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EXHIBIT 99.5
BLUESTEEL NETWORKS, INC.
1999 STOCK INCENTIVE PLAN
STOCK OPTION AGREEMENT
BlueSteel Networks, Inc., a Delaware corporation (the "Company"), hereby
grants an option to purchase its Common Stock to the optionee named below. The
terms and conditions of the option are set forth in this Stock Option Agreement
and in the Company's 1999 Stock Incentive Plan (the "Plan").
▇. ▇▇▇▇▇ INFORMATION
Date of Grant: __________, 199__
Name of Optionee: ______________________________________
Optionee's Social Security Number: ________-______-________
Type of Option: __ Incentive ("ISO")
__ Nonstatutory ("NSO")
Number of Shares of Common Stock: ___________
Exercise Price per Share: $__________
Vesting Start Date: __________, 199__
Vesting Schedule: Subject to attached Terms and Conditions,
the option shall vest as to 12/48 of
the shares on the first anniversary of
the Vesting Start Date and 1/48 of the
shares each full month thereafter. The
option shall vest as to an additional
12/48 of the shares in the event of
Optionee's Service termination due to
death or Disability.
BY SIGNING BELOW, YOU AGREE TO ALL OF THE TERMS AND CONDITIONS DESCRIBED
IN THIS STOCK OPTION AGREEMENT, INCLUDING THE ATTACHED TERMS AND
CONDITIONS, NOTICE OF EXERCISE AND PLAN.
Optionee:
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(Signature)
Company:
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(Signature)
Title:
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II. TERMS AND CONDITIONS
1. VESTING. Your option vests during your Service on the dates specified
in the first page of this Stock Option Agreement. Vesting will cease if your
Service terminates for any reason.
2. SERVICE; LEAVES OF ABSENCE. Your Service shall cease when you cease
to be actively employed by, or a consultant or adviser to, the Company (or any
subsidiary) as determined in the sole discretion of the Board. For purposes of
your option, your Service does not terminate when you go on a bona fide leave of
absence, that was approved by the Company in writing, if the terms of the leave
provide for continued service crediting, or when continued service crediting is
required by applicable law. However, for purposes of determining whether your
option is entitled to ISO status, your Service will be treated as terminating
ninety (90) days after you went on leave, unless your right to return to active
work is guaranteed by law or by a contract. Your Service terminates in any event
when the approved leave ends, unless you immediately return to active work. The
Company determines which leaves count toward Service, and when your Service
terminates for all purposes under the Plan.
3. TERM OF OPTION. Your option expires on the day before the 10th
anniversary of the Date of ▇▇▇▇▇, and will expire earlier if your Service
terminates as follows:
(a) REGULAR TERMINATION. If your Service terminates for any reason
except cause, death or Disability, then your option will expire at the close of
business at Company headquarters three (3) months after your termination date.
(b) CAUSE. If your Service terminates for cause (as defined by the
Company and consistent with applicable law), your option will expire
immediately.
(c) DEATH. If you die while in Service, then your option will expire at
the close of business at Company headquarters on the date twelve (12) months
after the date of death. During that twelve (12) month period, your estate or
heirs may exercise the vested portion of your option.
(d) DISABILITY. If your Service terminates because of your Disability,
then your option will expire at the close of business at Company headquarters on
the date twelve (12) months after your termination date. Disability shall have
the meaning set forth in section 22(e)(3) of the Code.
4. EXERCISE OF OPTION.
(a) LEGAL RESTRICTIONS. The Company will not permit you to exercise your
option if the issuance of Common Stock at that time would violate any law or
regulation. You represent and agree that the Common Stock to be acquired upon
exercising your option will be acquired for investment, and not with a view to
the sale or distribution thereof. If the sale of Common Stock under the Plan is
not registered under the Securities Act but an exemption is available which
requires an investment representation or other representation, you shall
represent and agree at the time of exercise to make such representations as are
deemed necessary or appropriate by the Company and its counsel.
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(b) METHOD OF EXERCISE. To exercise your option, you must complete and
file the Company's "Notice of Exercise" form at the address given on the form,
together with full payment. The Notice of Exercise will be effective when it is
received by the Company. If someone else wants to exercise your option after
your death, that person must prove to the Company's satisfaction that he or she
is entitled to do so.
(c) FORM OF PAYMENT. When you submit a Notice of Exercise, you must
include payment of the aggregate Exercise Price for the Common Stock you are
purchasing. Payment may be made in one (or a combination) of the following
forms.
o Your personal check, a cashier's check or a money order.
o To the extent that a public market for Common Stock exists as
determined by the Company, by delivery (on a form approved by the
Company) of an irrevocable direction to a securities broker to
sell Common Stock and to deliver all or part of the sale proceeds
to the Company in payment of the aggregate Exercise Price.
