<PAGE>
As filed with the Securities and Exchange Commission on July 26, 1996
File No. 333-_____
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM S-8 REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
----------
CABLETRON SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware 04-2797263
- ------------------------------- -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
35 Industrial Way
Rochester, New Hampshire 03867
---------------------------------------------
(Address of principal executive offices, including zip code)
ZEITNET INC. 1994 STOCK OPTION PLAN
-----------------------------------
(Full title of the plan)
David J. Kirkpatrick
Director of Finance and
Chief Financial Officer
Cabletron Systems, Inc.
35 Industrial Way
Rochester, New Hampshire 03867
(603) 332-9400
--------------------------------------
(Name, address and telephone number of agent for service)
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Title of Amount Proposed Proposed Amount of
Securities to be maximum maximum registration
to be registered offering aggregate fee
registered price per offering
share/(1)/ price/(1)/
- --------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, 241,536 $2.14 $512,056.32 $180.00
par value $0.01 shares
</TABLE>
________________________________________________________________________________
/(1)/The offering price for the shares of Cabletron Systems, Inc. common stock,
par value $0.01 (the "Shares") subject to options on the date hereof is the
average per share exercise price of such options. The average per share exercise
price is equal to the aggregate exercise price for ZeitNet Inc. ("ZeitNet")
common stock purchasable pursuant to all options under the ZeitNet Inc. 1994
Stock Option Plan divided by the number of shares purchasable to all such
ZeitNet options and rounded to the nearest whole cent.
Exhibit Index on page 6
<PAGE>
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
Item 3. Incorporation of Documents by Reference.
---------------------------------------
Cabletron Systems, Inc. (the "Registrant" or the "Company") hereby
incorporates the following documents herein by reference:
(a) The Registrant's Annual Report on Form 10-K for the fiscal year ended
February 29, 1996 (File No. 1-10288).
(b) The Registrant's Quarterly Report on Form 10-Q for the Quarter ended May
31, 1996 (File No.01-10228) and as amended by Form 10-QA filed with the
Commission on July 18, 1996.
(c) The Registrant's Current Report on Form 8-K dated January 29, 1996 (File
No. 1-10228).
(d) All other reports filed by the Registrant with the Commission pursuant
to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934
(the "Exchange Act") since the end of the fiscal year covered by the
Registrant's Annual Report referred to above.
(e) The description of the common stock of the Registrant contained in the
Registrant's Registration Statement on Form 8-A (File No. 1-10288) filed
with the Commission under Section 12 of the Exchange Act on April 19,
1989, including all amendments and reports filed for the purpose of
updating such description.
All documents subsequently filed by the Registrant pursuant to Section
13(a), Section 13(c), Section 14 and Section 15(d) of the Exchange Act prior to
the filing of a post-effective amendment to this registration statement that
indicates that all securities offered have been sold or which deregisters all
securities then remaining unsold, shall be deemed incorporated herein by
reference from the date of filing of such documents.
Item 4. Description of Securities.
-------------------------
Not required.
Item 5. Interests of Named Experts and Counsel.
--------------------------------------
No material interests.
Item 6. Indemnification of Directors and Officers.
-----------------------------------------
Section 145 of the Delaware General Corporation Law, as amended,
provides that a corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal or investigative (other than an
action by or in the right of the corporation) by reason of the fact that he is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he 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 his conduct was unlawful. Section 145 further
provides that a corporation similarly may indemnify any such person serving in
any such capacity who was or is a party or is threatened to be made a party to
any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor, against expenses actually and
-2-
<PAGE>
reasonably incurred in connection with the defense or settlement of such action
or suit if he acted in good faith and in a manner he reasonably believed to be
in or not opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Delaware Court of Chancery or such other
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
Section 102(b)(7) of the Delaware General Corporation Law, as amended,
permits a corporation to include in its certificate of incorporation a provision
eliminating or limiting the personal liability of a director to the corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director, provided that such provision shall not eliminate or limit the
liability of a director (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,
(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 (relating to unlawful payment of dividends and
unlawful stock purchase and redemption), or (iv) for any transaction from which
the director derived an improper personal benefit.
The Registrant's Restated Certificate of Incorporation, as amended,
provides that the Company's Directors shall not be liable to the Registrant or
its stockholders for monetary damages for breach of fiduciary duty as a
director, except to the extent that exculpation from liabilities is not
permitted under the Delaware General Corporation Law as in effect at the time
such liability is determined. The Restated Certificate of Incorporation, as
amended, further provides that the Registrant shall indemnify its directors and
officers to the full extent permitted by the law of the State of Delaware.
Item 7. Exemption From Registration Claimed.
-----------------------------------
Not applicable.
