<PAGE>
EXHIBIT 99.2
Clarent Corporation
1999 Non-Employee Directors' Stock Option Plan
Adopted by the Board of Directors April 8, 1999
Approved by Stockholders June 22, 1999
Amended by the Board of Directors April 7, 2000
Approved by Stockholders June 7, 2000
Effective Date: June 30, 1999
1. Purposes.
(a) Eligible Option Recipients. The persons eligible to receive Options are
the Non-Employee Directors of the Company.
(b) Available Options. The purpose of the Plan is to provide a means by
which Non-Employee Directors may be given an opportunity to benefit
from increases in value of the Common Stock through the granting of
Nonstatutory Stock Options.
(c) General Purpose. The Company, by means of the Plan, seeks to retain the
services of its Non-Employee Directors, to secure and retain the
services of new Non-Employee Directors and to provide incentives for
such persons to exert maximum efforts for the success of the Company
and its Affiliates.
2. Definitions.
(a) "Affiliate" means any parent corporation or subsidiary corporation of
the Company, whether now or hereafter existing, as those terms are
defined in Sections 424(e) and (f), respectively, of the Code.
(b) "Annual Grant" means an Option granted annually to all Non-Employee
Directors who meet the specified criteria specified in subsection 6(b)
of the Plan.
(c) "Annual Meeting" means the annual meeting of the stockholders of the
Company.
(d) "Board" means the Board of Directors of the Company.
(e) "Code" means the Internal Revenue Code of 1986, as amended.
(f) "Common Stock" means the common stock of the Company.
(g) "Company" means Clarent Corporation, a Delaware corporation.
(h) "Consultant" means any person, including an advisor, (i) engaged by the
Company or an Affiliate to render consulting or advisory services and
who is compensated for such services or (ii) who is a member of the
Board of Directors of an Affiliate. However, the term "Consultant"
shall not include either Directors of the Company who are not
compensated by the Company for their services as Directors or Directors
of the Company who are merely paid a director's fee by the Company for
their services as Directors.
(i) "Continuous Service" means that the Optionholder's service with the
Company or an Affiliate, whether as an Employee, Director or
Consultant, is not interrupted or terminated. The Optionholder's
Continuous Service shall not be deemed to have terminated merely
because of a change in the capacity in which the Optionholder renders
service to the Company or an Affiliate as an Employee, Consultant
1
<PAGE>
or Director or a change in the entity for which the Optionholder renders
such service, provided that there is no interruption or termination of
the Optionholder's Continuous Service. For example, a change in status
from a Non-Employee Director of the Company to a Consultant of an
Affiliate or an Employee of the Company will not constitute an
interruption of Continuous Service. The Board or the chief executive
officer of the Company, in that party's sole discretion, may determine
whether Continuous Service shall be considered interrupted in the case
of any leave of absence approved by that party, including sick leave,
military leave or any other personal leave.
(j) "Director" means a member of the Board of Directors of the Company.
(k) "Disability" means the inability of a person, in the opinion of a
qualified physician acceptable to the Company, to perform the major
duties of that person's position with the Company or an Affiliate of
the Company because of the sickness or injury of the person.
(l) "Employee" means any person employed by the Company or an Affiliate.
Mere service as a Director or payment of a director's fee by the
Company or an Affiliate shall not be sufficient to constitute
"employment" by the Company or an Affiliate.
(m) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(n) "Fair Market Value" means, as of any date, the value of the Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock exchange or
traded on the NASDAQ National Market System or the NASDAQ SmallCap
Market, 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 exchange or market (or the
exchange or market with the greatest volume of trading in the 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.
(ii) In the absence of such markets for the Common Stock, the Fair
Market Value shall be determined in good faith by the Board.
(o) "Initial Grant" means an Option granted to a Non-Employee Director who
meets the specified criteria pursuant to subsection 6(a) of the Plan.
