EXHIBIT 99.2
NETWORK EQUIPMENT TECHNOLOGIES, INC.
1997 N.E.T. STOCK OPTION PROGRAM
AMENDED AND RESTATED JANUARY 11, 2000
TABLE OF CONTENTS
ARTICLE ONE............................................................... 2
GENERAL PROVISIONS........................................................ 2
I. PURPOSES OF PROGRAM................................................. 2
II. ADMINISTRATION OF PROGRAM........................................... 2
III. STOCK SUBJECT TO PROGRAM............................................ 3
ARTICLE TWO............................................................... 5
DISCRETIONARY OPTION GRANTS............................................... 5
I. ELIGIBILITY FOR OPTION GRANTS....................................... 5
II. TERMS AND CONDITIONS OF OPTIONS..................................... 5
III. CORPORATE TRANSACTION............................................... 9
IV. CANCELLATION AND REGRANT OF OPTIONS................................. 10
V. STOCK APPRECIATION RIGHTS; HOSTILE TAKE-OVER;
CHANGE IN CONTROL................................................... 11
ARTICLE THREE............................................................. 14
RESTRICTED STOCK AWARDS................................................... 14
I. DETERMINATION OF ELIGIBILITY AND AMOUNT OF AWARDS................... 14
II. RESTRICTED STOCK.................................................... 14
III. VESTING SCHEDULE.................................................... 14
ARTICLE FOUR.............................................................. 18
MISCELLANEOUS............................................................. 18
I. AMENDMENT OF PROGRAM................................................ 18
II. TAX WITHHOLDING..................................................... 18
III. TERM OF PROGRAM..................................................... 18
IV. USE OF PROCEEDS..................................................... 19
V. REGULATORY APPROVALS................................................ 19
VI. NO EMPLOYMENT/SERVICE RIGHTS........................................ 20
VII. MISCELLANEOUS PROVISIONS............................................ 20
1
<PAGE>
N.E.T. STOCK OPTION PROGRAM
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSES OF PROGRAM
A. This N.E.T. Stock Option Program (the "Program" ) is adopted by
the Board of Directors (" Board" ) of Network Equipment Technologies, Inc. ("
N.E.T. " or the "Corporation" ) as of April 1, 1997 (the "Effective Date" ) to
promote the interests of Network Equipment Technologies, Inc., a Delaware
corporation (the " Corporation" ), by allowing eligible individuals to acquire
or increase proprietary interests in the Corporation as an incentive to remain
in the service of the Corporation (or its ""parent"" or "subsidiary"
corporations, as defined in Section 424 of the Internal Revenue Code).
B. This Program is intended to provide for the granting of options
to employees and consultants who are not Officers or Directors of the
Corporation on substantively the same terms and conditions as the Network
Equipment Technologies, Inc. 1993 Stock Option Plan.
C. This Program was amended and restated as of April 14, 1998 to
include the provisions of and provide a successor plan for the Corporation's
1988 Restricted Stock Award Plan (the "1988 Plan"). No restricted stock shall be
granted under the 1988 Plan from and after April 14, 1998. The terms and
conditions of restricted stock granted under the 1988 Plan before April 14, 1998
are not affected by the amendment of this Program.
D. This Program is amended and restated as of January 11, 2000 to
increase the number of available shares to 4,500,000.
II. ADMINISTRATION OF PROGRAM
A. This Program shall be administered by a committee (the "Program
Administrator" or "Committee") of two (2) or more non-employee Directors
appointed by the Corporation's Board. Committee members shall serve for such
periods as the Board may determine and may be removed by the Board at any time.
As of the
2
<PAGE>
Effective Date, the Compensation Committee of the Board is the Program
Administrator.
B. The Program Administrator shall have full authority (subject to
the provisions of this Program) to establish such rules and regulations as it
deems appropriate for the proper administration of this Program and to make such
determinations and interpretations concerning this Program and options granted
under this Program as it deems necessary or advisable. Decisions of the Program
Administrator shall be final and binding upon all parties.