Item 8. Exhibits.
--------
Exhibit
4.1. Specimen stock certificate representing Cabletron Common Stock which is
incorporated by reference to Exhibit 4.1 of Cabletron's Registration
Statement on Form S-1 (File No. 33-28055).
5. Opinion of Ropes & Gray.
23.1. Consent of KPMG Peat Marwick LLP.
23.2. Consent of Ropes & Gray (contained in the opinion filed as Exhibit 5 to
this registration statement).
24. Powers of Attorney (included in Part II of this registration statement
under the caption "Signatures").
99.1. ZeitNet Inc. 1994 Stock Option Plan.
99.2. Form of Stock Option Assumption Agreement used in connection with the
1994 Stock Option Plan.
Item 9. Undertakings.
------------
(a) The undersigned Registrant hereby undertakes:
-3-
<PAGE>
(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 Securities Act of 1933; (ii) to
reflect in the prospectus any facts or events arising after the effective date
of the 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 the registration statement; and (iii) to include
any material information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement; provided, however, that paragraphs
-------- -------
(a)(1)(i) and (a)(1)(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 Exchange Act that are incorporated by reference in the registration
statement;
(2) that, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered herein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof;
(3) to remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the 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.
(c) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 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 Securities
Act of 1933 and will be governed by the final adjudication of such issue.
-4-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, 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 Rochester, State of New Hampshire on July 26, 1996.
By: /s/ S. Robert Levine
-----------------------------------
S. Robert Levine
President, Chief Executive Officer and Director
Each person whose signature appears below constitutes and appoints S.
Robert Levine, Craig R. Benson and David J. Kirkpatrick, and each of them
individually, his true and lawful attorney-in-fact and agent with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this registration statement on Form S-8 to be filed by Cabletron
Systems, Inc., and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents full power and authority to be
done in and about the premises, as fully to all intents and purposes as he might
or could do in person, hereby ratifying and confirming all that said attorneys-
in-fact and agents, or their substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement on Form S-8 has been signed below by the following
persons in the capacities shown on the date indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
- --------- -------- ----
<S> <C> <C>
/s/ S. Robert Levine President, Chief Executive July 26, 1996
- --------------------------- Officer (principal executive
S. Robert Levine officer) and Director
/s/ David J. Kirkpatrick Director of Finance and July 26, 1996
- --------------------------- Chief Financial Officer
David J. Kirkpatrick (principal financial and
accounting officer)
/s/ Craig R. Benson Chairman, Chief Operating July 26, 1996
- --------------------------- Officer and Director
Craig R. Benson
/s/ Michael D. Myerow Secretary and Director July 26, 1996
- ---------------------------
Michael D. Myerow
/s/ Paul R. Duncan Director July 26, 1996
- ---------------------------
Paul R. Duncan
/s/ Donald F. McGuinness Director July 26, 1996
- ---------------------------
Donald F. McGuinness
</TABLE>
-5-
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Title of Exhibit Page
- ------ ---------------- ----
<C> <S> <C>
4.1. Specimen stock certificate representing Cabletron
Common Stock which is incorporated by reference
to Exhibit 4.1 of Cabletron's Registration Statement
on Form S-1 (File No. 33-28055).
5. Opinion of Ropes & Gray.
23.1. Consent of KPMG Peat Marwick LLP.
23.2. Consent of Ropes & Gray (contained in the opinion
filed as Exhibit 5 to this registration statement).
24. Powers of Attorney (included in Part II of this
registration statement under the caption
"Signatures").
99.1. ZeitNet Inc. 1994 Stock Option Plan
99.2. Form of Stock Option Assumption Agreement used
in connection with the 1994 Stock Option Plan
</TABLE>
<PAGE>
EXHIBIT 5.1
July 26, 1996
Cabletron Systems, Inc.
35 Industrial Way
Rochester, NH 03867
Ladies and Gentlemen:
This opinion is furnished to you in connection with a registration
statement on Form S-8 (the "Registration Statement") to be filed with the
Securities and Exchange Commission (the "Commission") under the Securities Act
of 1933, as amended, for the registration of 241,536 shares of common stock,
$0.01 par value per share (the "Shares"), of Cabletron Systems, Inc., a Delaware
corporation (the "Company"), issuable upon exercise of options assumed by the
Company that had previously been issued under the ZeitNet Inc. 1994 Stock Option
Plan (the "Plan").
We have acted as counsel for the Company in connection with the assumption
of the Options and are familiar with the actions taken by the Company in
connection therewith. For purposes of this opinion we have examined the
Registration Statement, the Plan and such other documents as we have deemed
appropriate.