(p) "IPO Date" means the effective date of the initial public offering of
the Common Stock.
(q) "Non-Employee Director" means a Director who is neither employed by the
Company or an Affiliate nor a representative of a five percent (5%) or
greater stockholder.
(r) "Nonstatutory Stock Option" means an Option not intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code
and the regulations promulgated thereunder.
(s) "Officer" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(t) "Option" means a Nonstatutory Stock Option granted pursuant to the
Plan.
(u) "Option Agreement" means a written agreement between the Company and an
Optionholder evidencing the terms and conditions of an individual
Option grant. Each Option Agreement shall be subject to the terms and
conditions of the Plan.
(v) "Optionholder" means a person to whom an Option is granted pursuant to
the Plan or, if applicable, such other person who holds an outstanding
Option.
A-2
<PAGE>
(w) "Plan" means this Clarent Corporation 1999 Non-Employee Directors'
Stock Option Plan.
(x) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act or any
successor to Rule 16b-3, as in effect from time to time.
(y) "Securities Act" means the Securities Act of 1933, as amended.
3. Administration.
(a) Administration by Board. The Board shall administer the Plan unless and
until the Board delegates administration to a committee.
(b) Powers of Board. The Board shall have the power, subject to, and within
the limitations of, the express provisions of the Plan:
(i) To determine the provisions of each Option to the extent not
specified in the Plan.
(ii) To construe and interpret the Plan and Options granted under it,
and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may
correct any defect, omission or inconsistency in the Plan or in
any Option Agreement, in a manner and to the extent it shall deem
necessary or expedient to make the Plan fully effective.
(iii) To amend the Plan or an Option as provided in Section 12.
(iv) Generally, to exercise such powers and to perform such acts as the
Board deems necessary or expedient to promote the best interests of
the Company which are not in conflict with the provisions of the
Plan.
4. Shares Subject to the Plan.
(a) Share Reserve. Subject to the provisions of Section 11 relating to
adjustments upon changes in stock, the stock that may be issued
pursuant to Options shall not exceed in the aggregate Five Hundred
Thousand (500,000) shares of Common Stock.
(b) Reversion of Shares to the Share Reserve. If any Option shall for any
reason expire or otherwise terminate, in whole or in part, without
having been exercised in full, the stock not acquired under such Option
shall revert to and again become available for issuance under the Plan.
(c) Source of Shares. The stock subject to the Plan may be unissued shares
or reacquired shares, bought on the market or otherwise.
5. Eligibility.
Nondiscretionary Options as set forth in section 6 shall be granted under
the Plan to all Non-Employee Directors.
6. Non-Discretionary Grants.
(a) Initial Grants. Without any further action of the Board, each Non-
Employee Director shall be granted the following Options:
(i) After March 31, 2000, each person who is elected or appointed for
the first time to be a Non-Employee Director automatically shall,
upon the date of his or her initial election or appointment to be a
Non-Employee Director by the Board or stockholders of the Company,
be granted an Initial Grant to purchase Thirty Five Thousand
(35,000) shares of Common stock on the terms and conditions set
forth herein.
A-3
<PAGE>
(ii) On the day following the first Annual Meeting after the IPO Date,
each person who is then a Non-Employee Director and who served as
a Non-Employee Director prior to March 31, 2000, automatically
shall be granted an Option to purchase that number of shares of
Common Stock equal to Thirty Five Thousand (35,000) shares of
Common Stock less the number of shares of Common Stock subject to
Options granted to such Non-Employee Director since the IPO Date.
(b) Annual Grants. Without any further action of the Board, on the day
following each Annual Meeting commencing with the first Annual Meeting
following the IPO Date, each person who is then a Non-Employee Director
automatically shall be granted an Annual Grant to purchase Fifteen
Thousand (15,000) shares of Common Stock on the terms and conditions
set forth herein; provided, however, that if the person has not been
serving as a Non-Employee Director for the entire period since the
preceding Annual Meeting, then the number of shares subject to the
Annual Grant shall be reduced pro rata for each full quarter prior to
the date of grant during which such person did not serve as a Non-
Employee Director.
