CADENCE DESIGN SYSTEMS INC, S-8, 1999-12-27

CADENCE DESIGN SYSTEMS INC
S-8, 1999-12-27
PREPACKAGED SOFTWARE

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 24, 1999
REGISTRATION NO. 333-

================================================================================

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
FORM S-8
REGISTRATION STATEMENT
Under
The Securities Act of 1933
------------

CADENCE DESIGN SYSTEMS, INC.
(Exact name of registrant as specified in its charter)

DELAWARE 77-0148231
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)

2655 SEELY AVENUE, BUILDING 5
SAN JOSE, CALIFORNIA 95134
(Address of Principal Executive Offices) (Zip Code)
----------------------

OPTIONS ASSUMED BY CADENCE DESIGN SYSTEMS, INC.
ORIGINALLY GRANTED UNDER THE
DIABLO RESEARCH COMPANY LLC 1997 STOCK OPTION PLAN
AND THE DIABLO RESEARCH COMPANY LLC 1999 STOCK OPTION PLAN
(Full titles of the Plans)
----------------------

R.L. SMITH MCKEITHEN
SENIOR VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
CADENCE DESIGN SYSTEMS, INC.
2655 SEELY AVENUE, BUILDING 5, SAN JOSE, CALIFORNIA 95134
(Name and Address of Agent for Service)
(408) 943-1234
(Telephone number, including area code, of agent for service)
----------------------
COPIES TO:
GREGORY J. CONKLIN, ESQ.
GIBSON, DUNN & CRUTCHER LLP
ONE MONTGOMERY STREET, 26TH FLOOR
SAN FRANCISCO, CALIFORNIA 94104
(415) 393-8200

CALCULATION OF REGISTRATION FEE

================================================================================

Title of Securities Proposed Maximum Proposed Maximum Amount of
to be Registered Amount to be Registered(1) Offering Price per Share(2) Aggregate Offering Price (2) Registration Fee(2)
- ------------------- -------------------------- --------------------------- ---------------------------- -------------------

Common Stock, par 245,037 shares $4.73 $1,159,025.01 $306.00
value $.01 per share

</TABLE>
================================================================================

(1) This Registration Statement shall also cover any additional shares of
Common Stock which become issuable under the Diablo Research Company
LLC 1997 Stock Option Plan or the Diablo Research Company 1999 Stock
Option Plan (together , the "Assumed Option Plans") by reason of any
stock dividend, stock split, recapitalization or other similar
transaction effected without the receipt of consideration which results
in an increase in the number of the outstanding shares of Cadence
Design Systems, Inc. Common Stock.

(2) Calculated solely for purposes of this offering under Rule 457(h) of
the Securities Act of 1933, as amended, on the basis of the maximum
offering price per share at which such options may be exercised.
================================================================================

<PAGE>

The shares of common stock subject to options registered hereunder have been
assumed by Cadence Design Systems, Inc. ("Cadence" or the "Registrant") pursuant
to an Agreement and Plan of Merger, dated as of November 19, 1999, as amended,
among Cadence, Daffodil Acquisition III, LLC, a Delaware limited liability
company and indirect wholly-owned subsidiary of Cadence, Diablo Research Company
LLC, a California limited liability company ("Diablo"), and Safeguard Pioneer,
Inc., a Delaware corporation, as securityholder agent. These options were
originally granted to directors, employees and consultants of Diablo under the
Assumed Option Plans.

<PAGE>

PART II

INFORMATION REQUIRED IN THE REGISTRATION STATEMENT

Item 3. INCORPORATION OF DOCUMENTS BY REFERENCE

The Registrant hereby incorporates by reference into this Registration
Statement the following documents previously filed with the Securities and
Exchange Commission (the "Commission"):

(a) The Registrant's Annual Report on Form 10-K for the
fiscal year ended January 2, 1999, including all
material incorporated by reference therein;

(b) The Registrant's Quarterly Reports on Form 10-Q for
the fiscal quarters ended April 3, 1999, July 3, 1999
and October 2, 1999, including all material
incorporated by reference therein;

(d) The Registrant's Current Report on Form 8-K filed
with the Commission on May 6, 1999;

(e) The Registrant's Current Report on Form 8-K/A filed
with the Commission on May 20, 1999;

(f) The Registrant's Current Report on Form 8-K filed
with the Commission on May 26, 1999;

(g) The Registrant's Current Report on Form 8-K/A filed
with the Commission on June 15, 1999;

(h) The description of the Registrant's Common Stock to
be offered hereby contained in the Registrant's
Registration Statement on Form 8-A filed with the
Commission on August 29, 1990;

(i) The description of the Registrant's Preferred Share
Purchase Rights set forth in Exhibit 1A, 1B and 1C to
the Registrant's Current Report on Form 8-A filed
with the Commission on February 16, 1996.

All documents filed pursuant to Sections 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934, as amended (the "1934 Act") after the date
of this Registration Statement and prior to the filing of a post-effective
amendment which indicates that all securities offered hereby have been sold or
which deregisters all securities then remaining unsold shall be deemed to be
incorporated by reference into this Registration Statement and to be a part
hereof from the date of filing of such documents.

Any document, and any statement contained in a document, incorporated
or deemed to be incorporated by reference herein shall be deemed to be modified
or superseded for purposes of this Registration Statement to the extent that a
statement contained herein, or in any other subsequently filed document that
also is incorporated or deemed to be incorporated by reference herein, modifies
or supersedes such document or statement. Any such document or statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Registration Statement. Subject to the foregoing,
all information appearing in this Registration Statement is qualified in its
entirety by the information appearing in the documents incorporated by
reference.

II-1

<PAGE>

Item 4. DESCRIPTION OF SECURITIES

Not Applicable.

Item 5. INTERESTS OF NAMED EXPERTS AND COUNSEL

Not Applicable.