Based upon the foregoing, we are of the opinion that (i) the Shares have
been duly authorized and (ii) the Shares, when issued and sold in accordance
with the terms of the Options and Plan, will have been validly issued and will
be fully paid and non-assessable.
We hereby consent to your filing this opinion as an exhibit to the
Registration Statement.
Very truly yours,
/s/ Ropes & Gray
Ropes & Gray
<PAGE>
The Board of Directors
Cabletron Systems, Inc.:
We consent to the use of our reports incorporated herein by reference.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Boston, Massachusetts
July 26, 1996
<PAGE>
EXHIBIT 99.1
ZEITNET INC.
1994 STOCK OPTION PLAN
1. Purpose. The ZeitNet Inc. 1994 Stock Option Plan (the "Plan") is
-------
established to attract, retain and reward persons providing services to ZeitNet
Inc. and any successor corporation thereto (collectively referred to as the
"Company"), and any present or future parent and/or subsidiary corporations of
such corporation (all of whom along with the Company being individually referred
to as a "Participating Company" and collectively referred to as the
"Participating Company Group"), and to motivate such persons to contribute to
the growth and profits of the Participating Company Group in the future. For
purposes of the Plan, a parent corporation and a subsidiary corporation shall be
as defined in sections 424(e) and 424(f) of the Internal Revenue Code of 1986,
as amended (the "Code").
2. Administration.
--------------
(a) General. The Plan shall be administered by the Board of Directors
of the Company (the "Board") and/or by a duly appointed committee of the Board
having such powers as shall be specified by the Board. Any subsequent references
herein to the Board shall also mean the committee if such committee has been
appointed and, 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 terminate or amend the Plan at any
time, subject to the terms of the Plan and any applicable limitations imposed by
law. All questions of interpretation of the Plan or of any options granted under
the Plan (an "Option") shall be determined by the Board, and such determinations
shall be final and binding upon everyone having an interest in the Plan and/or
any Option.
(b) Options Authorized. Options may be either incentive stock options
------------------
as defined in section 422 of the Code ("Incentive Stock Options") or
nonqualified stock options.
(c) Authority of Officers. Any officer of a Participating Company
---------------------
shall have the authority to act on behalf of the Company with respect to any
matter, right, obligation, or election which is the responsibility of or which
is allocated to the Company herein, provided the officer has apparent authority
with respect to such matter, right, obligation, or election.
(d) Disinterested Administration. With respect to the participation in
----------------------------
the Plan of employees who are also officers or directors of the Company subject
to Section 16 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), the Plan shall be administered by the Board in compliance with the
"disinterested administration" requirement of Rule 16b-3, as promulgated under
the Exchange Act and amended from time to time or any successor rule or
regulation ("Rule 16b-3").
<PAGE>
3. Eligibility.
-----------
(a) Eligible Persons. Options may be granted only to employees
----------------
(including officers and directors who are also employees) and directors of the
Participating Company Group or to individuals who are rendering services as
consultants, advisors, or other independent contractors to the Participating
Company Group. The Board shall, in its sole discretion, determine which persons
shall be granted Options (an "Optionee"). Eligible persons may be granted more
than one (1) Option.
(b) Directors Serving on Committee. If a committee of the Board has
------------------------------
been established to administer the Plan in compliance with the "disinterested
administration" requirement of Rule 16b-3, no member of such committee, while a
member, shall be eligible to be granted an Option.
(c) Restrictions on Option Grants. A director of the Company may only
-----------------------------
be granted a nonqualified stock option unless the director is also an employee
of the Company. An individual who is rendering services as a consultant,
advisor, or other independent contractor may only be granted a nonqualified
stock option.
4. Shares Subject to Option. Options shall be for the purchase of shares
------------------------
of the authorized but unissued common stock of the Company (the "Stock"),
subject to adjustment as provided in paragraph 10 below. The maximum number of
shares of Stock which may be issued under the Plan shall be three hundred
thousand seven hundred fifty (300,750) shares. In the event that any outstanding
Option for any reason expires or is terminated or canceled and/or shares of
Stock subject to repurchase are repurchased by the Company, the shares allocable
to the unexercised portion of such Option, or such repurchased shares, may again
be subject to an Option grant. Notwithstanding the foregoing, any such shares
shall be made subject to a new Option only if the grant of such new Option and
the issuance of such shares pursuant to such new Option would not cause the Plan
or any Option granted under the Plan to contravene Rule 16b-3.
5. Time for Granting Options. All Options shall be granted, if at all,
-------------------------
within ten (10) years from the earlier of the date the Plan is adopted by the
Board or the date the Plan is duly approved by the shareholders of the Company.
