fair Market
Value shall be the closing selling price on the last preceding date for
which such quotation exists.
X. Xxxxx Date shall mean the date of grant of the option as specified in
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the Grant Notice.
X. Xxxxx Notice shall mean the Notice of Grant of Stock Option
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accompanying the Agreement, pursuant to which Optionee has been informed of
the basic terms of the option evidenced hereby.
N. Incentive Option shall mean an option which satisfies the requirements
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of Code Section 422.
O. Misconduct shall mean the commission of any act of fraud, embezzlement
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or dishonesty by Optionee, any unauthorized use or disclosure by Optionee of
confidential information or trade secrets of the Corporation (or any Parent or
Subsidiary), or any other intentional misconduct by Optionee adversely
affecting the business or affairs of the Corporation (or any Parent or
Subsidiary) in a material manner. The foregoing definition shall not be deemed
to be inclusive of all the acts or omissions which the Corporation (or any
Parent or Subsidiary) may consider as grounds for the dismissal or discharge
of Optionee or any other individual in the Service of the Corporation (or any
Parent or Subsidiary).
P. Non-Statutory Option shall mean an option not intended to satisfy the
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requirements of Code Section 422.
Q. Notice of Exercise shall mean the notice of exercise in the form
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attached hereto as Exhibit I.
R. Option Shares shall mean the number of shares of Common Stock subject
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to the option as specified in the Grant Notice.
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S. Optionee shall mean the person to whom the option is granted as
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specified in the Grant Notice.
T. Parent shall mean any corporation (other than the Corporation) in an
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unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
U. Permanent Disability shall mean the inability of Optionee to engage
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in any substantial gainful activity by reason of any medically determinable
physical or mental impairment which is expected to result in death or has
lasted or can be expected to last for a continuous period of twelve (12)
months or more.
V. Plan shall mean the Corporation's 1999 Stock Incentive Plan.
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W. Plan Administrator shall mean either the Board or a committee of the
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Board acting in its capacity as administrator of the Plan.
X. Service shall mean the Optionee's performance of services for the
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Corporation (or any Parent or Subsidiary) in the capacity of an Employee, a non-
employee member of the board of directors or a consultant or independent
advisor.
Y. Stock Exchange shall mean the American Stock Exchange or the New York
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Stock Exchange.
Z. Subsidiary shall mean any corporation (other than the Corporation) in
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an unbroken chain of corporations beginning with the Corporation, provided
each corporation (other than the last corporation) in the unbroken chain owns,
at the time of the determination, stock possessing fifty percent (50%) or more
of the total combined voting power of all classes of stock in one of the other
corporations in such chain.
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