Item 6. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 145 of the Delaware General Corporation Law permits a
corporation to indemnify any of its directors or officers who was or is a party
or is threatened to be made a party to any third party proceeding by reason of
the fact that such person is or was a director or officer of the corporation
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding, if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe that such person's conduct was
unlawful. In a derivative action, i.e., one by or in the right of a corporation,
the corporation is permitted to indemnify any of its directors or officers
against expenses (including attorneys' fees) actually and reasonably incurred by
such person in connection with the defense or settlement of such action or suit
if such person acted in good faith and in a manner such person reasonably
believed to be in or not opposed to the best interests of the corporation,
except that no indemnification shall be made if such person shall have been
adjudged liable to the corporation, unless and only to the extent that the court
in which such action or suit was brought shall determine upon application that
such person is fairly and reasonably entitled to indemnity for such expenses
despite such adjudication of liability.

Article VII of the Registrant's currently effective Certificate of
Incorporation eliminates the personal liability of its directors for monetary
damages for breach of fiduciary duty as a director, except for liability (i) for
any breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the Delaware General Corporation Law or (iv) for any transaction from which the
director derived an improper personal benefit. In addition, as permitted by
Section 145 of the Delaware General Corporation Law, the Bylaws of the
Registrant provide that: (a) the Registrant is required to indemnify its
directors and officers and persons serving in such capacities in other business
entities (including, for example, subsidiaries of the Registrant) at the
Registrant's request (such directors, officers and other persons are
collectively, "Covered Persons"), to the fullest extent permitted by Delaware
law, including those circumstances in which indemnification would otherwise be
discretionary; (b) the Registrant is required to advance expenses, as incurred
to such Covered Persons in connection with defending a proceeding; (c) the
indemnitee(s) of the Registrant have the right to bring suit, and to be paid the
expenses of prosecuting such suit if successful, to enforce the rights to
indemnification under the Bylaws or to advancement of expenses under the Bylaws;
(d) the rights conferred in the Bylaws are not exclusive and the Registrant is
authorized to enter into indemnification agreements with such directors,
officers and employees; (e) the Registrant is required to maintain director and
officer liability insurance to the extent reasonably available; and (f) the
Registrant may not retroactively amend the Bylaws indemnification provision in a
way that is adverse to such Covered Persons.

The Registrant has entered into indemnity agreements with each of its
executive officers and directors that provide the maximum indemnity allowed to
officers and directors by Section 145 of the Delaware General Corporation Law
and the Bylaws, as well as certain additional procedural protections. The
Registrant also maintains a limited amount of director and officer insurance.
The indemnification provision in the Bylaws, and the indemnity agreements
entered into between the Registrant and its officers or directors, may be
sufficiently broad to permit indemnification of the Registrant's officers and
directors for liability arising under the Securities Act of 1933, as amended
(the "1933 Act").

Item 7. EXEMPTION FROM REGISTRATION CLAIMED

Not Applicable.

II-2

<PAGE>

Item 8. EXHIBITS

EXHIBIT NUMBER EXHIBIT
- -------------- -------

<S> <C>
4.1(a) The description of the Registrant's Common Stock. Reference is made to
the Registrant's Registration Statement on Form 8-A filed with the
Commission on August 29, 1990 incorporated by reference pursuant to
Item 3(g);

4.1(b) The description of the Registrant's Preferred Share Purchase Rights.
Reference is made to Exhibit 1A, 1B and 1C to the Registrant's Current
Report on Form 8-A filed with the Commission on February 16, 1996
incorporated by reference pursuant to Item 3(h).

4.2 Specimen Certificate of the Registrant's Common Stock (incorporated by
reference to Exhibit 4.01 of the Registrant's Registration Statement on
Form S-4 (33-43400)).

4.3 Rights Agreement, dated as of February 9, 1996, between the Registrant
and Harris Trust and Savings Bank which includes as exhibits thereto
the Certificate of Designation for the Series A Junior Participating
Preferred Stock, the form of Rights Certificate, and the Summary of
Rights to Purchase Preferred Shares (incorporated by reference to
Exhibit 1A, 1B, and 1C to the Registrant's Current Report on Form 8-K
filed on February 16, 1996).

5.1 Opinion and consent of Gibson, Dunn & Crutcher LLP.

23.1 Consent of Arthur Andersen LLP, Independent Public Accountants.

23.2 Consent of Gibson, Dunn & Crutcher LLP (contained in Exhibit 5.1).

99.1 Diablo Research Company LLC 1997 Stock Option Plan

99.2 Diablo Research Company LLC 1999 Stock Option Plan
</TABLE>

Item 9. UNDERTAKING

A. The undersigned Registrant hereby undertakes: (1) to file, during
any period in which offers or sales are being made, a post-effective amendment
to this Registration Statement (i) to include any prospectus required by Section
10(a)(3) of the 1933 Act; (ii) to reflect in the prospectus any facts or events
arising after the effective date of this Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in this
Registration Statement; and (iii) to include any material information with
respect to the plan of distribution not previously disclosed in this
Registration Statement or any material change to such information in this
Registration Statement; PROVIDED, HOWEVER, that clauses (1)(i) and (l)(ii) shall
not apply if the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed by the
Registrant pursuant to Section 13 or Section 15(d) of the 1934 Act that are
incorporated by reference into this Registration Statement; (2) that for the
purpose of determining any liability under the 1933 Act, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof, and
(3) to remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold upon the termination of the
offering under the Assumed Option Plans.

B. The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the 1933 Act, each filing of the Registrant's
annual report pursuant to Section 13(a) or Section 15(d) of the 1934 Act that is
incorporated by reference into this Registration Statement shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial BONA
FIDE offering thereof.

II-3

<PAGE>

C. Insofar as indemnification for liabilities arising under the 1933
Act may be permitted to directors, officers or controlling persons of the
Registrant pursuant to the indemnity provisions incorporated by reference in
Item 6, or otherwise, the Registrant has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in the
1933 Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the 1933 Act and
will be governed by the final adjudication of such issue.

II-4

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-8, and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of San Jose, State of California, on this 23rd day
of December, 1999.

CADENCE DESIGN SYSTEMS, INC.

By: *
-----------------------------
H. Raymond Bingham
President, Chief Executive Officer and
Director

Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.