(d) WITHHOLDING TAXES. You will not be allowed to exercise your option
unless you make acceptable arrangements to pay any withholding or other taxes
that may be due as a result of the option exercise or the sale of Common Stock
acquired upon exercise of your option.
5. EXERCISE OF OPTION BEFORE VESTING. You may not exercise your option
before it is fully vested.
6. RESALE RESTRICTIONS/MARKET STAND-OFF. In connection with any
underwritten public offering by the Company of its equity securities pursuant to
an effective registration statement filed under the Securities Act of 1993, as
amended, including the Company's initial public offering, you shall not sell,
make any short sale of, loan, hypothecate, pledge, grant any option for the
purchase of, or otherwise dispose or transfer for value or agree to engage in
any of the foregoing transactions with respect to any Common Stock without the
prior written consent of the Company or its underwriters, for such period of
time after the effective date of such registration statement as may be requested
by the Company or such underwriters, not to exceed one hundred eighty (180)
days. To enforce the provisions of this paragraph, the Company may impose
stop-transfer instructions with respect to the Common Stock until the end of the
applicable stand-off period. You may not to sell any Common Stock at a time when
applicable laws, regulations or Company or underwriter trading policies prohibit
a sale.
7. RIGHT OF FIRST REFUSAL. If you propose to sell, pledge or otherwise
transfer to a third party any Common Stock acquired under this Stock Option
Agreement, or any interest in such Common Stock, the Company shall have the
"Right of First Refusal" with respect to all (and not less than all) of such
Common Stock. If you desire to transfer Common Stock acquired under this Stock
Option Agreement, you must give a written notice ("Transfer Notice") to the
Company describing fully the proposed transfer, including the number of shares
proposed to be transferred, the proposed transfer price and the name and address
of the proposed transferee. The Transfer Notice shall be signed both by you and
by the proposed new transferee and must constitute a binding commitment of both
parties to the transfer of the Common Stock. The Company shall have the right to
purchase all, and not less than all, of the Common Stock on the
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terms of the proposal described in the Transfer Notice (subject, however, to any
change in such terms permitted in the next paragraph) by delivery of a notice of
exercise of the Right of First Refusal within thirty (30) days after the date
when the Transfer Notice was received by the Company.
If the Company fails to exercise its Right of First Refusal before or
within thirty (30) days after the date when it received the Transfer Notice, you
may, not later than ninety (90) days following receipt of the Transfer Notice by
the Company, conclude a transfer of the Common Stock subject to the Transfer
Notice on the terms and conditions described in the Transfer Notice. Any
proposed transfer on terms and conditions different from those described in the
Transfer Notice, as well as any subsequent proposed transfer by you, shall again
be subject to the Right of First Refusal and shall require compliance with the
procedure described in the paragraph above. If the Company exercises its Right
of First Refusal, the parties shall consummate the sale of the Common Stock on
the terms set forth in the Transfer Notice within sixty (60) days after the date
when the Company received the Transfer Notice (or within such longer period as
may have been specified in the Transfer Notice); provided, however, that if the
Transfer Notice provided that payment for the Common Stock was to be made in a
form other than lawful money paid at the time of transfer, the Company shall
have the option of paying for the Common Stock with lawful money equal to the
present value of the consideration described in the Transfer Notice.
The Company's Right of First Refusal shall inure to the benefit of its
successors and assigns, shall be freely assignable in whole or in part and shall
be binding upon any transferee of the Common Stock. The Company's right of First
Refusal shall terminate if the Company's Common Stock is listed on an
established stock exchange or is quoted regularly on the Nasdaq Stock Market.
8. TRANSFER OF OPTION. Prior to your death, only you may exercise your
option. You cannot transfer or assign your option. For instance, you may not
sell your option or use it as security for a loan. If you attempt to do any of
these things, your option will immediately become invalid. You may, however,
dispose of your option in your will. Regardless of any marital property
settlement agreement, the Company is not obligated to honor a notice of exercise
from your spouse or former spouse, nor is the Company obligated to recognize
such individual's interest in your option in any other way.
9. NO RETENTION RIGHTS. Your option does not give you the right to be
retained by the Company (or any subsidiaries) in any capacity. The Company
reserves the right to terminate your Service at any time and for any reason.
10. STOCKHOLDER RIGHTS. You, or your estate or heirs, have no rights as
a stockholder of the Company until a certificate for your fully vested Common
Stock has been issued. No adjustments are made for dividends or other rights if
the applicable record date occurs before your stock certificate is issued,
except as described in the Plan.
11. ADJUSTMENTS TO COMMON STOCK. In the event of a stock split, a stock
dividend or a similar change in the Company's Common Stock, the number of shares
covered by your option and the exercise price per share may be adjusted pursuant
to the Plan. Your option shall
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be subject to the terms of the agreement of merger, liquidation or
reorganization in the event the Company is subject to such corporate activity.