C. The Program Administrator shall have full authority to grant
options and stock appreciation rights pursuant to this Program and restricted
stock pursuant to this Program and to determine in its sole discretion which
eligible individuals are to receive such options, rights, or restricted stock,
the number of shares to be covered by each such option or grant, the time(s) at
which each option or grant is to become vested or exercisable, and the maximum
term for which each option is to be outstanding. Only non-statutory options
("Non-qualified Options") will be issuable under this Program.
III. STOCK SUBJECT TO PROGRAM
A. An aggregate of 4,500,000 shares of the Corporation's common
stock, par value $0.01 per share ("Common Stock") is available for issuance
under this Program. These shares may be authorized but unissued shares of Common
Stock or reacquired shares of Common Stock, including shares repurchased by the
Corporation on the open market. The Program Administrator shall periodically
recommend to the Board the shares to be issued pursuant to this Program and the
Board shall authorize such issuance as it deems to be in the best interests of
the Corporation.
B. To the extent that an option granted under this Program or a
restricted stock award under the 1988 Plan expires or terminates for any reason
before exercise or vesting in full (including any option canceled in accordance
with the cancellation-regrant provisions of this Program), the shares then
subject to the option or restricted stock award shall again be available for
grant under this Program. Shares repurchased by the Corporation pursuant to any
repurchase rights available under this Program, shall not again become available
for option grants
3
<PAGE>
under this Program. If the exercise price of an option granted under this
Program is paid with shares of Common Stock, or if shares of Common Stock
otherwise issuable under this Program are withheld by the Corporation in
satisfaction of withholding taxes incurred upon the exercise of an option, then
the number of shares available for issuance under this Program shall be reduced
by the gross number of shares for which the option is exercised and not by the
net number of shares issued to the option holder.
C. If a change is made to the Common Stock by reason of any stock
split, stock dividend, recapitalization, combination of shares, or other similar
change, then appropriate adjustments shall be made to (i) the number and/or
class of shares issuable under this Program, and (ii) the number and/or class of
shares and price per share in effect under each then-outstanding option or
restricted stock award granted under this Program. The purpose of adjustments to
outstanding and restricted stock awards options shall be to preclude the
enlargement or dilution of rights and benefits under such options or awards. The
adjustments determined by the Program Administrator shall be final, binding, and
conclusive.
D. The Corporation may not issue stock options covering in the
aggregate more than 100,000 shares of Common Stock (subject to adjustments as
required above) to any one participant in any one-year period.
4
<PAGE>
ARTICLE TWO
DISCRETIONARY OPTION GRANTS
I. ELIGIBILITY FOR OPTION GRANTS
The following persons are eligible to participate in this Program:
A. Key employees of the Corporation (or its parent or subsidiary
corporations) whose services contribute to the management, growth, and financial
success of the Corporation (or its parent or subsidiary corporations), and
B. Those consultants and independent contractors who provide
valuable services to the Corporation (or its parent or subsidiary corporations).
C. Notwithstanding the foregoing, members of the Board of Directors
and Officers of the Corporation shall not be eligible to participate in this
Program.
II. TERMS AND CONDITIONS OF OPTIONS
Options granted pursuant to this Program may only be Non-qualified
Options. Each option shall be evidenced by one or more written instruments in a
form approved by the Program Administrator. Each such instrument shall comply
with the terms and conditions specified below. Failure to issue, or (if
agreement is required) to agree to, an instrument evidencing an option shall not
invalidate the option grant; however, the option shall not be exercisable until
a written instrument has been issued and (if required) agreed to.
A. Option Price.
1. The option price per share shall be fixed by the Program
Administrator, but shall not be less than the "fair market value" (defined
below) per share of Common Stock on the date of the option grant.