SIGNATURE TITLE DATE

<S> <C> <C>
* President, Chief Executive Officer and December 23, 1999
- ----------------------------------
H. Raymond Bingham Director (Principal Executive Officer)

* Senior Vice President, Chief Financial December 23, 1999
- -----------------------------------
William Porter Officer (Principal Financial Officer
and Principal Accounting Officer)

* Director December 23, 1999
- -----------------------------------
Carol A. Bartz

* Director December 23, 1999
- -----------------------------------
Dr. Leonard Y.W. Liu

* Director December 23, 1999
- -----------------------------------
Donald L. Lucas

* Director December 23, 1999
- -----------------------------------
Dr. Alberto Sangiovanni-
Vincentelli

* Director December 23, 1999
- -----------------------------------
George M. Scalise

* Director December 23, 1999
- -----------------------------------
Dr. John B. Shoven

* Director December 23, 1999
- -----------------------------------
Roger S. Siboni

By: /s/R.L. Smith McKeithen
- -----------------------------------
R.L. Smith McKeithen
Attorney-in-Fact

</TABLE>

II-5

<PAGE>

EXHIBIT INDEX

EXHIBIT NUMBER EXHIBIT
- -------------- -------

<S> <C>
4.1(a) The description of the Registrant's Common Stock.
Reference is made to the Registrant's Registration
Statement on Form 8-A filed with the Commission on
August 29, 1990 incorporated by reference pursuant to
Item 3(g).

(b) The description of the Registrant's Preferred Share
Purchase Rights. Reference is made to Exhibit 1A, 1B
and 1C to the Registrant's Current Report on Form 8-A
filed with the Commission on February 16, 1996
incorporated by reference pursuant to Item 3(h).

4.2 Specimen Certificate of the Registrant's Common Stock
(incorporated by reference to Exhibit 4.01 of the
Registrant's Registration Statement on Form S-4
(33-43400)).

4.3 Rights Agreement, dated as of February 9, 1996,
between the Registrant and Harris Trust and Savings
Bank which includes as exhibits thereto the
Certificate of Designation for the Series A Junior
Participating Preferred Stock, the form of Rights
Certificate, and the Summary of Rights to Purchase
Preferred Shares (incorporated by reference to
Exhibit 1A, 1B, and 1C to the Registrant's Current
Report on Form 8-K filed on February 16, 1996).

5.1 Opinion and consent of Gibson, Dunn & Crutcher LLP.

23.1 Consent of Arthur Andersen LLP, Independent Public
Accountants.

23.2 Consent of Gibson, Dunn & Crutcher LLP (contained in
Exhibit 5).

99.1 Diablo Research Company LLC 1997 Stock Option Plan

99.2 Diablo Research Company LLC 1999 Stock Option Plan
</TABLE>

<PAGE>

EXHIBIT 5.1

[Letterhead of Gibson, Dunn & Crutcher LLP]

December 22,1999

Cadence Design Systems, Inc.
2655 Seely Avenue, Building 5
San Jose, CA 95134

Re: Registration Statement on Form S-8
OF CADENCE DESIGN SYSTEMS, INC.

Ladies and Gentlemen:

We refer to the registration statement on Form S-8 ("Registration
Statement"), under the Securities Act of 1933, as amended (the "Securities Act")
filed by Cadence Design Systems, Inc., a Delaware corporation (the "Company"),
with respect to the proposed offering by the Company of up to 245,037 shares
(the "Shares") of the common stock of the Company, $.01 par value per share (the
"Common Stock"), subject to issuance by the Company upon exercise of options
granted under the Diablo Research Company LLC 1997 Stock Option Plan and the
Diablo Research Company LLC 1999 Stock Option Plan (the "Plans") assumed by the
Company pursuant to the terms of the Agreement and Plan of Merger, dated as of
November 19, 1999 among Cadence, Daffodil Acquisition III, LLC, a Delaware
limited liability company and indirect wholly-owned subsidiary of Cadence,
Diablo Research Company LLC, a California limited liability company ("Diablo"),
and Safeguard Pioneer, Inc., a Delaware corporation, as securityholder agent.

We have examined the originals or certified copies of such corporate
records, certificates of officers of the Company and/or public officials and
such other documents and have made such other factual and legal investigations
as we have deemed relevant and necessary as the basis for the opinions set forth
below. In such examination, we have assumed the genuineness of all signatures,
the authenticity of all documents submitted to us as originals, the conformity
to original documents of all documents submitted to us as conformed or
photostatic copies and the authenticity of the originals of such copies.

Based on our examination mentioned above, subject to the assumptions
stated above and relying on the statements of fact contained in the documents
that we have examined, we are of the opinion that (i) the issuance by the
Company of the Shares has been duly authorized and (ii) when issued in
accordance with the terms of the Plans, the Shares will be duly and validly
issued, fully paid and non-assessable shares of Common Stock.

We are admitted to practice in the State of California, and are not
admitted to practice in the State of Delaware. However, for the limited purposes
of our opinion set forth above, we are generally familiar with the General
Corporation Law of the State of Delaware (the "DGCL") as presently in effect and
have made such inquiries as we consider necessary to render this opinion with
respect to a Delaware corporation. This opinion letter is limited to the laws of
the State of California and, to the limited extent set forth above, the DGCL, as
such laws presently exist and to the facts as they presently exist. We express
no opinion with respect to the effect or applicability of the laws of any other
jurisdiction. We assume no obligation to revise or supplement this opinion
letter should the laws of such jurisdictions be changed after the date hereof by
legislative action, judicial decision or otherwise.

We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. In giving this consent, we do not admit that we are
within the category of persons whose consent is required under Section 7 of the
Securities Act or the General Rules and Regulations of the Securities and
Exchange Commission.

Very truly yours,

/s/GIBSON, DUNN & CRUTCHER LLP

<PAGE>

EXHIBIT 23.1

CONSENT OF ARTHUR ANDERSEN LLP, INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the incorporation by
reference in this Registration Statement of our report dated March 26, 1999
included in Cadence Design Systems, Inc.'s Form 10-K for the year ended January
2, 1999 (as amended by Form 10-K/A).

/s/ Arthur Andersen LLP
Arthur Andersen LLP

San Jose, California
December 22, 1999

<PAGE>

DIABLO RESEARCH COMPANY LLC
` 1997 STOCK OPTION PLAN
(AS AMENDED)

1. ESTABLISHMENT, PURPOSE AND TERM OF PLAN.

1.1 ESTABLISHMENT. Diablo Research Company LLC 1997 Stock
Option Plan (the "Plan") is hereby established effective as of April 23, 1997
(the "Effective Date").

