EXHIBIT 99.5
FORM OF OPTION AGREEMENT - EARLY EXERCISE
XXXXXXX NETWORKS, INC.
2000 STOCK PLAN
OPTION AGREEMENT -- EARLY EXERCISE
Unless otherwise defined herein, the terms defined in the 2000 Stock
Plan (the "Plan") shall have the same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
[Name]
Address:______________________
______________________
The undersigned Optionee has been granted an Option to purchase Common
Stock of XXXXXXX NETWORKS, INC. (the "Company"), subject to the terms and
conditions of the Plan and this Option Agreement (the "Option Agreement"), as
follows:
Date of Grant _____________________________
Vesting Commencement Date _____________________________
Exercise Price per Share $____________________________
Total Number of Shares Granted _____________________________
Total Exercise Price $____________________________
Type of Option: ______Incentive Stock Option
______Nonstatutory Stock Option
Term/Expiration Date:
Vesting Schedule:
One-fourth (1/4) of the total number of Shares subject to the Option shall
become exercisable on the one year anniversary of the Vesting Commencement Date,
and an additional one forty-eighth (1/48) of the total number of Shares subject
to the Option shall become exercisable on the first day of each full month
thereafter until all the Shares are exercisable, subject to Optionee's
continuing to be a Service Provider on such dates.
Termination Period:
This Option shall be exercisable for three months after Optionee ceases
to be a Service Provider. Upon Optionee's death or Disability, this Option may
be exercised for one year after Optionee ceases to be a Service Provider. In no
event may Optionee exercise this Option after the Term/Expiration Date as
provided above.
II. AGREEMENT
1. Grant of Option. The Plan Administrator of the Company hereby grants
to the Optionee named in the Notice of Grant (the "Optionee"), an option (the
"Option") to purchase the total number of Shares set forth in the Notice of
Grant, at the exercise price per share set forth in the Notice of Grant (the
"Exercise Price") subject to the terms and conditions of the 2000 Stock Plan
(the "Plan") adopted by the Company, which is incorporated herein by reference.
Subject to Section 14(c) of the Plan, in the event of a conflict between the
terms and conditions of the Plan and this Option Agreement, the terms and
conditions of the Plan shall prevail.
If designated in the Notice of Grant as an Incentive Stock Option
("ISO"), this Option is intended to qualify as an Incentive Stock Option as
defined in Section 422 of the Code. Nevertheless, to the extent that it exceeds
the $100,000 rule of Code Section 422(d), this Option shall be treated as a
Nonstatutory Stock Option ("NSO").
2. Exercise of Option.
(a) Right to Exercise.
(i) Subject to subsections 2(a)(ii) and 2(a)(iii) below, this
Option shall be exercisable cumulatively according to the vesting schedule set
forth in the Notice of Grant. Alternatively, at the election of the Optionee,
this option may be exercised in whole or in part at any time as to Shares which
have not yet vested. For purposes of this Stock Option Agreement, Shares subject
to the Option shall vest based on continued employment of Optionee with the
Company. Vested Shares shall not be subject to the Company's repurchase right
(as set forth in the Restricted Stock Purchase Agreement, attached hereto as
Exhibit C-i).
(ii) As a condition to exercising this Option for unvested
Shares, the Optionee shall execute the Restricted Stock Purchase Agreement.
(iii) This Option may not be exercised for a fraction of a Share.
(b) Method of Exercise. This Option shall be exercisable by delivery
of an exercise notice in the form attached as Exhibit A (the "Exercise Notice")
which shall state the election to exercise the Option, the number of Shares with
respect to which the Option is being exercised, and such other representations
and agreements as may be required by the Company. The Exercise Notice shall be
accompanied by payment of the aggregate Exercise Price as to all Exercised
Shares. This Option shall be deemed to be exercised upon receipt by the Company
of such fully executed Exercise Notice accompanied by the aggregate Exercise
Price.
-2-
No Shares shall be issued pursuant to the exercise of an Option unless
such issuance and such exercise complies with Applicable Laws. Assuming such
compliance, for income tax purposes the Shares shall be considered transferred
to the Optionee on the date on which the Option is exercised with respect to
such Shares.