5
<PAGE>
2. The option price shall, subject to Section III below, be
immediately due upon exercise of the option and shall be payable in one or a
combination of the following forms:
(a) cash or check payable to the Corporation;
(b) shares of Common Stock held by the optionee for the
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
(c) a broker-dealer sale-and-remittance procedure
pursuant to which the optionee shall provide irrevocable written instructions
(i) to a designated brokerage firm to effect the immediate sale of the option
shares and remit to the Corporation, from the sale proceeds available on the
settlement date, sufficient funds to cover the aggregate option price plus all
income and employment taxes required to be withheld by the Corporation in
connection with the exercise, and (ii) to the Corporation to deliver the
certificates for the purchased shares directly to the brokerage firm to complete
the transaction.
3. The Program Administrator may assist any optionee in the
exercise of any option granted under this Program and the satisfaction of any
federal and state income and employment tax obligations arising therefrom by (a)
authorizing a loan to the optionee by the Corporation, or (b) permitting the
optionee to pay the option price in installments over a period of months or
years. The terms of any loan or installment method of payment (including the
interest rate and terms of repayment) will be established by the Program
Administrator in its sole discretion. Loans and installment payments may be
allowed with or without security or collateral (other than to optionees who are
consultants or independent contractors, who must adequately secure any loan by
collateral other than the purchased shares), but the maximum credit available to
the optionee shall not exceed the sum of (i) the aggregate option price (less
par value) of the purchased shares, plus (ii) any federal and state income and
employment tax liability incurred by the optionee in connection with the
exercise of the option.
4. The "fair market value" per share of Common Stock on any
relevant date shall be determined as follows:
6
<PAGE>
(a) If the Common Stock is listed or admitted to trading
on any national stock exchange, then the fair market value shall be the closing
selling price per share of Common Stock on the date in question on the stock
exchange determined by the Program Administrator to be the primary market for
the Common Stock, as officially quoted on the composite tape of transactions on
that exchange. If there is no reported sale of Common Stock on that exchange on
the date in question, the fair market value shall be the closing selling price
on the exchange on the next preceding date for which a closing selling price is
quoted.
(b) If the Common Stock is not listed or admitted to
trading on any national stock exchange, but is traded on the Nasdaq National
Market System, the fair market value shall be the closing selling price per
share of Common Stock on the date in question as reported on that system. 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 for the next
preceding date for which a closing selling price is quoted.
B. Term and Exercise of Options.
1. Each option granted under this Program shall be exercisable
at such time(s), during such period, and for such number of shares as shall be
determined by the Program Administrator and set forth in the written instrument
evidencing the option. No option granted under this Program shall have a term in
excess of ten (10) years after the grant date.
2. During the lifetime of the optionee, the option shall be
exercisable only by the optionee and shall not be assignable or transferable by
the optionee other than by will or by the laws of descent and distribution
following the optionee's death.
3. Exercise of an option shall be effected by delivery to the
Corporation of a written notice in a form approved by the Program Administrator
specifying the number of shares as to which the option is being exercised,
accompanied by payment of the exercise price (or provision for payment
acceptable to the Program Administrator), and containing such other provisions
as the Program Administrator approves from time to time.
7
<PAGE>
C. Termination of Service.
1. Except as otherwise approved by the Program Administrator,
if the optionee's service to the Corporation is terminated:
(a) for cause, each then-outstanding option held by the
optionee shall terminate immediately;
(b) for any reason other than cause, death, or permanent
disability, each then-outstanding option held by the optionee shall expire no
later than three (3) months after the termination date;
(c) by reason of permanent disability (as defined in
Section 22(e)(3) of the Internal Revenue Code), each then-outstanding option
held by the optionee shall expire no later than twelve (12) months after the
termination date; or
(d) by reason of the optionee's death, or if the
optionee dies during the three (3) months following termination of his or her
employment other than for cause or by reason of permanent disability, each
then-outstanding option held by the optionee shall expire no later than twelve
(12) months following the termination date. Following the optionee's death, the
option may be exercised by the personal representative of the optionee's estate
or by the person(s) to whom the option is transferred pursuant to the optionee's
will or in accordance with the laws of descent and distribution.
2. Under no circumstances shall any option be exercisable
after the specified expiration date of the option term.