1.2 PURPOSE. The purpose of the Plan is to advance the
interests of the Company and its Unit holders by providing an incentive to
attract, retain and reward persons performing services for the Company and by
motivating such persons to contribute to the growth and profitability of the
Company.

1.3 TERM OF PLAN. The Plan shall continue in effect until the
earlier of its termination by the Board or the date on which all of the Units
available for issuance under the Plan have been issued and all restrictions on
such Units under the terms of the Plan and the agreements evidencing Options
granted under the Plan have lapsed. However, all Options shall be granted, if
at all, within ten (10) years from the Effective Date.

1.4 EFFECTIVENESS OF PLAN. The Plan shall become effective as
set forth in Section 1.1 above subject, however to the Unit holders of the
Company approving the Plan, by the affirmative vote of a majority in interest of
the Units within twelve (12) months of such effective date. Any option
exercised prior to such approval by the Unit holders must be rescinded if Unit
holder approval is not obtained within twelve (12) months of such effective
date.

2. DEFINITIONS AND CONSTRUCTION.

2.1 DEFINITIONS. Whenever used herein, the following terms
shall have their respective meanings set forth below:

a. "BOARD" means the Board of Members of the Company.
If one or more Committees have been appointed by the Board to administer the
Plan, "Board" also means such Committee(s).

b. "CODE" means the Internal Revenue Code of 1986, as
amended, and any applicable regulations promulgated thereunder.

c. "COMMITTEE" means a committee of the Board duly
appointed to administer the Plan and having such powers as shall be specified by
the Board. Unless the powers of the Committee have been specifically limited,
the Committee shall have all of the powers of the Board granted herein,
including, without limitation, the power to amend or terminate the Plan at any
time, subject to the terms of the Plan and any applicable limitations imposed by
law.

<PAGE>

EXHIBIT E

d. "COMPANY" means Diablo Research Company LLC, a
California limited liability company.

e. "CONSULTANT" means any person engaged by the Company
to render services other than as an Employee or a Director.

f. "DIRECTOR" means a member of the Board.

g. "EMPLOYEE" means any person treated as an employee
(including an officer or a Director who is also treated as an employee) by the
Company; provided, however, that neither service as a Director nor payment of a
director's fee shall be sufficient to constitute employment for this purpose.

h. "EXCHANGE ACT" means the Securities Exchange Act of
1934, as amended.

i. "FAIR MARKET VALUE" means, as of any date, the value
of a Unit or other property as determined by the Board, in its sole discretion.

j. "INSIDER" means an officer or a Director of the
Company or any other person whose transactions in securities are subject to
Section 16 of the Exchange Act.

k. "OPERATING AGREEMENT" means the Operating Agreement
of the Company dated November 12, 1996.

l. "OPTION" means a right to purchase Units (subject to
adjustment as provided in Section 4.2) pursuant to the terms and conditions of
the Plan. All Options are nonstatutory stock options and not Incentive Stock
Options as that term is defined in Section 422(b) of the Code.

m "OPTION AGREEMENT" means a written agreement between
the Company and an Optionee setting forth the terms, conditions and restrictions
of the Option granted to the Optionee and any Units acquired upon the exercise
thereof.

n. "OPTIONEE" means a person who has been granted one
or more Options.

o. "RULE 16B-3" means Rule 16b-3 as promulgated under
the Exchange Act, as amended from time to time, or any successor rule or
regulation.

p. "SERVICE" means employment by the Company or service
as a member of the Board of the Company or service as a consultant to the
Company.

q. "UNITS" means the Class B Units of the Company as
described in the Operating Agreement.

<PAGE>

2.2 CONSTRUCTION. Captions and title contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of the Plan. Except when otherwise indicated by the context, the
singular shall include the plural, and the plural shall include the singular,
and the term "or" shall include the conjunctive as well as the disjunctive.

3. ADMINISTRATION.

3.1 ADMINISTRATION BY THE BOARD. The Plan shall be
administered by the Board.. MI questions of interpretation of the Plan or of
any Option shall be determined by the Board, and such determinations shall be
final and binding upon all person having an interest in the Plan or such Option.

3.2 POWERS OF THE BOARD. In addition to any other powers set
forth in the Plan and subject to the provisions of the Plan, the Board shall
have the full and final power and authority, in its sole discretion:

a. to determine the persons to whom, and the time or
times at which, Options shall be granted and the number of Units to be subject
to each Option;

b. to determine the Fair Market Value of Units or other
property;

c. to determine the terms, conditions and restrictions
applicable to each Option (which need not be identical) and any Units acquired
upon the exercise thereof, including, without limitation, (i) the exercise price
of the Option, (ii) the method of payment for Units purchased upon the exercise
of the Option, (iii) the method for satisfaction of any tax withholding
obligation arising in connection with the Option or such Units, (iv) the timing,
terms and conditions of the exercisability of the Option or the vesting of any
Units acquired upon the exercise thereof, (v) the time of the expiration of the
Option, (vi) the effect of the Optionee's termination of employment or service
with the Company on any of the foregoing, and (vii) all other terms, conditions
and restrictions applicable to the Option or such Units not inconsistent with
the terms of the Plan;

d. to approve one or more forms of Option Agreement;

e. to amend, modify, extend or renew, or grant a new
Option in substitution for, any Option or to waive any restrictions or
conditions applicable to any Option or any Units acquired upon the exercise
thereof;

f. to correct any defect, supply any omission or
reconcile any inconsistency in the Plan or any Option Agreement and to make all
other determinations and take such other actions with respect to the Plan or any
Option as the Board may deem advisable to the extent consistent with the Plan
and applicable law.

3.3 DISINTERESTED ADMINISTRATION. With respect to participation by
Insiders in the Plan, at any time that any class of equity security of the
Company is registered pursuant to Section 12 of the Exchange Act, the Plan shall
be administered by the Board in compliance with the "disinterested
administration" requirements, if any, of Rule 16b-3.