7. Option Provisions.
Each Option shall be in such form and shall contain such terms and
conditions as required by the Plan. Each Option shall contain such
additional terms and conditions, not inconsistent with the Plan, as the
Board shall deem appropriate. Each Option shall include (through
incorporation of provisions hereof by reference in the Option or otherwise)
the substance of each of the following provisions:
(a) Term. No Option shall be exercisable after the expiration of ten (10)
years from the date it was granted.
(b) Exercise Price. The exercise price of each Option shall be one hundred
percent (100%) of the Fair Market Value of the stock subject to the
Option on the date the Option is granted. Notwithstanding the
foregoing, an Option may be granted with an exercise price lower than
that set forth in the preceding sentence if such Option is granted
pursuant to an assumption or substitution for another option in a
manner satisfying the provisions of Section 424(a) of the Code.
(c) Consideration. The purchase price of stock acquired pursuant to an
Option may be paid, to the extent permitted by applicable statutes and
regulations, in any combination of (i) cash or check, (ii) delivery to
the Company of other Common Stock, (iii) deferred payment, (iv)
pursuant to a Regulation T Program if the Shares are publicly traded or
(v) any other form of legal consideration that may be acceptable to the
Board and provided in the Option Agreement; provided, however, that at
any time that the Company is incorporated in Delaware, payment of the
Common Stock's "par value," as defined in the Delaware General
Corporation Law, shall not be made by deferred payment.
In the case of any deferred payment arrangement, interest shall be
compounded at least annually and shall be charged at the minimum rate of
interest necessary to avoid the treatment as interest, under any applicable
provisions of the Code, of any amounts other than amounts stated to be
interest under the deferred payment arrangement.
(d) Transferability. An Option shall not be transferable other than to
"family members" as defined by Rule 701 of the Securities Act of 1933,
as amended, and by will or by the laws of descent and distribution, and
shall be exercisable during the lifetime of the Optionholder only by
the Optionholder or such "family members" who are also transferees.
Notwithstanding the foregoing, the Optionholder 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
Optionholder, shall thereafter be entitled to exercise the Option.
(e) Exercise Schedule. The Option shall be exercisable as the shares of
Common Stock subject to the Option vest.
A-4
<PAGE>
(f) Vesting Schedule. Options shall vest as follows: (i) one twenty-fourth
(1/24/th/) of the shares of Common Stock subject to the Option shall
vest each month after the date of the grant of the Option over a period
of two (2) years.
(g) Termination of Continuous Service. In the event an Optionholder's
Continuous Service terminates (other than upon the Optionholder's death
or Disability), the Optionholder may exercise his or her Option (to the
extent that the Optionholder was entitled to exercise it as of the date
of termination) but only within such period of time ending on the
earlier of (i) the date twelve (12) months following the termination of
the Optionholder's Continuous Service, or (ii) the expiration of the
term of the Option as set forth in the Option Agreement. If, after
termination, the Optionholder does not exercise his or her Option
within the time specified in the Option Agreement, the Option shall
terminate. For purposes of this Section 7(f), the limitations upon
exercise discussed herein shall also apply to permitted transferees
under Section 7(d).
(h) Extension of Termination Date. If the exercise of the Option following
the termination of the Optionholder's Continuous Service (other than
upon the Optionholder's death) would be prohibited at any time solely
because the issuance of shares would violate the registration
requirements under the Securities Act, then the Option shall terminate
on the earlier of (i) the expiration of the term of the Option set
forth in subsection 7(a) or (ii) the expiration of a period of three
(3) months after the termination of the Optionholder's Continuous
Service during which the exercise of the Option would not be in
violation of such registration requirements.