12. LEGENDS. All certificates representing the Common Stock issued upon
exercise of your option shall, where applicable, have endorsed thereon any
legends required by applicable law, including the following legends:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD,
TRANSFERRED, ENCUMBERED OR IN ANY MANNER DISPOSED OF, EXCEPT IN
COMPLIANCE WITH THE TERMS OF A WRITTEN AGREEMENT BETWEEN THE COMPANY AND
THE INITIAL HOLDER HEREOF. SUCH AGREEMENT PROVIDES FOR CERTAIN TRANSFER
RESTRICTIONS, INCLUDING RIGHTS OF FIRST REFUSAL UPON AN ATTEMPTED
TRANSFER OF THE SECURITIES. THE SECRETARY OF THE COMPANY WILL UPON
WRITTEN REQUEST ▇▇▇▇▇▇▇ A COPY OF SUCH AGREEMENT TO THE HOLDER HEREOF
WITHOUT CHARGE."
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
OR QUALIFIED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES LAWS OF ANY STATE, AND MAY BE OFFERED AND SOLD ONLY IF
REGISTERED AND QUALIFIED PURSUANT TO THE RELEVANT PROVISIONS OF FEDERAL
AND STATE SECURITIES LAWS OR IF THE COMPANY IS PROVIDED AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION AND QUALIFICATION
UNDER FEDERAL AND STATE SECURITIES LAWS ARE NOT REQUIRED."
13. APPLICABLE LAW. This Agreement will be interpreted and enforced
under the laws of the State of California.
14. INCORPORATION OF PLAN BY REFERENCE. The text of the Plan is
incorporated in this Agreement by reference. Certain capitalized terms used in
this Agreement are defined in the Plan.
This Agreement and the Plan constitute the entire understanding between
you and the Company regarding your option. Any prior agreements, commitments or
negotiations concerning your option are superseded.
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NOTICE OF EXERCISE
BlueSteel Networks, Inc.
▇▇▇▇ ▇. ▇▇ ▇▇▇▇▇▇ ▇▇▇▇ #▇▇▇-▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: Chief Financial Officer
Re: Exercise of Stock Option
Dear Sir or Madam:
Pursuant to the Stock Option Agreement dated __________, 199___ (the
"Stock Option Agreement") and the Company's 1999 Stock Incentive Plan (the
"Plan"), I hereby elect to purchase _____________ shares of the Common Stock of
the Company at aggregate exercise price of $__________. I enclose payment by my
check in the amount of $___________;
The Common Stock is to be issued and registered in the name(s) of:
--------------------------
--------------------------
I understand that there may be tax consequences as a result of the
purchase or disposition of the Common Stock, and I have consulted with any tax
consultants I wished to consult and I am not relying on the Company for any tax
advice. I understand that my exercise is governed by my Stock Option Agreement
and the Plan and agree to abide by and be bound by their terms and conditions. I
represent that the Common Stock is being acquired solely for my own account and
not as a nominee for any other party, or for investment, and that I will not
offer, sell or otherwise dispose of any such Common Stock except under
circumstances that will not result in a violation of the Securities Act of 1933,
as amended, or any state securities laws.
Dated: __________, 199__.
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(Signature)
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(Please Print Name)
----------------------------------------
----------------------------------------
(Address)
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BLUESTEEL NETWORKS, INC.
1999 STOCK INCENTIVE PLAN
STOCK OPTION AGREEMENT
(WITH EXERCISE BEFORE VESTING PERMITTED)
BlueSteel Networks, Inc., a Delaware corporation (the "Company"),
hereby grants an option to purchase its Common Stock to the optionee named
below. The terms and conditions of the option are set forth in this Stock Option
Agreement and in the Company's 1999 Stock Incentive Plan (the "Plan").
▇. ▇▇▇▇▇ INFORMATION
Date of Grant: __________, 199__
Name of Optionee:
Optionee's Social Security Number: ________-______-________
Type of Option: __ Incentive ("ISO")
__ Nonstatutory ("NSO")
Number of Shares of Common Stock: ___________
Exercise Price per Share: $__________
Vesting Start Date: __________, 199__
Vesting Schedule: Subject to attached
Terms and Conditions, the option
shall vest as to 12/48ths of the
shares on each the first through
fourth anniversaries of the
Vesting Start Date. The option
shall vest as to an additional
12/48ths of the shares in the
event of Optionee's Service
termination due to death or
Disability.
BY SIGNING BELOW, YOU AGREE TO ALL OF THE TERMS AND CONDITIONS
DESCRIBED IN THIS STOCK OPTION AGREEMENT, INCLUDING THE ATTACHED TERMS
AND CONDITIONS, NOTICE OF EXERCISE AND PLAN.