<PAGE>

4. UNITS SUBJECT TO PLAN.

4.1 MAXIMUM NUMBER OF UNITS ISSUABLE. Subject to adjustment as
provided in Section 4.2, the maximum aggregate number of Units that may be
issued under the Plan shall be Three Million Sixty-three Thousand Four Hundred
Seventy-six (3,063,476) and shall consist of authorized but unissued Units or
reacquired Units or any combination thereof If an outstanding Option for any
reason expires or is terminated or canceled or if Units acquired) subject to
repurchase, upon the exercise of an Option are repurchased by the Company, the
Units allocable to the unexercised portion of such Option or such repurchased
Units shall again be available for issuance under the Plan.

4.2 ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event
of any changes in the capital structure of the Company analogous to a corporate
stock dividend) stock split, reverse stock split, recapitalization, combination,
or reclassification, appropriate adjustments shall be made in the number and
class of Units subject to the Plan and to any outstanding Options and in the
exercise price of any outstanding Options. If a majority of the Units is
exchanged for, converted into) or otherwise become (whether or not pursuant to
an Ownership Change Event as defined in Section 8.1) securities of another
limited liability company, securities of a limited partnership or shares of a
corporation (the 'New Securities"), the Board may unilaterally amend the
outstanding Options to provide that such Options are exercisable for New
Securities. In the event of any such amendment, the number of Units subject to,
and the exercise price of, the outstanding Options shall be adjusted in a fair
and equitable manner as determined by the Board, in its sole discretion.
Notwithstanding the foregoing, any fractional Unit resulting from an adjustment
pursuant to this Section 4.2 shall be rounded up or down to the nearest whole
number, as determined by the Board.

5. ELIGIBILITY AND OPTION LIMITATIONS.

5.1 PERSONS ELIGIBLE FOR OPTIONS. Options may be granted only
to Employees, Consultants, and Directors. Eligible persons may be granted more
than one (1) Option.

5.2 DIRECTORS SERVING ON COMMITTEE. At any time that any class
of equity security of the Company is registered pursuant to Section 12 of the
Exchange Act, no member of a Committee established to administer the Plan in
compliance with the "disinterested administration" requirements, if any, of
Rule 16b-3, while a member, shall be eligible to be granted an Option.

6. TERMS AND CONDITIONS OF OPTIONS. Options shall be evidenced by
Option Agreements specifying the number of Units covered thereby, in such form
as the Board shall from time to time establish. Option Agreements may
incorporate all or any of the terms of the Plan by reference and shall comply
with and be subject to the following terms and conditions:

6.1 EXERCISE PRICE. The exercise price for each Option shall
be established in the sole discretion of the Board provided, however, such
exercise price shall not be less than 85% of the fair market value of the
underlying Units at the time of the Option is granted and that such exercise
price shall be at least 110% of the fair market value if the recipient of the
Option

<PAGE>

owns Units possessing more than 10% of the total combined voting power of
classes of Units of the Company.

6.2 VESTING. The right to exercise Options shall vest at a
Tate of at least twenty percent (20%) per year from the date the Option is
granted subject to reasonable conditions such as continued employment with the
Company.

6.3 EXERCISE PERIOD. Options shall be exercisable at such time
or times and subject to such terms, conditions, performance criteria, and
restrictions as shall be determined by the Board and set forth in the Option
Agreement evidencing such Option; provided, however;

a. MAXIMUM PERIOD. No Option shall be exercisable
after the expiration often (10) years after the date such Option is granted.
The provisions of subsection b through d immediately below shall not extend such
period.

b. DEATH OF OPTIONEE. If the Optionee dies while in
the Service of the Company, the Option shall expire no earlier than six (6)
months from the date of death.

c. DISABILITY' OF OPTIONEE. If the Optionee suffers a
permanent disability (as defined in Section 22(e)(3) of the Code) while in the
Service of the Company, the Option shall expire no earlier than six (6) months
from the date of the permanent disability.

d. OTHER TERMINATIONS OF SERVICE. If the Optionee
ceases to remain in the Service of the Company for any reason other than death
or permanent disability, then the Option shall terminate upon the earlier to
occur of (a) thirty (30) days from the date such Service terminates in the case
of an Employee and (b) one (1) year from the date such Service terminates in the
case of an Optionee who is not an Employee.

6.4 PAYMENT OF EXERCISE PRICE.

a. FORMS OF PAYMENT AUTHORIZED. Except as otherwise
provided below, payment of the exercise price for the number of Units being
purchased pursuant to any Option shall be made (i) in cash, by check, or cash
equivalent, (ii) by tender to the Company of Units owned by the Optionee having
a Fair Market Value (as determined by the Company without regard to any
restrictions on transferability applicable to such Units by reason of federal or
state securities laws or agreements with an underwriter for the Company) not
less than the exercise price, (iii) by the assignment of the proceeds of a sale
or loan with respect to some or all of the Units being acquired upon the
exercise of the Option (including, without limitation, through an exercise
complying with the provisions of Regulation T as promulgated from time to time
by the Board of Governors of the Federal Reserve System) (a "Cashless
Exercise"), (iv) by the Optionee's promissory note in a form approved by the
Company, (v) by such other consideration as may be approved by the Board from
time to time to the extent permitted by applicable law, or (vi) by any
combination thereof The Board may at any time or from time to time, by adoption
of or by amendment to the standard forms of Option Agreement described in
Section 7, or by other means, grant Options which do not permit all of the
foregoing forms of consideration to be used in payment of the exercise price or
which otherwise restrict one or more forms of consideration.

<PAGE>

b. TENDER OF UNITS. Notwithstanding the foregoing, an
Option may not be exercised by tender to the Company of Units to the extent such
tender would constitute a violation of the provisions of any law, regulation or
agreement restricting the redemption of the Company's Securities. Unless
otherwise provided by the Board, an Option may not be exercised by tender to the
Company of Units unless such Units either have been owned by the Optionee for
more than six (6) months or were not acquired, directly or indirectly, from the
Company.

c. CASHLESS EXERCISE. The Company reserves, at any and
all times, the right, in the Company's sole and absolute discretion, to
establish, decline to approve or terminate any program or procedures for the
exercise of Options by means of a Cashless Exercise.

d. PAYMENT BY PROMISSORY NOTE. No promissory note
shall be permitted if the exercise of an Option using a promissory note would be
a violation of any law. Any permitted promissory note shall be due and payable
not more than ten (10) years after the Option is exercised, and interest shall
be payable at least annually and at a rate at least equal to the minimum
interest rate necessary to avoid imputed interest pursuant to all applicable
sections of the Code. The Board shall have the authority to permit or require
the Optionee to secure any promissory note used to exercise an Option with the
Units acquired upon the exercise of the Option or with other collateral
acceptable to the Company.