6. Terms, Conditions and Form of Options. Subject to the provisions of
-------------------------------------
the Plan, the Board shall determine for each Option (which need not be
identical) the number of shares of Stock for which the Option shall be granted,
the exercise price of the Option, the timing and terms of exercisability and
vesting of the Option, the time of expiration of the Option, the effect of the
Optionee's termination of employment or service, whether the Option is to be
treated as an Incentive Stock Option or as a nonqualified stock option and all
other terms and conditions of the Option not inconsistent with the Plan.
Options granted pursuant to the Plan shall be evidenced by written agreements
specifying the number of shares of Stock covered thereby, in such form as the
Board shall from time to time establish, which 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:
<PAGE>
(a) Exercise Price. The exercise price for each Option shall be
--------------
established in the sole discretion of the Board; provided, however, that (i) the
exercise price per share for an Incentive Stock Option shall be not less than
the fair market value, as determined by the Board, of a share of Stock on the
date of the granting of the Option, (ii) the exercise price per share for a
nonqualified stock option shall not be less than eighty-five percent (85%) of
the fair market value, as determined by the Board, of a share of Stock on the
date of the granting of the Option and (iii) no Option granted to an Optionee
who at the time the Option is granted owns stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of a
Participating Company within the meaning of section 422(b)(6) of the Code (a
"Ten Percent Owner Optionee") shall have an exercise price per share less than
one hundred ten percent (110%) of the fair market value, as determined by the
Board, of a share of Stock on the date of the granting of the Option.
Notwithstanding the foregoing, an Option (whether an Incentive Stock Option or a
nonqualified stock option) may be granted with an exercise price lower than the
minimum exercise price set forth above if such Option is granted pursuant to an
assumption or substitution for another option in a manner qualifying with the
provisions of section 424(a) of the Code.
(b) Exercise Period of Options. The Board shall have the power to set,
--------------------------
including by amendment of an Option, the time or times within which each Option
shall be exercisable or the event or events upon the occurrence of which all or
a portion of each Option shall be exercisable and the term of each Option;
provided, however, that (i) no Option shall be exercisable after the expiration
of ten (10) years after the date such Option is granted, and (ii) no Incentive
Stock Option granted to a Ten Percent Owner Optionee shall be exercisable after
the expiration of five (5) years after the date such Option is granted.
(c) Payment of Exercise Price.
-------------------------
(i) Forms of Payment Authorized. Payment of the exercise price
---------------------------
for the number of shares of Stock being purchased pursuant to any Option shall
be made (1) in cash, by check, or cash equivalent, (2) by tender to the Company
of shares of the Company's stock owned by the Optionee having a value, as
determined by the Board (but without regard to any restrictions on
transferability applicable to such stock by reason of federal or state
securities laws or agreements with an underwriter for the Company), not less
than the exercise price, (3) by the Optionee's recourse promissory note in a
form approved by the Company, (4) by the assignment of the proceeds of a sale of
some or all of the shares 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), or (5) by any combination thereof. The
Board may at any time or from time to time grant Options which do not permit all
of the foregoing forms of consideration to be used in payment of the exercise
price and/or which otherwise restrict one (1) or more forms of consideration.
(ii) Tender of Company Stock. Notwithstanding the foregoing, an
-----------------------
Option may not be exercised by tender to the Company of shares of the Company's
stock to the extent such tender of stock would constitute a violation of the
provisions of any law, regulation and/or agreement restricting the redemption of
the Company's stock. Unless otherwise provided by the Board, an Option may not
be exercised by tender to the Company of
<PAGE>
shares of the Company's stock unless such shares of the Company's stock either
have been owned by the Optionee for more than six (6) months or were not
acquired, directly or indirectly, from the Company.
(iii) Promissory Notes. No promissory note shall be permitted if
----------------
an exercise using a promissory note would be a violation of any law. Any
permitted promissory note shall be due and payable not more than four (4) years
after the Option is exercised, and interest shall be payable at least annually
and be 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 shares of Stock acquired on exercise of the
Option and/or with other collateral acceptable to the Company. Unless otherwise
provided by the Board, in the event the Company at any time is subject to the
regulations promulgated by the Board of Governors of the Federal Reserve System
or any other governmental entity affecting the extension of credit in connection
with the Company's securities, any promissory note shall comply with such
applicable regulations, and the Optionee shall pay the unpaid principal and
accrued interest, if any, to the extent necessary to comply with such applicable
regulations.
(iv) Assignment of Proceeds of Sale. The Company reserves, at
------------------------------
any and all times, the right, in the Company's sole and absolute discretion, to
establish, decline to approve and/or terminate any program and/or procedures for
the exercise of Options by means of an assignment of the proceeds of a sale of
some or all of the shares of Stock to be acquired upon such exercise.