(i) Disability of Optionholder. In the event an Optionholder's Continuous
Service terminates as a result of the Optionholder's Disability, the
Optionholder may exercise his or her Option (to the extent that the
Optionholder was entitled to exercise it as of the date of
termination), but only within such period of time ending on the earlier
of (i) the date twelve (12) months following such termination or (ii)
the expiration of the term of the Option as set forth in the Option
Agreement. If, after termination, the Optionholder does not exercise
his or her Option within the time specified herein, the Option shall
terminate. For purposes of this Section 7(h), the limitations upon
exercise discussed herein shall also apply to permitted transferees
under Section 7(d).
(j) Death of Optionholder. In the event (i) an Optionholder's Continuous
Service terminates as a result of the Optionholder's death or (ii) the
Optionholder dies within the three-month period after the termination
of the Optionholder's Continuous Service for a reason other than death,
then the Option may be exercised (to the extent the Optionholder was
entitled to exercise the Option as of the date of death) by the
Optionholder's estate, by a person who acquired the right to exercise
the Option by bequest or inheritance or by a person designated to
exercise the Option upon the Optionholder's death, but only within the
period ending on the earlier of (1) the date eighteen (18) months
following the date of death or (2) the expiration of the term of such
Option as set forth in the Option Agreement. If, after death, the
Option is not exercised within the time specified herein, the Option
shall terminate.
8. Covenants of the Company.
(a) Availability of Shares. During the terms of the Options, the Company
shall keep available at all times the number of shares of Common Stock
required to satisfy such Options.
(b) Securities Law Compliance. The Company shall seek to obtain from each
regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to grant Options and to issue and sell
shares of Common Stock upon exercise of the Options; provided, however,
that this undertaking shall not require the Company to register under
the Securities Act the Plan, any Option 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 unless and until such authority is obtained.
A-5
<PAGE>
9. Use of Proceeds from Stock.
Proceeds from the sale of stock pursuant to Options shall constitute
general funds of the Company.
10. Miscellaneous.
(a) Stockholder Rights. No Optionholder 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 Optionholder has
satisfied all requirements for exercise of the Option pursuant to its
terms.
(b) No Service Rights. Nothing in the Plan or any instrument executed or
Option granted pursuant thereto shall confer upon any Optionholder any
right to continue to serve the Company as a Non-Employee Director or
shall affect the right of the Company or an Affiliate to terminate (i)
the employment of an Employee with or without notice and with or
without cause, (ii) the service of a Consultant pursuant to the terms
of such Consultant's agreement with the Company or an Affiliate or
(iii) the service of a Director pursuant to the Bylaws of the Company
or an Affiliate, and any applicable provisions of the corporate law of
the state in which the Company or the Affiliate is incorporated, as the
case may be.
(c) Investment Assurances. The Company may require an Optionholder, as a
condition of exercising or acquiring stock under any Option, (i) to
give written assurances satisfactory to the Company as to the
Optionholder's knowledge and experience in financial and business
matters and/or to employ a purchaser representative reasonably
satisfactory to the Company who is knowledgeable and experienced in
financial and business matters and that he or she is capable of
evaluating, alone or together with the purchaser representative, the
merits and risks of exercising the Option; and (ii) to give written
assurances satisfactory to the Company stating that the Optionholder is
acquiring the stock subject to the Option for the Optionholder's own
account and not with any present intention of selling or otherwise
distributing the stock. The foregoing requirements, and any assurances
given pursuant to such requirements, shall be inoperative if (iii) the
issuance of the shares upon the exercise or acquisition of stock under
the Option has been registered under a then currently effective
registration statement under the Securities Act or (iv) 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, 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.