3. Following termination of the optionee's service, an option
shall not be exercisable to any greater extent than on the termination date;
provided, however, that the Program Administrator shall have complete
discretion, at any time while the option remains outstanding, to permit the
option to be exercised, not only with respect to the number of shares for which
the option is exercisable at the time of the termination, but also with respect
to one or more subsequent installments of purchasable shares for which the
option would otherwise have become exercisable had termination not occurred.
4. For purposes of this Program:
8
<PAGE>
(a) An optionee shall be deemed to remain in service to
the Corporation for so long as he or she renders (or in the case of consultants
or advisors, has agreed to render) services on a periodic basis to the
Corporation (or any parent or subsidiary) as an employee or an independent
consultant or advisor.
(b) An optionee shall be considered to be an employee
for so long as he or she remains in the employ of the Corporation (or any parent
or subsidiary), subject to the control and direction of the employer entity as
to the work to be performed and the manner and method of performance.
D. Stockholder Rights.
An optionee shall have no stockholder rights with respect to
any option shares until he or she has exercised the option and paid (or made
arrangements satisfactory to the Program Administrator to pay) the option price
for the purchased shares.
III. CORPORATE TRANSACTION
A. In the event of any of the following stockholder-approved
transactions (a "Corporate Transaction"):
1. a merger or consolidation in which the Corporation is not
the surviving entity, except for a transaction whose principal purpose is to
change the state of the Corporation's incorporation,
2. the sale, transfer, or other disposition of all or
substantially all of the assets of the Corporation in liquidation or
dissolution, or
3. any "reverse" merger in which the Corporation is the
surviving entity, but in which securities possessing more than 50% of the total
combined voting power of the Corporation's outstanding securities are
transferred to holders other than those who owned such voting power immediately
before the merger, then immediately before the Effective Date of the Corporate
Transaction, each option granted under this Program shall become fully
exercisable ("accelerate") with respect to the total number of shares of Common
Stock then subject to the option. However, an option shall not accelerate if and
to the extent: (i) the
9
<PAGE>
option is, in connection with the Corporate Transaction, either to be assumed by
the successor corporation or parent thereof or to be replaced by an equivalent
option to purchase shares of the capital stock of the successor corporation or
parent thereof, or (ii) acceleration of the option is subject to other
limitations imposed by the Program Administrator at the time of grant. The
determination of equivalence under clause (i) above shall be made by the Program
Administrator and shall be final, binding, and conclusive.
B. Upon the consummation of the Corporate Transaction, all options
granted under this Program shall terminate and cease to be outstanding, except
to the extent assumed by the successor (or surviving) corporation or its parent
company.
C. Each option granted under this Program that is replaced by an
equivalent option in a Corporate Transaction, or that otherwise continues in
effect, shall be appropriately adjusted, immediately after the Corporate
Transaction, to apply to the number and class of securities that would have been
issued in the Corporate Transaction to an actual holder of the number of shares
of Common Stock that were subject to the option immediately before the Corporate
Transaction. Appropriate adjustment shall also be made to the option price
payable per share, provided the aggregate option price payable for such
securities shall remain the same. In addition, the class and number of
securities available for issuance under this Program following the consummation
of the Corporate Transaction shall be appropriately adjusted.
D. The grant of options under this Program shall not 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.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Program Administrator may, at any time and from time to time,
with the consent of the affected optionees, cancel any or all outstanding
options granted under this Program and grant in substitution new options
covering the same or different numbers of shares of Common Stock but having an
option price per
10
<PAGE>
share not less than the fair market value of the Common Stock on the new grant
date.
V. STOCK APPRECIATION RIGHTS; HOSTILE TAKE-OVER; CHANGE IN CONTROL
A. As determined by the Program Administrator in its sole
discretion, one or more optionees may be granted the right, exercisable upon
such terms and conditions as the Program Administrator may establish, to
surrender all or part of an unexercised option granted under this Program in
exchange for a payment by the Corporation of an amount equal to the excess of
(i) the fair market value (on the option surrender date) of the number of shares
in which the optionee is at the time vested under the surrendered option (or
part thereof), over (ii) the aggregate option price payable for those shares.