7. Standard Forms of Stock Option Agreement.
----------------------------------------
(a) Incentive Stock Options. Unless otherwise provided for by the
-----------------------
Board at the time an Option is granted, an Option designated as an "Incentive
Stock Option" shall comply with and be subject to the terms and conditions set
forth in the form of incentive stock option agreement attached hereto as
Exhibit A and incorporated herein by reference.
- ---------
(b) Nonqualified Stock Options. Unless otherwise provided for by the
--------------------------
Board at the time an Option is granted, an Option designated as a "Nonqualified
Stock Option" shall comply with and be subject to the terms and conditions set
forth in the form of Nonqualified Stock Option Agreement attached hereto as
Exhibit B.
- ---------
(c) Standard Term for Options. Except as provided in paragraph 6(b) or
-------------------------
otherwise provided for by the Board in the grant of an Option, any Option
granted hereunder shall be exercisable for a term of ten (10) years.
8. Authority to Vary Terms. The Board shall have the authority from time
-----------------------
to time to vary the terms of either of the standard forms of Stock Option
Agreement described in paragraph 7 above either in connection with the grant or
amendment of an individual Option or in connection with the authorization of a
new standard form or forms; provided, however, that the terms and conditions of
such revised or amended standard form or forms of stock option agreement shall
be in accordance with the terms of the Plan. Such authority shall include, but
not by way of limitation, the authority to grant Options which are immediately
exercisable
<PAGE>
subject to the Company's right to repurchase any unvested shares of Stock
acquired by an Optionee on exercise of an Option in the event such Optionee's
employment with the Participating Company Group is terminated for any reason,
with or without cause.
9. Fair Market Value Limitation. To the extent that the aggregate fair
----------------------------
market value (determined at the time the Option is granted) of stock with
respect to which Incentive Stock Options are exercisable by an Optionee for the
first time during any calendar year (under all stock option plans of the
Company, including the Plan) exceeds one hundred thousand dollars ($100,000),
such options shall be treated as nonqualified stock options. This paragraph
shall be applied by taking Incentive Stock Options into account in the order in
which they were granted.
10. Effect of Change in Stock Subject to Plan. Appropriate adjustments
-----------------------------------------
shall be made in the number and class of shares of Stock subject to the Plan and
to any outstanding Options and in the exercise price of any outstanding Options
in the event of a stock dividend, stock split, reverse stock split,
recapitalization, combination, reclassification, or like change in the capital
structure of the Company.
In the event a majority of the shares which are of the same class as
the shares that are subject to outstanding Options are exchanged for, converted
into, or otherwise become (whether or not pursuant to a Transfer of Control (as
defined below)) shares of another corporation (the "New Shares"), the Company
may unilaterally amend the outstanding Options to provide that such Options are
exercisable for New Shares. In the event of any such amendment, the number of
shares and the exercise price of the outstanding Options shall be adjusted in a
fair and equitable manner.
11. Transfer of Control. A "Transfer of Control" shall be deemed to have
-------------------
occurred in the event any of the following occurs with respect to the Company.
(a) the direct or indirect sale or exchange by the shareholders of the
Company of all or substantially all of the stock of the Company where the
shareholders of the Company before such sale or exchange do not retain, directly
or indirectly, at least a majority of the beneficial interest in the voting
stock of the Company after such sale or exchange;
(b) a merger or consolidation where the shareholders of the Company
before such merger or consolidation do not retain, directly or indirectly, at
least a majority of the beneficial interest in the voting stock of the Company
after such merger or consolidation;
(c) the sale, exchange, or transfer of all or substantially all of the
assets of the Company (other than a sale, exchange, or transfer to one (1) or
more subsidiary corporations (as defined in paragraph 1 above) of the Company);
or
(d) a liquidation or dissolution of the Company.
In the event of a Transfer of Control, the Board, in its sole
discretion, may arrange with the surviving, continuing, successor, or purchasing
corporation or parent corporation thereof, as the case may be (the "Acquiring
Corporation"), for the Acquiring
<PAGE>
Corporation to either assume the Company's rights and obligations under
outstanding Options or substitute options for the Acquiring Corporation's stock
for such outstanding Options. Any Options which are neither assumed or
substituted for by the Acquiring Corporation 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.
12. Provision of Information. At least annually, copies of the Company's
------------------------
balance sheet and income statement for the just completed fiscal year shall be
made available to each Optionee and purchaser of shares of Stock upon the
exercise of an Option. The Company shall not be required to provide such
information to Optionees whose duties in connection with the Company assure them
access to equivalent information.