(d) Withholding Obligations. The Optionholder may satisfy any federal,
state or local tax withholding obligation relating to the exercise or
acquisition of stock under an Option by any of the following means (in
addition to the Company's right to withhold from any compensation paid
to the Optionholder by the Company) or by a combination of such means:
(i) tendering a cash payment; (ii) authorizing the Company to withhold
shares from the shares of the Common Stock otherwise issuable to the
Optionholder as a result of the exercise or acquisition of stock under
the Option; or (iii) delivering to the Company owned and unencumbered
shares of the Common Stock.
11. Adjustments upon Changes in Stock.
(a) Capitalization Adjustments. If any change is made in the stock subject
to the Plan, or subject to any Option, without the receipt of
consideration by the Company (through merger, consolidation,
reorganization, recapitalization, reincorporation, 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 will be appropriately adjusted
in the class(es) and maximum number of securities subject both to the
Plan pursuant to subsection 4(a) and to the nondiscretionary Options
specified in Section 6, and the
A-6
<PAGE>
outstanding Options will be appropriately adjusted in the class(es) and
number of securities and price per share of stock subject to such
outstanding Options. The Board shall make such adjustments, and its
determination shall be final, binding and conclusive. (The conversion of
any convertible securities of the Company shall not be treated as a
transaction "without receipt of consideration" by the Company.)
(b) Change in Control--Dissolution or Liquidation. In the event of a
dissolution or liquidation of the Company, then all outstanding Options
shall terminate immediately prior to such event.
(c) Change in Control--Asset Sale, Merger, Consolidation or Reverse
Merger. In the event of (i) a sale of all or substantially all of the
assets of the Company, (ii) a merger or consolidation in which the
Company is not the surviving corporation or (iii) a reverse merger in
which the Company is the surviving corporation but the shares of 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 any surviving corporation or
acquiring corporation shall assume or continue any Options outstanding
under the Plan or shall substitute similar Options (including an option
to acquire the same consideration paid to the stockholders in the
transaction described in this subsection 11(c) for those outstanding
under the Plan. In the event any surviving corporation or acquiring
corporation refuses to assume or continue such Options or to substitute
similar Options for those outstanding under the Plan, then such Options
shall terminate if not exercised prior to such event.
(d) Change in Control--Securities Acquisition. In the event of an
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 an Affiliate) 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 Optionholders whose Continuous Service has
not terminated, the vesting of such Options shall be accelerated in
full.
12. Amendment of the Plan and Options.
(a) Amendment of Plan. The Board at any time, and from time to time, may
amend the Plan. However, except as provided in Section 11 relating to
adjustments upon changes in stock, no amendment shall be effective
unless approved by the stockholders of the Company to the extent
stockholder approval is necessary to satisfy the requirements of Rule
16b-3 or any NASDAQ or securities exchange listing requirements.
(b) Stockholder Approval. The Board may, in its sole discretion, submit any
other amendment to the Plan for stockholder approval.
(c) No Impairment of Rights. Rights under any Option granted before
amendment of the Plan shall not be impaired by any amendment of the
Plan unless (i) the Company requests the consent of the Optionholder
and (ii) the Optionholder consents in writing.
(d) Amendment of Options. The Board at any time, and from time to time, may
amend the terms of any one or more Options; provided, however, that the
rights under any Option shall not be impaired by any such amendment
unless (i) the Company requests the consent of the Optionholder and
(ii) the Optionholder consents in writing.
13. Termination or Suspension of the Plan.
(a) Plan Term. The Board may suspend or terminate the Plan at any time. No
Options may be granted under the Plan while the Plan is suspended or
after it is terminated.
A-7
<PAGE>
(b) No Impairment of Rights. 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 written consent of the Optionholder.
14. Effective Date of Plan.
The Plan shall become effective on the IPO Date, but no Option shall be
exercised unless and until the Plan has been approved by the stockholders
of the Company, which approval shall be within twelve (12) months before or
after the date the Plan is adopted by the Board.
15. Choice of Law.
All questions concerning the construction, validity and interpretation of
this Plan shall be governed by the law of the State of California, without
regard to such state's conflict of laws rules.
A-8