Optionee:_______________________________________________________________________
(Signature)
Company:________________________________________________________________________
(Signature)
Title:__________________________________________________________________________
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II. TERMS AND CONDITIONS
1. VESTING. Your option vests during your Service on the dates
specified in the first page of this Stock Option Agreement. Vesting will cease
if your Service terminates for any reason, provided that your option may
accelerate as provided in the first page of this Stock Option Agreement in the
event that your Service has not terminated prior to your death or your
Disability.
2. SERVICE; LEAVES OF ABSENCE. Your Service shall cease when you cease
to be actively employed by, or a consultant or adviser to, the Company (or any
subsidiary) as determined in the sole discretion of the Board. For purposes of
your option, your Service does not terminate when you go on a bona fide leave of
absence, that was approved by the Company in writing, if the terms of the leave
provide for continued service crediting, or when continued service crediting is
required by applicable law. However, for purposes of determining whether your
option is entitled to ISO status, your Service will be treated as terminating
ninety (90) days after you went on leave, unless your right to return to active
work is guaranteed by law or by a contract. Your Service terminates in any event
when the approved leave ends, unless you immediately return to active work. The
Company determines which leaves count toward Service, and when your Service
terminates for all purposes under the Plan.
3. TERM OF OPTION. Your option expires on the day before the 10th
anniversary of the Date of ▇▇▇▇▇, and will expire earlier if your Service
terminates as follows:
(a) REGULAR TERMINATION. If your Service terminates for any reason
except cause, death or Disability, then your option will expire at the close of
business at Company headquarters three (3) months after your termination date.
(b) CAUSE. If your Service terminates for cause (as defined by the
Company and consistent with applicable law), your option will expire
immediately.
(c) DEATH. If you die while in Service, then your option will expire at
the close of business at Company headquarters on the date six (6) months after
the date of death. During that six (6) month period, your estate or heirs may
exercise the vested portion of your option.
(d) DISABILITY. If your Service terminates because of your Disability,
then your option will expire at the close of business at Company headquarters on
the date six (6) months after your termination date. Disability shall have the
meaning set forth in section 22(e)(3) of the Code.
4. EXERCISE OF OPTION.
(a) LEGAL RESTRICTIONS. The Company will not permit you to exercise
your option if the issuance of Common Stock at that time would violate any law
or regulation. You represent and agree that the Common Stock to be acquired upon
exercising your option will be acquired for investment, and not with a view to
the sale or distribution thereof. If the sale of Common Stock under the Plan is
not registered under the Securities Act but an exemption is available which
requires an investment representation or other representation, you shall
represent and agree at the
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time of exercise to make such representations as are deemed necessary or
appropriate by the Company and its counsel.
(b) METHOD OF EXERCISE. To exercise your option, you must complete and
file the Company's "Notice of Exercise" form at the address given on the form,
together with full payment. The Notice of Exercise will be effective when it is
received by the Company. If someone else wants to exercise your option after
your death, that person must prove to the Company's satisfaction that he or she
is entitled to do so.
(c) FORM OF PAYMENT. When you submit a Notice of Exercise, you must
include payment of the aggregate Exercise Price for the Common Stock you are
purchasing. Payment may be made in one (or a combination) of the following
forms.
- Your personal check, a cashier's check or a money order.
- A secured, full recourse promissory note in the form attached.
- To the extent that a public market for Common Stock exists as
determined by the Company, by delivery (on a form approved by
the Company) of an irrevocable direction to a securities
broker to sell Common Stock and to deliver all or part of the
sale proceeds to the Company in payment of the aggregate
Exercise Price.
- Your delivery of shares of Common Stock that have been owned
by you for at least six months (or such other period of time
as may be necessary to avoid adverse accounting consequences
to the Company).
(d) WITHHOLDING TAXES. You will not be allowed to exercise your option
unless you make acceptable arrangements to pay any withholding or other taxes
that may be due as a result of the option exercise or the sale of Common Stock
acquired upon exercise of your option.
5. EXERCISE OF OPTION BEFORE VESTING ("EARLY EXERCISE"). You may
exercise your option before it is fully vested.
Common Stock received upon the exercise of the unvested portion of your
option shall be subject to the Company's right of repurchase, which right of
repurchase shall lapse at the rate the option would have vested had there been
no exercise. The Company's right of repurchase shall terminate ninety (90) days
after the later of (a) your Service termination or (b) your date of exercise.
The certificates for the Common Stock subject to the Company's right of
repurchase shall be deposited in escrow with the Secretary of the Company to be
held as described herein. Each deposited certificate shall be accompanied by a
duly executed Assignment Separate from Certificate in the form attached. The
deposited certificates, shall remain in escrow until such time or times as the
certificates are to be released or otherwise surrendered for cancellation as
discussed below.