13. Options Non-Transferable. During the lifetime of the Optionee, the
------------------------
Option shall be exercisable only by the Optionee. No Option shall be assignable
or transferable by the Optionee, except by will or by the laws of descent and
distribution.
14. Transfer of Company's Rights. In the event any Participating Company
----------------------------
assigns, other than by operation of law, to a third person, other than another
Participating Company, any of the Participating Company's rights to repurchase
any shares of Stock acquired on the exercise of an Option, the assignee shall
pay to the assigning Participating Company the value of such right as determined
by the Company in the Company's sole discretion. Such consideration shall be
paid in cash. In the event such repurchase right is exercisable at the time of
such assignment, the value of such right shall be not less than the fair market
value of the shares of Stock which may be repurchased under such right (as
determined by the Company) minus the repurchase price of such shares. The
requirements of this paragraph 14 regarding the minimum consideration to be
received by the assigning Participating Company shall not inure to the benefit
of the Optionee whose shares of Stock are being repurchased. Failure of a
Participating Company to comply with the provisions of this paragraph 14 shall
not constitute a defense or otherwise prevent the exercise of the repurchase
right by the assignee of such right.
15. Termination or Amendment of Plan or Options. The Board, including any
-------------------------------------------
duly appointed committee of the Board, may terminate or amend the Plan or any
Option at any time; provided, however, that without the approval of the
Company's shareholders, there shall be (a) no increase in the total number of
shares of Stock covered by the Plan (except by operation of the provisions of
paragraph 10 above), (b) no change in the class of persons eligible to receive
Incentive Stock Options and (c) no expansion in the class of persons eligible to
receive nonqualified stock options. In addition to the foregoing, the approval
of the Company's shareholders shall be sought for any amendment to the Plan for
which the Board deems shareholder approval necessary in order to comply with
Rule 16b-3. In any event, no amendment may adversely affect any then
outstanding Option or any unexercised portion thereof, without the consent of
the Optionee, unless such amendment is required to enable an Option designated
as an Incentive Stock Option to qualify as an Incentive Stock Option.
16. Effective Date of Plan and Stockholder Approval. The Plan shall be
-----------------------------------------------
effective on the date of the adoption of the Plan by the Board, provided that
the Plan is approved by the shareholders of the Company within twelve (12)
months of such date. No Option shall
<PAGE>
become exercisable unless and until the Plan has been approved by the
shareholders of the Company.
IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies that
the foregoing ZeitNet Inc. 1994 Stock Option Plan was duly adopted by the Board
of Directors of the Company on the 30th day of September, 1994.
------------------------------------
<PAGE>
Plan History
------------
September 30, 1994 Board of Directors adopts the Plan with a share reserve of
300,750 shares.
September 30, 1994 Shareholders approve the Plan with a share reserve of
300,750 shares.
<PAGE>
EXHIBIT A
---------
STANDARD FORM OF
----------------
INCENTIVE STOCK OPTION AGREEMENT
--------------------------------
<PAGE>
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY OR ANY INTEREST
THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN
CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT
AS PERMITTED IN THE COMMISSIONER'S RULES.
THE SECURITY REPRESENTED BY THIS CERTIFICATE HAS BEEN ACQUIRED FOR INVESTMENT
AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF.
NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.
ZEITNET INC.
INCENTIVE STOCK OPTION AGREEMENT
ZeitNet Inc. (the "Company") granted to the individual named below an
option to purchase certain shares of common stock of the Company, in the manner
and subject to the provisions of this Option Agreement.
1. Definitions:
-----------
(a) "Optionee" shall mean__________________________________.
(b) "Date of Option Grant" shall mean______________________________.
(c) "Number of Option Shares" shall mean ___________________ shares
of common stock of the Company as adjusted from time to time pursuant to
paragraph 9 below.
(d) "Exercise Price" shall mean $____________ per share as adjusted
from time to time pursuant to paragraph 9 below.
(e) "Initial Exercise Date" shall be the Initial Vesting Date.
(f) "Initial Vesting Date" shall be the date occurring one (1) year
after___________________.
<PAGE>
(g) Determination of "Vested Ratio":
Vested Ratio
------------
Prior to Initial Vesting Date 0
On the Initial Vesting 1/4
Date, provided the Optionee
is continuously employed by the
Company from the Date of Option Grant
until the Initial Vesting Date.
Plus
----
For each full three month period 1/16
of the Optionee's continuous
employment by a Participating Company
after the Initial Vesting Date.
In no event shall the Vested
Ratio exceed 1/1.
(h) "Option Term Date" shall mean the date ten (10) years after the
Date of Option Grant.
(i) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(j) "Company" shall mean ZeitNet Inc., a California corporation, and
any successor corporation thereto.