3. Optionee's Representations. In the event the Shares have not been
registered under the Securities Act of 1933, as amended, at the time this Option
is exercised, the Optionee shall, if required by the Company, concurrently with
the exercise of all or any portion of this Option, deliver to the Company his or
her Investment Representation Statement in the form attached hereto as Exhibit
B.
4. Market Standoff Agreement.
(a) Optionee hereby agrees that, if so requested by the Company
or any representative of the underwriters (the "Managing Underwriter") in
connection with any registration of the offering of any securities of the
Company under the Securities Act, Optionee shall not sell or otherwise transfer
any Shares or other securities of the Company during the 180-day period (or such
other period as may be requested in writing by the Managing Underwriter and
agreed to in writing by the Company) (the "Market Standoff Period") following
the effective date of a registration statement of the Company filed under the
Securities Act. Such restriction shall apply only to the first registration
statement of the Company to become effective under the Securities Act that
includes securities to be sold on behalf of the Company to the public in an
underwritten public offering under the Securities Act. The Company may impose
stop-transfer instructions with respect to securities subject to the foregoing
restrictions until the end of such Market Standoff Period.
5. Method of Payment. Payment of the aggregate Exercise Price shall be
by any of the following, or a combination thereof, at the election of the
Optionee:
(a) cash or check;
(b) Should the Common Stock be registered under Section 12(g) of the
1934 Act at the time the option is exercised, then the Exercise Price may also
be paid as follows:
(i) consideration received by the Company under a formal cashless
exercise program adopted by the Company in connection with the Plan; or
(ii) surrender of other Shares which, (A) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six (6) months on the date of surrender, and (B) have a Fair Market Value
on the date of surrender equal to the aggregate Exercise Price of the Exercised
Shares.
6. Restrictions on Exercise. This Option may not be exercised until such
time as the Plan has been approved by the stockholders of the Company, or if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any Applicable
Law.
-3-
7. Non-Transferability of Option. This Option may not be transferred in
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by Optionee. The terms of
the Plan and this Option Agreement shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
8. Term of Option. This Option may be exercised only within the term set
out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option.
9. Tax Consequences. Set forth below is a brief summary as of the date
of this Option of some of the federal tax consequences of exercise of this
Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE,
AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. THE OPTIONEE SHOULD
CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(a) Exercise of ISO. If this Option qualifies as an ISO, there will
be no regular federal income tax liability upon the exercise of the Option,
although the excess, if any, of the Fair Market Value of the Shares on the date
of exercise over the Exercise Price will be treated as an adjustment to the
alternative minimum tax for federal tax purposes and may subject the Optionee to
the alternative minimum tax in the year of exercise.
(b) Exercise of Nonstatutory Stock Option. There may be a regular
federal income tax liability upon the exercise of a Nonstatutory Stock Option.
The Optionee will be treated as having received compensation income (taxable at
ordinary income tax rates) equal to the excess, if any, of the Fair Market Value
of the Shares on the date of exercise over the Exercise Price. If Optionee is an
Employee or a former Employee, the Company will be required to withhold from
Optionee's compensation or collect from Optionee and pay to the applicable
taxing authorities an amount in cash equal to a percentage of this compensation
income at the time of exercise, and may refuse to honor the exercise and refuse
to deliver Shares if such withholding amounts are not delivered at the time of
exercise.
(c) Disposition of Shares. In the case of an NSO, if Shares are held
for at least one year, any gain realized on disposition of the Shares will be
treated as long-term capital gain for federal income tax purposes. In the case
of an ISO, if Shares transferred pursuant to the Option are held for at least
one year after exercise and at least two years after the Date of Grant, any gain
realized on disposition of the Shares will also be treated as long-term capital
gain for federal income tax purposes. If Shares purchased under an ISO are
disposed of within one year after exercise or two years after the Date of Grant,
any gain realized on such disposition will be treated as compensation income
(taxable at ordinary income rates) to the extent of the difference between the
Exercise Price and the lesser of (i) the Fair Market Value of the Shares on the
date of exercise, or (ii) the sale price of the Shares. Different rules may
apply if the Shares are subject to a substantial risk of forfeiture (within the
meaning of Section 83) at the time of purchase. Any additional gain will be
taxed as capital gain, short-term depending on the period that the ISO Shares
were held.