B. No surrender of an option shall be effective hereunder unless it
is approved by the Program Administrator. If the surrender is approved, then the
payment to the optionee under this Section V may be made in shares of Common
Stock valued at fair market value on the option surrender date, in cash, or
partly in shares and partly in cash, as the Program Administrator determines in
its sole discretion.
C. If the surrender of an option is rejected by the Program
Administrator, then the optionee shall retain whatever rights he or she had
under the surrendered option (or surrendered portion thereof) on the option
surrender date and may exercise such rights at any time before the later of (i)
five (5) business days after receipt of the rejection notice, or (ii) the last
day on which the option is otherwise exercisable in accordance with its terms,
but in no event more than ten (10) years after the date of the option grant.
D. In the event that an individual optionee under this Program
thereafter becomes a member of the Board of Directors or a Corporate Officer of
the Corporation and is subject to the short-swing profit restrictions of the
federal securities laws, then that individual shall have the following limited
stock appreciation rights in tandem with each option received under this
Program. Upon the occurrence of a Hostile Take-Over (defined below), each option
with such a limited stock appreciation right in effect for at least six (6)
months shall automatically be canceled and the optionee shall be entitled to a
11
<PAGE>
cash payment by the Corporation in the amount of the excess of (i) the Take-Over
Price (defined below) of the shares of Common Stock subject to the canceled
option (whether or not the option is otherwise exercisable for such shares),
over (ii) the aggregate exercise price payable for such shares. The payment
shall be made within five (5) days after consummation of the Hostile Take-Over.
Neither the approval of the Program Administrator nor the consent of the Board
shall be required in connection with such option cancellation and cash payment.
E. A "Hostile Take-Over" shall be deemed to occur if (i) any person
or related group of persons (other than the Corporation or a person that
directly or indirectly controls, is controlled by, or is under common control
with, the Corporation) directly or indirectly acquires beneficial ownership
(within the meaning of Rule 13d-3 of the Securities Exchange Act of 1934, as
amended [the "Exchange Act"]) of securities possessing more than 50% of the
total combined voting power of the Corporation's outstanding securities pursuant
to a tender or exchange offer that the Board does not recommend that the
Corporation's stockholders accept, and (ii) more than 50% of the securities so
acquired are accepted from holders other than Officers and Directors of the
Corporation subject to Section 16 of the Exchange Act. The "Take-Over Price" per
share shall be the greater of (a) the fair market value per share on the date of
cancellation, as determined pursuant to the valuation provisions of Section
II.A.4 of this Program, or (b) the highest reported price per share paid in
effecting such Hostile Take-Over.
F. The Program Administrator shall have full discretionary
authority, exercisable either in advance of, or at the time of, a Change in
Control (defined below), to provide for the automatic acceleration of options
granted under this Program upon the occurrence of the Change in Control. The
Program Administrator shall also have full discretionary authority to condition
any such acceleration upon the subsequent termination of the optionee's service
to the Corporation (or a parent or subsidiary) within a specified period after
the Change in Control. The Program Administrator hereby exercises such
discretion to accelerate vesting of all outstanding options held by Officers of
the Corporation whose employment is terminated in conjunction with, or within a
year of, a Change in Control or Corporate Transaction. Any option accelerated in
connection with the Change in Control shall remain fully exercisable until the
expiration of the option term. For all purposes of this Program,
12
<PAGE>
a "Change in Control" shall mean a change in control of the Corporation of a
nature that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A promulgated under the Exchange Act, whether or
not the Corporation is then subject to such reporting requirement, other than a
Corporate Transaction; provided that, without limitation, a Change in Control
shall be deemed to have occurred if:
1. any individual, partnership, firm, corporation,
association, trust, unincorporated organization or other entity, or any
syndicate or group deemed to be a "person" under Section 14(d)(2) of the
Exchange Act, is or becomes the "beneficial owner" (as defined in Rule 13d-3 of
the General Rules and Regulations under the Exchange Act), directly or
indirectly, of securities of the Corporation representing 40% or more of the
combined voting power of the Corporation's then-outstanding securities entitled
to vote in the election of Directors of the Corporation, pursuant to a tender or
exchange offer that the Board does not recommend that the Corporation's
stockholders accept; or
2. during any period of two (2) consecutive years, individuals
who, at the beginning of such period, constituted the Board and any new members
of the Board, whose election by the Board or nomination for election by the
Corporation's stockholders was approved by a vote of at least three-quarters
(3/4) of the Directors then in office who either were Directors at the beginning
of the period or whose election or nomination for election was previously so
approved, cease for any reason to constitute a majority thereof.