6.5 TAX WITHHOLDING. The Company shall have the right, but not the
obligation, to deduct from the Units issuable upon the exercise of an Option, or
to accept from the Optionee the tender of, a number of Units having a Fair
Market Value, as determined by the Company, equal to all or any part of the
federal, state and local taxes, if any, required by law to be withheld by the
Company with respect to such Option. Alternatively, in its sole discretion, the
Company shall have the right to require the Optionee, through payroll
withholding or otherwise, to make adequate provision for any such tax
withholding obligations of the Company arising in connection with the Option.
The Company shall have no obligation to deliver Units or to release Units from
an escrow established pursuant to the Option Agreement until the Company's tax
withholding obligations have been satisfied by the Optionee.

6.6 REPURCHASE RIGHTS. Units issued under the Plan may be subject to
a right of first refusal, one or more repurchase options, or other conditions
and restrictions as determined by the Board, in its sole discretion, at the time
the Option is granted. The Company shall have the right to assign at any time
any repurchase right it may have, whether or not such right is then exercisable,
to one or more persons as may be selected by the Company. Upon request by the
Company, each Optionee shall execute any agreement evidencing such transfer
restrictions prior to the receipt of Units hereunder and shall promptly present
to the Company any and all certificates representing Units acquired hereunder
for the placement on such certificates of appropriate legends evidencing any
such transfer restrictions. Any repurchase right which the Company shall have
shall be: (i) at not less than the fair market value of the Units on the date
of termination of Service and such right must be exercised for cash or
cancellation of purchase money indebtedness for the Units within ninety (90)
days of termination of service (or in the case of securities issued after
termination of service, ninety (90) days after exercise or (ii) at the original
purchase price provided that this right lapses at the rate of at least twenty
percent (20%)

<PAGE>

per year over five (5) years from the date of the Option grants and the right
to repurchase is exercised within the time and manner set forth in clause (i)
immediately above.

7. TRANSFER OF CONTROL.

7.1 DEFINITIONS.

a. An "Ownership Change Event" shall be deemed to have
occurred if any of the following occurs with respect to the Company:

(i) the direct or indirect sale or exchange in a
single or series of related transactions by the Members and
economic interest owners of the Company of more than fifty percent
(50%) of the voting securities of the Company;

(ii) a merger or consolidation in which the
Company is a party;

(iii) the sale, exchange or transfer of all or
substantially all of the assets of the Company; or

(iv) a liquidation or dissolution of the Company.

b. A "Transfer of Control" shall mean an Ownership
Change Event or a series of related Ownership Change Events (collectively, the
"Transaction") wherein the Members and economic interest owners of the Company
immediately before the Transaction do not retain immediately after the
Transaction, in substantially the same proportions as their ownership of the
Company's voting Securities immediately before the Transaction, direct or
indirect beneficial ownership of more than fifty percent (50%) of the total
combined voting power of the outstanding voting securities of the Company or the
corporation, limited liability company, or limited partnership to which the
assets of the Company were transferred (the "Transferee Corporation(s)"). For
purposes of the preceding sentence, indirect beneficial ownership shall include,
without limitation, an interest resulting from ownership of the voting
securities of one or more subsidiary corporations. The Board shall have the
right to determine whether multiple sales or exchanges of the voting stock of
the Company or multiple Ownership Change Events are related, and its
determination shall be final, binding and conclusive.

7.2 EFFECT OF TRANSFER OF CONTROL ON OPTIONS. In the event of a
Transfer of Control, the Board, in its sole discretion, may arrange with the
surviving, continuing, successor, or purchasing limited liability company,
limited partnership or corporation or parent corporation thereof, as the case
may be (the "Acquiring Company"), for the Acquiring Company to either assume the
Company's rights and obligations under outstanding Options or substitute for
outstanding Options substantially equivalent options for the Acquiring Company's
stock. The Company shall provide each Optionee holding an outstanding Option
with at least ten (10) days advance written notice of the pending Transfer of
Control prior to the consummation thereof. Any Options which are neither
assumed or substituted for by the Acquiring Company in connection with the
Transfer of Control nor exercised as of the date of the Transfer of Control
shall terminate and cease to be outstanding effective as of the date of the
Transfer of Control. Notwithstanding the foregoing, Units acquired upon
exercise of an Option prior to the Transfer

<PAGE>

of Control and any consideration received pursuant to the Transfer of Control
with respect to such Units shall continue to be subject to all applicable
provisions of the Option Agreement evidencing such Option except as otherwise
provided in such Option Agreement.

8. NONTRANSFERABILITY OF OPTIONS. During the lifetime of the
Optionee, an Option shall be exercisable only by the Optionee or the Optionee's
guardian or legal representative. No Option shall be assignable or transferable
by the Optionee, except by will or by the laws of descent and distribution.
Notwithstanding the foregoing, an Option shall be assignable or transferable to
the extent permitted by the Board and set forth in the Option Agreement
evidencing such Option.

9. PROVISION OF INFORMATION. At least annually a copy of the
Company's balance sheet and income statement for the just completed fiscal year
shall be furnished shed to each Optionee.

10. VOTING RIGHTS. The Units shall have equal voting rights with
other Class B Units on all matters where such vote is permitted by applicable
law.

11. TERMINATION OR AMENDMENT OF PLAN. The Board may terminate or
amend the Plan at any time. No termination or amendment of the Plan may
adversely affect any then outstanding Option or any unexercised portion thereof,
without the consent of the Optionee, unless such termination or amendment is
necessary to comply with any applicable law or government regulation.

IN WITNESS WHEREOF, the undersigned Assistant Secretary of the Company
certifies that the foregoing Diablo Research Company LLC 1997 Stock Option Plan
was duly adopted by the Board on April 23, 1997.