(k) "Participating Company" shall mean (1) the Company and (2) any
present or future parent and/or subsidiary corporation of the Company while such
corporation is a parent or subsidiary of the Company. For purposes of this
Option Agreement, a parent corporation and a subsidiary corporation shall be as
defined in Sections 424(e) and 424(f) of the Code.
(l) "Participating Company Group" shall mean at any point in time all
corporations collectively which are then a Participating Company.
(m) "Plan" shall mean the ZeitNet Inc. 1994 Stock Option Plan.
2. Status of the Option. This Option is intended to be an incentive
--------------------
stock option as described in Section 422 of the Code, but the Company does not
represent or warrant that this Option qualifies as such. The Optionee should
consult with the Optionee's own tax advisors regarding the tax effects of this
Option and the requirements necessary to obtain favorable income tax treatment
under Section 422 of the Code, including, but not limited to, holding period
requirements. (NOTE: If the aggregate Exercise Price of the Option (that is,
the
<PAGE>
Exercise Price multiplied by the Number of Option Shares) plus the aggregate
exercise price of any other incentive stock options held by the Optionee
(whether granted pursuant to the Plan or any other stock option plan of the
Participating Company Group) is greater than $100,000, the Optionee should
contact the Chief Financial Officer of the Company to ascertain whether the
entire Option qualifies as an incentive stock option.)
3. Administration. All questions of interpretation concerning this
--------------
Option Agreement shall be determined by the Board of Directors of the Company
(the "Board") and/or by a duly appointed committee of the Board having such
powers as shall be specified by the Board. Any subsequent references herein to
the Board shall also mean the committee if such committee has been appointed
and, unless the powers of the committee have been specifically limited, the
committee shall have all of the powers of the Board granted in the Plan,
including, without limitation, the power to terminate or amend the Plan at any
time, subject to the terms of the Plan and any applicable limitations imposed by
law. All determinations by the Board shall be final and binding upon all
persons having an interest in the Option. Any officer of a Participating
Company shall have the authority to act on behalf of the Company with respect to
any matter, right, obligation, or election which is the responsibility of or
which is allocated to the Company herein, provided the officer has apparent
authority with respect to such matter, right, obligation, or election.
4. Exercise of the Option.
----------------------
(a) Right to Exercise. Except as provided in paragraph 4(f) below,
-----------------
the Option shall first become exercisable on the Initial Exercise Date. The
Option shall be exercisable on and after the Initial Exercise Date and prior to
the termination of the Option in the amount equal to the Number of Option Shares
multiplied by the Vested Ratio as set forth in paragraph 1 above less the number
of shares previously acquired upon exercise of the Option, subject to the
Optionee's agreement that any shares purchased upon exercise are subject to the
Company's repurchase rights set forth in paragraph 11 below. In no event shall
the Option be exercisable for more shares than the Number of Option Shares. In
addition to the foregoing, in the event that the adoption of the Plan or any
amendment of the Plan is subject to the approval of the Company's shareholders
in order for the Option to comply with the requirements of Rule 16b-3,
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), the Option shall not be exercisable prior to such shareholder approval if
the Optionee is subject to Section 16(b) of the Exchange Act, unless the Board,
in its sole discretion, approves the exercise of the Option prior to such
shareholder approval.
(b) Method of Exercise. The Option may be exercised by written notice
------------------
to the Company which must state the election to exercise the Option, the number
of shares for which the Option is being exercised and such other representations
and agreements as to the Optionee's investment intent with respect to such
shares and other administrative matters as may be required pursuant to the
provisions of this Option Agreement and the exercise form used by the Company.
The written notice must be signed by the Optionee and must be delivered in
person, by certified or registered mail, return receipt requested, or by
facsimile transmission to the Chief Financial Officer of the Company, or other
authorized representative of the Participating Company Group, prior to the
termination of the Option as set forth in paragraph 6 below, accompanied by
(1) full payment of the exercise price for the number of
<PAGE>
shares being purchased and (2) an executed copy, if required herein, of the then
current forms of escrow and security agreement referenced below.
(c) Payment of Exercise Price.
-------------------------
(i) Forms of Payment Authorized. Payment of the exercise price
---------------------------
for the number of shares for which the Option is being exercised shall be made
(i) in cash, by check, or cash equivalent, (ii) by tender to the Company of
shares of the Company's common stock owned by the Optionee having a value not
less than the option price, which either have been owned by the Optionee for
more than six (6) months or were not acquired, directly or indirectly, from the
Company, (iii) if expressly authorized by the Company, in its sole discretion,
at the time of Option exercise, by the Optionee's promissory note in a form
approved by the Company; (iv) by Immediate Sales Proceeds, as defined below, or
(v) by any combination of the foregoing.