All regular cash dividends on the Common Stock (or other securities at
the time held in escrow) shall be paid directly to you and shall not be held in
escrow. However, in the event of
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any stock dividend, stock split, recapitalization or other change affecting the
Company's outstanding Common Stock as a class effected without receipt of
consideration, any new, substituted or additional securities or other property
which is by reason of such transaction distributed shall be immediately
delivered to the Secretary of the Company to be held in escrow hereunder, but
only to the extent the Common Stock is at the time subject to the escrow
requirements hereof.
The Common Stock held in escrow hereunder shall be subject to the
following terms and conditions relating to their release from escrow or their
surrender to the Company for repurchase and cancellation:
- As your interest in the Common Stock vests, the certificates
for such vested Common Stock shall be released from escrow and
delivered to you, at your request, in accordance with the
following schedule:
- The initial release of any vested Common Stock (or
other vested assets and securities) from escrow shall
be effected within thirty (30) days following the
expiration of the initial twelve (12) month period
measured from the Vesting Start Date.
- Subsequent releases of any vested Common Stock from
escrow shall be effected at annual intervals
thereafter, with the first such annual release to
occur twenty-four (24) months after the Vesting Start
Date.
- Upon termination of your Service, any escrowed Common
Stock in which you are at the time vested shall be
promptly released from escrow.
- Should the Company exercise its right of repurchase with
respect to any unvested Common Stock held at the time in
escrow hereunder, then the escrowed certificates for such
unvested Common Stock shall, concurrently with the payment of
the purchase price for such Common Stock, be surrendered to
the Company for cancellation, and you shall have no further
rights with respect to such Common Stock.
- Should the Company elect not to exercise its right of
repurchase with respect to any Common Stock held at the time
in escrow hereunder, then the escrowed certificates for such
Common Stock shall be surrendered to you.
6. RESALE RESTRICTIONS/MARKET STAND-OFF. In connection with any
underwritten public offering by the Company of its equity securities pursuant to
an effective registration statement filed under the Securities Act of 1993, as
amended, including the Company's initial public offering, you shall not sell,
make any short sale of, loan, hypothecate, pledge, grant any option for the
purchase of, or otherwise dispose or transfer for value or agree to engage in
any of the foregoing transactions with respect to any Common Stock without the
prior written consent of the Company or its underwriters, for such period of
time after the effective date of such registration statement as may be requested
by the Company or such underwriters, not to exceed one hundred eighty (180)
days. To enforce the provisions of this paragraph, the Company may
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impose stop-transfer instructions with respect to the Common Stock until the end
of the applicable stand-off period. You may not sell any Common Stock at a time
when applicable laws, regulations or Company or underwriter trading policies
prohibit a sale.
7. RIGHT OF FIRST REFUSAL. If you propose to sell, pledge or otherwise
transfer to a third party any Common Stock acquired under this Stock Option
Agreement, or any interest in such Common Stock, the Company shall have the
"Right of First Refusal" with respect to all (and not less than all) of such
Common Stock. If you desire to transfer Common Stock acquired under this Stock
Option Agreement, you must give a written notice ("Transfer Notice") to the
Company describing fully the proposed transfer, including the number of shares
proposed to be transferred, the proposed transfer price and the name and address
of the proposed transferee. The Transfer Notice shall be signed both by you and
by the proposed new transferee and must constitute a binding commitment of both
parties to the transfer of the Common Stock. The Company shall have the right to
purchase all, and not less than all, of the Common Stock on the terms of the
proposal described in the Transfer Notice (subject, however, to any change in
such terms permitted in the next paragraph) by delivery of a notice of exercise
of the Right of First Refusal within thirty (30) days after the date when the
Transfer Notice was received by the Company.
If the Company fails to exercise its Right of First Refusal before or
within thirty (30) days after the date when it received the Transfer Notice, you
may, not later than ninety (90) days following receipt of the Transfer Notice by
the Company, conclude a transfer of the Common Stock subject to the Transfer
Notice on the terms and conditions described in the Transfer Notice. Any
proposed transfer on terms and conditions different from those described in the
Transfer Notice, as well as any subsequent proposed transfer by you, shall again
be subject to the Right of First Refusal and shall require compliance with the
procedure described in the paragraph above. If the Company exercises its Right
of First Refusal, the parties shall consummate the sale of the Common Stock on
the terms set forth in the Transfer Notice within sixty (60) days after the date
when the Company received the Transfer Notice (or within such longer period as
may have been specified in the Transfer Notice); provided, however, that if the
Transfer Notice provided that payment for the Common Stock was to be made in a
form other than lawful money paid at the time of transfer, the Company shall
have the option of paying for the Common Stock with lawful money equal to the
present value of the consideration described in the Transfer Notice.