/s/ Lawrence A. Klein
------------------------------
LAWRENCE A. KLEIN

<PAGE>

DIABLO RESEARCH COMPANY LLC
1999 STOCK OPTION PLAN

1. ESTABLISHMENT, PURPOSE AND TERM OF PLAN.

1.1 ESTABLISHMENT. Diablo Research Company LLC 1999 Stock
Option Plan (the "Plan") is hereby established effective as of April 21, 1999
(the "Effective Date").

2. DEFINITIONS AND CONSTRUCTION.

2.1 DEFINITIONS. Whenever used herein, the following terms
shall have their respective meanings set forth below:

a. "BOARD" means the Board of Members of the Company.
If one or more Committees have been appointed by the Board to administer the
Plan, "Board" also means such Committee(s).

b. "CODE" means the Internal Revenue Code of 1986, as
amended, and any applicable regulations promulgated thereunder.

<PAGE>

d. "COMPANY" means Diablo Research Company LLC, a
California limited liability company.

e. "CONSULTANT" means any person engaged by the Company
to render services other than as an Employee or a Director.

f. "DIRECTOR" means a member of the Board.

h. "EXCHANGE ACT" means the Securities Exchange Act of
1934, as amended.

i. "FAIR MARKET VALUE" means, as of any date, the value
of a Unit or other property as determined by the Board, in its sole discretion.

j. "INSIDE" means an officer or a Director of the
Company or any other person whose transactions in securities are subject to
Section 16 of the Exchange Act.

k. "OPERATING AGREEMENT" means the Operating Agreement
of the Company dated November 12, 1996.

m. "OPTION AGREEMENT" means a written agreement between
the Company and an Optionee setting forth the terms, conditions and restrictions
of the Option granted to the Optionee and any Units acquired upon the exercise
thereof.

n. "OPTIONEE" means a person who has been granted one
or more Options.

o. "RULE 16B-3" means Rule 16b-3 as promulgated under
the Exchange Act, as amended from time to time, or any successor rule or
regulation.

p. "SERVICE" means employment by the Company or service
as a member of the Board of the Company or service as a consultant to the
Company.

q. "UNITS" means the Class B Units of the Company as
described in the Operating Agreement.

2.2 CONSTRUCTION. Captions and title contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of the Plan. Except when

<PAGE>

otherwise indicated by the context, the singular shall include the plural, and
the plural shall include the singular, and the term "or" shall include the
conjunctive as well as the disjunctive.

3. ADMINISTRATION.

3.1 ADMINISTRATION BY THE BOARD. The Plan shall be
administered by the Board.. All questions of interpretation of the Plan or of
any Option shall be determined by the Board, and such determinations shall be
final and binding upon all person having an interest in the Plan or such Option.

a. to determine the persons to whom, and the time or
times at which, Options shall be granted and the number of Units to be subject
to each Option;

b. to determine the Fair Market Value of Units or other
property;

c. to determine the terms, conditions and
restrictions applicable to each Option (which need not be identical) and any
Units acquired upon the exercise thereof, including, without limitation, (i)
the exercise price of the Option, (ii) the method of payment for Units
purchased upon the exercise of the Option, (iii) the method for satisfaction
of any tax withholding obligation arising in connection with the Option or
such Units, (iv) the timing, terms and conditions of the exercisability of
the Option or the vesting of any Units acquired upon the exercise thereof,
(v) the time of the expiration of the Option, (vi) the effect of the
Optionee's termination of employment or service with the Company on any of
the foregoing, and (vii) all other terms, conditions and restrictions
applicable to the Option or such Units not inconsistent with the terms of the
Plan;

d. to approve one or more forms of Option Agreement;

3.3 DISINTERESTED ADMINISTRATION. With respect to
participation by Insiders in the Plan, at any time that any class of equity
security of the Company is registered pursuant to Section 12 of the Exchange
Act, the Plan shall be administered by the Board in compliance with the
"disinterested administration" requirements, if any, of Rule 16b-3.

<PAGE>

4. UNITS SUBJECT TO PLAN.

4.1 Maximum Number of Units Issuable. Subject to adjustment as
provided in Section 4.2, the maximum aggregate number of Units that may be
issued under the Plan shall be Nine Hundred Ninety-Four Thousand Three Hundred
(994,300) and shall consist of authorized but unissued Units or reacquired Units
or any combination thereof. If an outstanding Option for any reason expires or
is terminated or canceled or if Units acquired, subject to repurchase, upon the
exercise of an Option are repurchased by the Company, the Units allocable to the
unexercised portion of such Option or such repurchased Units shall again be
available for issuance under the Plan.

4.2 ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event
of any changes in the capital structure of the Company analogous to a corporate
stock dividend, stock split, reverse stock split, recapitalization, combination,
or reclassification, appropriate adjustments shall be made in the number and
class of Units subject to the Plan and to any outstanding Options and in the
exercise price of any outstanding Options. If a majority of the Units is
exchanged for, converted into, or otherwise become (whether or not pursuant to
an Ownership Change Event as defined in Section 8.1) securities of another
limited liability company, securities of a limited partnership or shares of a
corporation (the "New Securities"), the Board may unilaterally amend the
outstanding Options to provide that such Options are exercisable for New
Securities. In the event of any such amendment, the number of Units subject to,
and the exercise price of, the outstanding Options shall be adjusted in a fair
and equitable manner as determined by the Board, in its sole discretion.
Notwithstanding the foregoing, any fractional Unit resulting from an adjustment
pursuant to this Section 4.2 shall be rounded up or down to the nearest whole
number, as determined by the Board.

5. ELIGIBILITY AND OPTION LIMITATIONS.

5.1 PERSONS ELIGIBLE FOR OPTIONS. Options may be granted only
to Employees, Consultants, and Directors. Eligible persons may be granted more
than one (1) Option.

5.2 DIRECTORS SERVING ON COMMITTEE. At any time that any class
of equity security of the Company is registered pursuant to Section 12 of the
Exchange Act, no member of a Committee established to administer the Plan in
compliance with the "disinterested administration" requirements, if any, of Rule
16b-3, while a member, shall be eligible to be granted an Option.

<PAGE>

owns Units possessing more than 10% of the total combined voting power of
classes of Units of the Company.