G. The shares of Common Stock subject to any option surrendered or
canceled for an appreciation distribution pursuant to this Section V shall not
be available for subsequent option grant under this Program.
13
<PAGE>
ARTICLE THREE
RESTRICTED STOCK AWARDS
I. DETERMINATION OF ELIGIBILITY AND AMOUNT OF AWARDS
The persons who shall be eligible to receive restricted stock awards
under this Article shall be such key employees of the Corporation or its
subsidiaries, excluding officers and directors, as the Program Administrator
shall select from time to time. In no event, however, shall any employee owning
stock possessing more than ten percent (10%) of the total combined voting power
or value of all classes of stock of the Corporation or any subsidiary be
eligible to receive shares under this Article.
II. RESTRICTED STOCK
A. Restricted stock awards shall be made from time to time under the
Program in recognition of the services rendered to the Corporation or its
subsidiaries by the selected participants. All such restricted stock awards
shall provide for the issuance, either as soon as practicable following the time
of the award or at a later date specified in the agreement evidencing the award,
of shares of the Corporation's Common Stock.
B. Each recipient of a restricted stock award under the Program
shall, at the time the shares of Common Stock are issued in payment of such
award, pay to the Corporation, in cash or cash equivalent, an amount equal to
the aggregate par value of the issued shares.
III. VESTING SCHEDULE
A. The interest of an employee in the shares of Common Stock issued
to such employee under this Article may, in the discretion of the Program
Administrator, be fully and immediately vested upon issuance or may vest in one
or more installments in accordance with the vesting provisions of Section III.C.
Except as otherwise provided in Section III.F., the employee may not transfer
any of the Common Stock in which he or
14
<PAGE>
she does not have a vested interest. Accordingly, all unvested shares issued to
an employee under the Program shall bear the restrictive legend specified in
Section III.D.1., until such legend is removed in accordance with Section
III.D.2. The employee, however, shall have all the rights of a stockholder with
respect to the shares of Common Stock issued to him or her hereunder, whether or
not his or her interest in such shares is vested. Accordingly, the employee
shall have the right to vote such shares and to receive any cash dividend paid
on such shares. Any new, additional or different shares of stock or other
property (including money paid other than as a cash dividend) which the holder
of unvested Common Stock may have the right to receive by reason of a stock
dividend, stock split or reclassification of Common Stock or by reason of a
merger, consolidation, liquidation or other change in the capital structure of
the Corporation shall be issued to the employee, subject to (i) the same vesting
schedule applicable to his or her unvested Common Stock and (ii) such escrow
arrangements as the Program Administrator shall deem appropriate.
B. In the event an employee should, while his or her interest in the
Common Stock remains unvested, (i) attempt to transfer (other than by way of a
permissible gift under Section III.F.) any of the unvested Common Stock or any
interest therein or (ii) cease employment with the Corporation for any reason
whatsoever, then the certificates evidencing the employee's unvested Common
Stock (other than shares which become vested by reason of, or upon, such
termination in accordance with the agreement evidencing the award) shall be
immediately surrendered to the Corporation for cancellation and the employee
shall no longer have any stockholder rights with respect to the canceled Common
Stock. In exchange for the surrendered certificates the employee shall receive a
cash payment from the Corporation equal to the aggregate par value of the
canceled shares. For purposes of this Article, the employee shall not be deemed
to have ceased employment with the Corporation for so long as the employee
remains in the active employ of the Corporation or one or more of its
subsidiaries.