The Company's Right of First Refusal shall inure to the benefit of its
successors and assigns, shall be freely assignable in whole or in part and shall
be binding upon any transferee of the Common Stock. The Company's right of First
Refusal shall terminate if the Company's Common Stock is listed on an
established stock exchange or is quoted regularly on the Nasdaq Stock Market.
8. TRANSFER OF OPTION. Prior to your death, only you may exercise your
option. You cannot transfer or assign your option. For instance, you may not
sell your option or use it as security for a loan. If you attempt to do any of
these things, your option will immediately become invalid. You may, however,
dispose of your option in your will. Regardless of any marital property
settlement agreement, the Company is not obligated to honor a notice of
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exercise from your spouse or former spouse, nor is the Company obligated to
recognize such individual's interest in your option in any other way.
9. NO RETENTION RIGHTS. Your option does not give you the right to be
retained by the Company (or any subsidiaries) in any capacity. The Company
reserves the right to terminate your Service at any time and for any reason.
10. STOCKHOLDER RIGHTS. You, or your estate or heirs, have no rights as
a stockholder of the Company until a certificate for your fully vested Common
Stock has been issued. No adjustments are made for dividends or other rights if
the applicable record date occurs before your stock certificate is issued,
except as described in the Plan.
11. ADJUSTMENTS TO COMMON STOCK. In the event of a stock split, a stock
dividend or a similar change in the Company's Common Stock, the number of shares
covered by your option and the exercise price per share may be adjusted pursuant
to the Plan. Your option shall be subject to the terms of the agreement of
merger, consolidation or other corporate reorganization in the event the Company
is subject to such corporate activity.
12. LEGENDS. All certificates representing the Common Stock issued upon
exercise of your option shall, where applicable, have endorsed thereon any
legends required by applicable law, including the following legends:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD,
TRANSFERRED, ENCUMBERED OR IN ANY MANNER DISPOSED OF, EXCEPT IN
COMPLIANCE WITH THE TERMS OF A WRITTEN AGREEMENT BETWEEN THE COMPANY
AND THE INITIAL HOLDER HEREOF. SUCH AGREEMENT PROVIDES FOR CERTAIN
TRANSFER RESTRICTIONS, INCLUDING RIGHTS OF FIRST REFUSAL UPON AN
ATTEMPTED TRANSFER OF THE SECURITIES AND CERTAIN REPURCHASE RIGHTS IN
FAVOR OF THE COMPANY UPON TERMINATION OF SERVICE WITH THE COMPANY. THE
SECRETARY OF THE COMPANY WILL UPON WRITTEN REQUEST ▇▇▇▇▇▇▇ A COPY OF
SUCH AGREEMENT TO THE HOLDER HEREOF WITHOUT CHARGE."
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR THE SECURITIES LAWS OF ANY STATE, AND MAY BE OFFERED AND SOLD ONLY
IF REGISTERED AND QUALIFIED PURSUANT TO THE RELEVANT PROVISIONS OF
FEDERAL AND STATE SECURITIES LAWS OR IF THE COMPANY IS PROVIDED AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION AND
QUALIFICATION UNDER FEDERAL AND STATE SECURITIES LAWS ARE NOT
REQUIRED."
13. APPLICABLE LAW. This Agreement will be interpreted and enforced
under the laws of the State of California.
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14. INCORPORATION OF PLAN BY REFERENCE. The text of the Plan is
incorporated in this Agreement by reference. Certain capitalized terms used in
this Agreement are defined in the Plan.
This Agreement and the Plan constitute the entire understanding between
you and the Company regarding your option. Any prior agreements, commitments or
negotiations concerning your option are superseded.
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NOTICE OF EXERCISE
BlueSteel Networks, Inc.
▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: Chief Financial Officer
Re: Exercise of Stock Option
Dear Sir or Madam:
Pursuant to the Stock Option Agreement dated __________, _____ (the
"Stock Option Agreement") and the Company's 1999 Stock Incentive Plan (the
"Plan"), I hereby elect to purchase _____________ shares of the Common Stock of
the Company at aggregate exercise price of $__________. I enclose payment and
other documents (check all that are applicable):
| | My check in the amount of $___________;
| | My promissory note for $___________;
| | If I am exercising an unvested option, I also enclose an
executed Assignment Separate From Certificate. I am aware of
the tax consequences of exercising before my options is
vested, including the requirement that I file any election
under Section 83(b) of the Internal Revenue Code within 30
days of my exercise.