6.2 VESTING. The right to exercise Options shall vest at a
rate of at least twenty percent (20%) per year from the date the Option is
granted subject to reasonable conditions such as continued employment with the
Company.

a. Maximum Period. No Option shall be exercisable
after the expiration often (10) years after the date such Option is granted.
The provisions of subsection b through d immediately below shall not extend such
period.

b. Death of Optionee. If the Optionee dies while in
the Service of the Company, the Option shall expire no earlier than six (6)
months from the date of death.

c. Disability of Optionee. If the Optionee suffers a
permanent disability (as defined in Section 22(e)(3) of the Code) while in the
Service of the Company, the Option shall expire no earlier than six (6) months
from the date of the permanent disability.

d. Other Terminations of Service. If the Optionee
ceases to remain in the Service of the Company for any reason other than death
or permanent disability, then the Option shall terminate upon the earlier to
occur of (a) thirty (30) days from the date such Service terminates in the case
of an Employee and (b) one (1) year from the date such Service terminates in the
case of an Optionee who is not an Employee.

6.4 PAYMENT OF EXERCISE PRICE.

<PAGE>

6.5 TAX WITHHOLDING. The Company shall have the right, but not
the obligation, to deduct from the Units issuable upon the exercise of an
Option, or to accept from the Optionee the tender of, a number of Units having a
Fair Market Value, as determined by the Company, equal to all or any part of the
federal, state and local taxes, if any, required by law to be withheld by the
Company with respect to such Option. Alternatively, in its sole discretion, the
Company shall have the right to require the Optionee, through payroll
withholding or otherwise, to make adequate provision for any such tax
withholding obligations of the Company arising in connection with the Option.
The Company shall have no obligation to deliver Units or to release Units from
an escrow established pursuant to the Option Agreement until the Company's tax
withholding obligations have been satisfied by the Optionee.

6.6 REPURCHASE RIGHTS. Units issued under the Plan may be
subject to a right of first refusal, one or more repurchase options, or other
conditions and restrictions as determined by the Board, in its sole discretion,
at the time the Option is granted. The Company shall have the right to assign
at any time any repurchase right it may have, whether or not such right is then
exercisable, to one or more persons as may be selected by the Company. Upon
request by the Company, each Optionee shall execute any agreement evidencing
such transfer restrictions prior to the receipt of Units hereunder and shall
promptly present to the Company any and all certificates representing Units
acquired hereunder for the placement on such certificates of appropriate legends
evidencing any such transfer restrictions. Any repurchase right which the
Company shall have shall be: (i) at not less than the fair market value of the
Units on the date of termination of Service and such right must be exercised for
cash or cancellation of purchase money indebtedness for the Units within ninety
(90) days of termination of service (or in the case of securities issued after
termination of service, ninety (90) days after exercise or (ii) at the original
purchase price provided that this right lapses at the rate of at least

<PAGE>

twenty percent (20%) per year over five (5) years from the date of the Option
grants and the right to repurchase is exercised within the time and manner
set forth in clause (i) immediately above.

7. TRANSFER OF CONTROL.

7.1 DEFINITIONS.

a. An "Ownership Change Event" shall be deemed to have
occurred if any of the following occurs with respect to the Company:

(i) the direct or indirect sale or exchange in a
single or series of related transactions by the Members and economic interest
owners of the Company of more than fifty percent (50%) of the voting securities
of the Company;

(ii) a merger or consolidation in which the
Company is a party;

(iii) the sale, exchange, or transfer of all or
substantially all of the assets of the Company; or

(iv) a liquidation or dissolution of the Company.

b. A "Transfer of Control" shall mean an Ownership
Change Event or a series of related Ownership Change Events (collectively, the
"Transaction") wherein the Members and economic interest owners of the Company
immediately before the Transaction do not retain immediately after the
Transaction, in substantially the same proportions as their ownership of the
Company's voting securities immediately before the Transaction, direct or
indirect beneficial ownership of more than fifty percent (50%) of the total
combined voting power of the outstanding voting securities of the Company or the
corporation, limited liability company, or limited partnership to which the
assets of the Company were transferred (the "Transferee Corporation(s)"). For
purposes of the preceding sentence, indirect beneficial ownership shall include,
without limitation, an interest resulting from ownership of the voting
securities of one or more subsidiary corporations. The Board shall have the
right to determine whether multiple sales or exchanges of the voting stock of
the Company or multiple Ownership Change Events are related, and its
determination shall be final, binding and conclusive.

7.2 EFFECT OF TRANSFER OF CONTROL ON OPTIONS. In the event of
a Transfer of Control, the Board, in its sole discretion, may arrange with the
surviving, continuing, successor, or purchasing limited liability company,
limited partnership or corporation or parent corporation thereof, as the case
may be (the "Acquiring Company"), for the Acquiring Company to either assume the
Company's rights and obligations under outstanding Options or substitute for
outstanding Options substantially equivalent options for the Acquiring Company's
stock. The Company shall provide each Optionee holding an outstanding Option
with at least ten (10) days advance written notice of the pending Transfer of
Control prior to the consummation thereof. Any Options which are neither
assumed or substituted for by the Acquiring Company in connection with the
Transfer of Control nor exercised as of the date of the Transfer of Control
shall terminate and cease to be outstanding effective as of the date of the
Transfer of Control. Notwithstanding the foregoing, Units acquired upon
exercise of an Option prior to the Transfer of Control and any consideration
received pursuant to the Transfer of Control with respect to

<PAGE>

such Units shall continue to be subject to all applicable provisions of the
Option Agreement evidencing such Option except as otherwise provided in such
Option Agreement.

9. PROVISION OF INFORMATION. At least annually a copy of the
Company's balance sheet and income statement for the just completed fiscal year
shall be furnished to each Optionee.

10. VOTING RIGHTS. The Units shall have equal voting rights with
other Class B Units on all matters where such vote is permitted by applicable
law.

IN WITNESS WHEREOF, the undersigned Assistant Secretary of the Company
certifies that the foregoing Diablo Research Company LLC 1999 Stock Option Plan
was duly adopted by the Board on April 21, 1999.

/s/ Lawrence A. Klein
-------------------------------------
LAWRENCE A. KLEIN