C. Vesting; Corporate Transaction; Change in Control.
1. Any shares of Common Stock issued under this Article that
are not vested at the time of such issuance shall vest in one or more
installments thereafter. The elements of the vesting schedule applicable to the
issued shares, including the number of installments in which the shares are to
vest, the
15
<PAGE>
interval or intervals (if any) which are to lapse between installments
and the effect which death, disability or other event designated by the Program
Administrator is to have upon the vesting schedule, shall be determined by the
Program Administrator and shall be specified in the stock restriction agreement
executed by the employee at the time the shares are issued.
2. Should the Corporation's Common Stock be converted into
cash or other shares or securities of the Corporation or any other corporation
as a result of a Corporate Transaction (as defined in Article Two, Section
III.A.), then the shares of Common Stock outstanding at such time under this
Article shall likewise be converted into cash or such other shares or
securities, and such assets may, in the discretion of the Program Administrator,
be held in escrow by the Corporation or its successor and shall thereafter be
distributed to the employees from time to time as their interests therein vest
in accordance with the same vesting schedules which are in effect for their
shares of Common Stock immediately prior to such conversion. However, the
interest each employee has in the shares of Common Stock issued to him or her
under this Article (together with any cash or other shares or securities into
which such Common Stock is to be converted) shall become vested immediately
prior to the specified effective date for the Corporate Transaction if the
Company's rights to repurchase or cancel unvested shares under this Article (for
a payment equal to the par value of the shares) are not to be assigned to the
successor corporation or parent thereof in connection with the Corporate
Transaction. If the Corporation is to be acquired by a reverse merger in which
it is to remain the surviving entity, then no accelerated vesting under the
Program shall occur, unless the Program is to be terminated in connection with
such reverse merger.
3. In the event of a Change in Control (as defined in Article
Two, Section V.F.), then the Program Administrator shall have full power and
authority (exercisable before or after the Change in Control) to accelerate the
vesting of the interests of one or more of the employees in the shares of Common
Stock issued to him or her under this Article.
4. In the event of a Corporate Transaction, then any
outstanding obligations or commitments to issue Common Stock pursuant to this
Article shall be assumed by the successor corporation or parent thereof.
16
<PAGE>
D. Restrictive Legends.
1. Each certificate representing unvested shares of Common
Stock (or other securities) issued under this Article shall bear the following
restrictive legend:
"THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS ON TRANSFER AND TO CANCELLATION IN ACCORDANCE WITH THE TERMS
AND CONDITIONS OF ARTICLE THREE OF THE CORPORATION'S 1997 STOCK OPTION
PROGRAM AND THE STOCK RESTRICTION AGREEMENT EXECUTED THEREUNDER BY THE
CORPORATION AND THE REGISTERED HOLDER (OR HIS PREDECESSOR IN INTEREST). A
COPY OF THE 1997 STOCK OPTION PROGRAM AND STOCK RESTRICTION AGREEMENT MAY
BE OBTAINED FROM THE SECRETARY OF THE CORPORATION."
2. As the interest of the employee vests in the shares of
Common Stock issued under this Article, the Corporation shall, upon the
employee's delivery of the certificate for such shares, issue a new certificate
for the vested shares without the restrictive legend of Section III.D.1. and a
second certificate for any remaining unvested shares with the Section III.D.1.
legend endorsed thereon. If any unvested shares of the employee are surrendered
and canceled under Section III.C.3., then the Corporation shall at the time the
cancellation is effected deliver a new certificate, without the restrictive
legend of Section III.D.1., representing the number of shares (if any) in which
the employee is at such time vested and which are accordingly no longer subject
to cancellation by the Corporation.
E. The Program Administrator may in its discretion waive, in whole
or in part, any cancellation of unvested Common Stock (or other assets) to which
an employee would otherwise be subject under Section III.B. Such a waiver shall
result in the immediate vesting of the employee's interest in the shares of
Common Stock (or other assets) as to which the waiver applies.