The Common Stock is to be issued and registered in the name(s) of:
_______________________________________________
I understand that there may be tax consequences as a result of the
purchase or disposition of the Common Stock, and I have consulted with any tax
consultants I wished to consult and I am not relying on the Company for any tax
advice. I understand that my exercise is governed by my Stock Option Agreement
and the Plan and agree to abide by and be bound by their terms and conditions. I
represent that the Common Stock is being acquired solely for my own account and
not as a nominee for any other party, or for investment, and that I will not
offer, sell or otherwise dispose of any such Common Stock except under
circumstances that will not result in a violation of the Securities Act of 1933,
as amended, or any state securities laws.
Dated: __________, _____.
________________________________________
(Signature)
________________________________________
(Please Print Name)
________________________________________
(Address)
15
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED and pursuant to that certain Stock Option Agreement
dated as of __________, 199__, the undersigned hereby sells, assigns and
transfers unto ___________________________ (__________) shares of the Common
Stock of BlueSteel Networks, Inc., a Delaware corporation, standing in the
undersigned's name on the books of said corporation represented by certificate
No. _________ herewith, and does hereby irrevocably constitute and appoint
________________________________________ attorney to transfer the said stock on
the books of the said corporation with full power of substitution in the
premises.
Dated: __________, 19__.
________________________________________
Signature
________________________________________
Print Name
16
TAX CONSEQUENCES RELATED TO YOUR INCENTIVE STOCK OPTION
THIS MEMORANDUM IS PROVIDED TO YOU MERELY AS A SERVICE AND IS NOT MEANT
TO ADVISE YOU AS TO YOUR PERSONAL TAX SITUATION OR WHETHER OR NOT TO MAKE AN
83(B) ELECTION. YOU SHOULD CONTACT YOUR PERSONAL LEGAL OR TAX ADVISERS WITH
RESPECT TO THE STATE AND FEDERAL INCOME TAX TREATMENT OF PURCHASING AND
DISPOSING OF YOUR STOCK.
INTERNAL REVENUE CODE SECTIONS
Section 421 of the Internal Revenue Code (the "Code") provides rules
for the tax treatment of "incentive stock options"("ISOs"), as that term is
defined by Section 422 of the Code. Section 83 of the Code provides special
rules for the tax treatment of property which is received in connection with the
performance of services and which is subject to vesting.
ISO TAX TREATMENT - USUALLY NO TAX UNTIL YOU SELL YOUR STOCK
Your option is intended to be an ISO. If you hold the stock you are
purchasing under your option for more than two (2) years from the date of grant
and more than one (1) year from the date of exercise, upon any subsequent sale
or other disposition of such shares you will have capital gains or loss. Capital
gains are taxed at reduced rates if you held the shares for more than 1 year
(20% federal rate).
If you sell or dispose of the stock within two (2) years from the date
of grant or within 1 year from the date of exercise (a "disqualifying
disposition"), the special capital gains tax treatment of Code Section 421 will
not apply. Generally, in that event, you will recognize taxable ordinary income
in an amount equal to the lesser of: (i) the excess of the fair market value of
the shares at the time of exercise over the exercise price of the option, or
(ii) your actual gain on the purchase and sale. The gain (if any) in excess of
the amount of ordinary income recognized, or the loss (if any) will be a capital
gain or loss. An exception to this general rule applies if your stock is subject
to the company's repurchase right (see "Early Exercise" below).
ALTERNATIVE MINIMUM TAX - POTENTIAL TAX AT EXERCISE
The alternative minimum tax is a separately computed tax that is
imposed only if and to the extent it exceeds your regular tax for the taxable
year. Basically, the alternative minimum tax is an amount equal to twenty-six
percent (26%) of your "alternative minimum taxable income" for the year of up to
$175,000 and twenty-eight percent (28%) of any excess ($87,500 in the case of a
married individual filing a separate return). "Alternative minimum taxable
income" generally is determined by (i) reducing adjusted gross income by an
exemption amount ($45,000 for joint declarations and $33,750 for single
taxpayers, less $0.25 for each dollar of alternative minimum taxable income in
excess of $150,000 or $112,500, respectively) and certain specifically defined
deductions, and (ii) by adding to the amount so calculated certain tax
preference items and other adjustments.
As a general rule, when you exercise an ISO, the excess of the (1) fair
market value of the stock acquired on the date of exercise over (2) the exercise
price (the "spread") is added to your alternative minimum taxable income.
17
EARLY EXERCISE - EXERCISE BEFORE VESTING
If your option agreement permits you to "early exercise," you can
exercise an unvested option and, instead, receive unvested stock. Unvested stock
is stock that the Company can buy back from you at the price you paid. The
unvested stock will become vested - meaning that the Company's buy-back right
lapses - as the option would have vested.
The main reasons for exercising before you are vested are: (i) to
minimize the ordinary income portion (and maximize the capital gains portion) of
your option gain and (ii) to minimize your alternative minimum tax liability. To
gain these tax advantages, you must file an 83(b) election within thirty (30)
days after your exercise.