(d) Notice of Disqualifying Disposition of ISO Shares. If the Option
granted to Optionee herein is an ISO, and if Optionee sells or otherwise
disposes of any of the Shares
-4-
acquired pursuant to the ISO on or before the later of (i) the date two years
after the Date of Grant, or (ii) the date one year after the date of exercise,
the Optionee shall immediately notify the Company in writing of such
disposition. Optionee agrees that Optionee may be subject to income tax
withholding by the Company on the compensation income recognized by the
Optionee.
(e) Section 83(b) Election for Unvested Shares Purchased Pursuant to
Options. With respect to the exercise of an Option for unvested Shares, an
election may be filed by the Optionee with the Internal Revenue Service, within
30 days of the purchase of the Shares, electing pursuant to Section 83(b) of the
Code to be taxed currently on any difference between the purchase price of the
Shares and their Fair Market Value on the date of purchase. In the case of a
Nonstatutory Stock Option, this will result in a recognition of taxable income
to the Optionee on the date of exercise, measured by the excess, if any, of the
fair market value of the Shares, at the time the Option is exercised over the
purchase price for the Shares. Absent such an election, taxable income will be
measured and recognized by Optionee at the time or times on which the Company's
Repurchase Option lapses. In the case of an Incentive Stock Option, such an
election will result in a recognition of income to the Optionee for alternative
minimum tax purposes on the date of exercise, measured by the excess, if any, of
the fair market value of the Shares, at the time the option is exercised, over
the purchase price for the Shares. Absent such an election, alternative minimum
taxable income will be measured and recognized by Optionee at the time or times
on which the Company's Repurchase Option lapses. Optionee is strongly encouraged
to seek the advice of his or her own tax consultants in connection with the
purchase of the Shares and the advisability of filing of the Election under
Section 83(b) of the Code. A form of Election under Section 83(b) is attached
hereto as Exhibit C-5 for reference.
OPTIONEE ACKNOWLEDGES THAT IT IS OPTIONEE'S SOLE RESPONSIBILITY AND NOT
THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION 83(b), EVEN IF OPTIONEE
REQUESTS THE COMPANY OR ITS REPRESENTATIVE TO MAKE THIS FILING ON OPTIONEE'S
BEHALF.
10. Entire Agreement. The Plan is incorporated herein by reference. The
Plan and this Option Agreement constitute the entire agreement of the parties
with respect to the subject matter hereof and supersede in their entirety all
prior undertakings and agreements of the Company and Optionee with respect to
the subject matter hereof, and may not be modified adversely to the Optionee's
interest except by means of a writing signed by the Company and Optionee.
11. Governing Law. This agreement is governed by the internal
substantive laws but not the choice of law rules of the State of Texas.
12. No Guarantee of Continued Service. OPTIONEE ACKNOWLEDGES AND AGREES
THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED
ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (NOT THROUGH
THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES
HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE
TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET
-5-
FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED
ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT
ALL, AND SHALL NOT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S
RIGHT TO TERMINATE OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME,
WITH OR WITHOUT CAUSE.
Optionee acknowledges receipt of a copy of the Plan and represents that
he or she is familiar with the terms and provisions thereof, and hereby accepts
this Option subject to all of the terms and provisions thereof. Optionee has
reviewed the Plan and this Option in their entirety, has had an opportunity to
obtain the advice of counsel prior to executing this Option and fully
understands all provisions of the Option. Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Option. Optionee
further agrees to notify the Company upon any change in the residence address
indicated below.
OPTIONEE: XXXXXXX NETWORKS, INC.
---------------------------- ----------------------------------
Signature By
---------------------------- ----------------------------------
Print Name Title
----------------------------
----------------------------
Residence Address
-6-