F. As used in this Section III, the term "transfer" shall include
(without limitation) any sale, pledge, encumbrance, gift or other disposition of
the shares of Common Stock issued under Article Four. However, the employee
shall have the right to make a gift of any or all of his unvested shares under
Article to his spouse, parents or children or to a trust established for such
spouse, parents or children, provided the recipient of the gifted shares
delivers to the Corporation a written agreement to be bound by all the
provisions of the Program and the stock restriction agreement executed by the
employee with respect to such shares.
17
<PAGE>
ARTICLE FOUR
MISCELLANEOUS
I. AMENDMENT OF PROGRAM
The Board shall have complete and exclusive authority to amend or
modify this Program in any or all respects whatsoever. However, no such
amendment or modification shall, without the consent of the optionee or
restricted stock award holders, adversely affect rights and obligations with
respect to options or awards at the time outstanding under this Program.
II. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares or cash upon
exercise of options or stock appreciation rights or restricted stock awards
granted under this Program shall be subject to the satisfaction of all federal,
state, and local income and employment tax withholding requirements.
B. The Program Administrator may, in its discretion and upon such
terms and conditions as it deems appropriate, provide any or all optionees under
this Program with the election to have the Corporation withhold, from the shares
of Common Stock otherwise issuable upon the exercise of options, one or more
share(s) with an aggregate fair market value equal to a designated percentage
(any whole multiple of 5% specified by the optionee) of the federal and state
income taxes ("Taxes") incurred in connection with the acquisition of such
shares. In lieu of direct withholding, optionees may be granted the right to
deliver shares of Common Stock to the Corporation in satisfaction of such Taxes.
The withheld or delivered shares shall be valued at the fair market value on the
applicable determination date for such Taxes.
III. TERM OF PROGRAM
A. This Program shall terminate on (i) August 10, 2003, or (ii) the
date on which all shares available for issuance
18
<PAGE>
under this Program have been issued pursuant to restricted stock awards or the
exercise of options granted under this Program. If the date of termination is
determined under clause (i) above, then no options or awards outstanding on such
date shall be affected by the termination of this Program.
B. Options may be granted under this Program to purchase shares of
Common Stock in excess of the number of shares then available for issuance under
this Program, provided each option granted is not to become exercisable, in
whole or in part, at any time before Board approval of issuance of a sufficient
increase in the number of shares issuable under this Program.
IV. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of
shares pursuant to options or restricted stock awards granted under this Program
may be used for general corporate purposes.
V. REGULATORY APPROVALS
A. The implementation of this Program, the granting of any option
hereunder, and the issuance of stock for any restricted stock award or upon the
exercise or surrender of any such option shall be subject to the procurement by
the Corporation of all approvals and permits required by regulatory authorities
having jurisdiction over this Program, the options granted under it, and the
stock issued pursuant to it.
B. No shares of Common Stock or other assets shall be issued or
delivered under this Program unless and until there shall have been compliance
with all applicable requirements of federal and state securities laws, including
the filing and effectiveness of a Form S-8 registration statement for the shares
of Common Stock issuable under this Program, and all applicable listing
requirements of any securities exchange on which stock of the same class is then
listed.
19
<PAGE>
VI. NO EMPLOYMENT/SERVICE RIGHTS
Neither the action of the Corporation in establishing this Program,
nor any action taken by the Program Administrator hereunder, nor any provision
of the Program, shall be construed so as to grant any individual the right to
remain in the employ or service of the Corporation (or any parent or subsidiary
corporation) for any period, and the Corporation (or any parent or subsidiary
corporation retaining the services of such individual) may terminate such
individual's employment or service at any time and for any reason, with or
without cause.
VII. MISCELLANEOUS PROVISIONS
A. Except as otherwise provided in this Program, the right to
acquire Common Stock or other assets under this Program may not be assigned,
encumbered, or otherwise transferred by any optionee.
B. The provisions of this Program shall be governed by the laws of
the State of California, as such laws are applied to contracts entered into and
performed in that state.
C. The provisions of this Program shall inure to the benefit of, and
be binding upon, the Corporation and its successors or assigns, and the
optionees, the legal representatives of their respective estates, their
respective heirs or legatees, and their permitted assignees.
20