ALTERNATIVE MINIMUM TAX CONSEQUENCES OF EARLY EXERCISE
If you early exercise and do not file an 83(b) election, the addition
to your alternative minimum taxable income is not calculated on the date of
exercise. Instead, it is calculated on the date your stock vests. This means
that the excess of (i) the fair market value of the stock on the date of vesting
over (ii) the option exercise price, will be included in alternative minimum
taxable income for the year in which the date of vesting occurs.
However, if you make a valid 83(b) election within thirty (30) days
from the date of exercise, you can use the fair market value on the date of
exercise (determined without regard to the repurchase option) to calculate any
potential alternative minimum tax in the year of exercise. Thus, if you early
exercise while the fair market value of the stock is low and make an 83(b)
election, you can minimize your potential alternative minimum tax liability.
ORDINARY INCOME TAX CONSEQUENCES OF EARLY EXERCISE
If you early exercise and do not file an 83(b) election, upon a
disqualifying disposition you will have ordinary income equal to the excess of
(i) the fair market value of the shares on the date(s) your rights in the shares
"vested" over (ii) the exercise price. The amount of ordinary income recognized
will normally be limited to your gain. Any gain that is not taxed as ordinary
income will be capital gain.
Because Section 83 is used to measure ordinary income following a
disqualifying disposition, it may be possible to make an election under Section
83(b) of the Code within 30 days of the exercise of your option, so that the
ordinary income you recognize upon a disqualifying disposition will be no
greater than the spread between (i) the option exercise price, and (ii) the
value of the stock on the date of exercise (rather than the date the option
vests). Thus, if you exercise early and file an 83(b) election, any increase in
the fair market value of the stock after the date of exercise would be capital
gain.
However, because there is no express IRS authority advising that an
83(b) election can limit the recognition of ordinary income upon a disqualifying
disposition, you should consult with your tax advisor before relying on such an
election.
YOU HAVE ONLY THIRTY (30) DAYS FROM THE DATE OF EXERCISE TO FILE THE
ELECTION.
18
INSTRUCTIONS FOR FILING ELECTIONS
Attached is a form of election under Section 83(b). If you wish to make
the election described above, you should complete, sign and date the election
and then proceed as follows:
(a) Make four (4) copies of the completed election.
(b) Mail the signed original election to the IRS Service Center with
which you file your federal income tax return. This should be mailed via
certified mail, return receipt requested. This election should be sent
immediately, as you have only thirty (30) days from the date of purchase to make
the election; no waivers, late filings or extensions are permitted. See
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Service Centers.
(c) Deliver one (1) copy of the completed election to the Company for
its files.
(d) Attach one (1) copy of the election to your IRS Personal Income Tax
Return (Form 1040) when you file it next year.
(e) Attach one (1) copy of the election to your California income tax
return (Form 540) when you file it next year (assuming you file a California
income tax return).
(f) Retain one (1) copy of the election for your personal permanent
records.
A separate 83(b) election is not required to be filed in California if
you file a federal Section 83(b) election.
IT IS YOUR RESPONSIBILITY, NOT THE COMPANY'S, TO MAKE SURE THAT THE
ELECTION IS PROPERLY MAILED TO THE TAXING AUTHORITIES AND ATTACHED TO
YOUR TAX RETURN FILED NEXT YEAR.
Remember, that, if you desire to make the election, a separate election
must be made with regard to the exercise of each portion of your option if any
of the stock acquired is subject to a risk of forfeiture.
19
Internal Revenue Service Center
_______________________________
_______________________________
Re: Protective Election Under Section 83(b) of the Internal Revenue
Code of 1986
Ladies and Gentlemen:
I hereby made a protective election under section 83(b) of the Internal
Revenue Code of 1986 to include in gross income on the date of transfer any
excess of fair market value over purchase price with respect to the transfer of
the property described below:
1. Name:______________________________________________________
2. Address:___________________________________________________
3. Social Security Number:____________________________________
4. Tax Year of Election: Calendar Year of____________________.
5. Description of Property: _________ shares of Common Stock of BlueSteel
Networks, Inc. (the "Company").
6. Date of Property Transfer: _________.
7. Nature of Property Restrictions: Property is subject to the Company's
right to repurchase the stock at the undersigned's original purchase
price if the undersigned ceases to be associated with the Company,
which right will generally lapse over a designated vesting period.
8. Fair Market Value at the Time of Transfer: $_________ per share for an
aggregate of $_________. The Fair Market Value at the time of transfer
was determined without regard to any lapse restrictions as defined in
section 1.83-3(i) of the Income Tax Regulations.
9. Amount Paid for Property: $_________ per share for an aggregate of
$_________.
10. A copy of this election has been furnished to the Company, the person
for whom the services are performed.
Sincerely,
_____________________________________________
Signature
_____________________________________________
Date