(ii) Tender of Company Stock. Notwithstanding the foregoing, the
-----------------------
Option may not be exercised by tender to the Company of shares of the Company's
common stock to the extent such tender of stock would constitute a violation of
the provisions of any law, regulation and/or agreement restricting the
redemption of the Company's common stock.
(iii) Promissory Note. Unless otherwise specified by the Board at
---------------
the time the Option is granted, a promissory note permitted in accordance with
clause (c)(1)(iii) above shall not exceed the amount permitted by law to be paid
by a promissory note and shall be a full recourse note in a form satisfactory to
the Company, with principal payable four (4) years after the date the Option is
exercised. Interest on the principal balance of the promissory note shall be
payable in annual installments at the minimum interest rate necessary to avoid
imputed interest pursuant to all applicable sections of the Code. Such recourse
promissory note shall be secured by the shares of stock acquired pursuant to the
then current form of security agreement as approved by the Company. In the
event the Company at any time is subject to the regulations promulgated by the
Board of Governors of the Federal Reserve System or any other governmental
entity affecting the extension of credit in connection with the Company's
securities, any promissory note shall comply with such applicable regulations,
and the Optionee shall pay the unpaid principal and accrued interest, if any, to
the extent necessary to comply with such applicable regulations. Except as the
Company in its sole discretion shall determine, the Optionee shall pay the
unpaid principal balance of the promissory note and any accrued interest thereon
upon termination of the Optionee's employment with the Participating Company
Group for any reason, with or without cause.
(iv) Immediate Sales Proceeds. "Immediate Sales Proceeds" shall
------------------------
mean the assignment in form acceptable to the Company of the proceeds of a sale
of some or all of the shares acquired upon the exercise of the Option pursuant
to a program and/or procedure approved by the Company (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). The Company reserves, at any and all times, the right, in the Company's
sole and absolute discretion, to decline to approve any such program and/or
procedure.
<PAGE>
(d) Tax Withholding. At the time the Option is exercised, in whole or
---------------
in part, or at any time thereafter as requested by the Company, the Optionee
hereby authorizes payroll withholding and otherwise agrees to make adequate
provision for foreign, federal and state tax withholding obligations of the
Participating Company Group, if any, which arise in connection with the Option,
including, without limitation, obligations arising upon (1) the exercise, in
whole or in part, of the Option, (2) the transfer, in whole or in part, of any
shares acquired on exercise of the Option, (3) the operation of any law or
regulation providing for the imputation of interest, or (4) the lapsing of any
restriction with respect to any shares acquired on exercise of the Option. The
Optionee is cautioned that the Option is not exercisable unless the
Participating Company Group's withholding obligations are satisfied.
Accordingly, the Optionee may not be able to exercise the Option when desired
even though the Option is vested and the Company shall have no obligation to
issue a certificate for such shares.
(e) Certificate Registration. Except in the event the exercise price
------------------------
is paid by Immediate Sales Proceeds, the certificate or certificates for the
shares as to which the Option is exercised shall be registered in the name of
the Optionee, or, if applicable, the heirs of the Optionee.
(f) Restrictions on Grant of the Option and Issuance of Shares. The
----------------------------------------------------------
grant of the Option and the issuance of the shares upon exercise of the Option
shall be subject to compliance with all applicable requirements of federal,
state or foreign law with respect to such securities. The Option may not be
exercised if the issuance of shares upon such exercise would constitute a
violation of any applicable federal, state or foreign securities laws or other
law or regulations. IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS
SECURITY OR ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR,
WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE
STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES. Section
260.141.11 of the Rules of the Commissioner of Corporations of the State of
California is set forth in paragraph 15 herein. In addition, the Option may not
be exercised unless (1) a registration statement under the Securities Act of
1933, as amended (the "Securities Act"), shall at the time of exercise of the
Option be in effect with respect to the shares issuable upon exercise of the
Option or (2) in the opinion of legal counsel to the Company, the shares
issuable upon exercise of the Option may be issued in accordance with the terms
of an applicable exemption from the registration requirements of the Securities
Act. THE OPTIONEE IS CAUTIONED THAT THE OPTION MAY NOT BE EXERCISABLE UNLESS
THE FOREGOING CONDITIONS ARE SATISFIED. ACCORDINGLY, THE OPTIONEE MAY NOT BE
ABLE TO EXERCISE THE OPTION WHEN DESIRED EVEN THOUGH THE OPTION IS VESTED.
Questions concerning this restriction should be directed to the Chief Financial
Officer of the Company. As a condition to the exercise of the Option, the
Company may require the Optionee to satisfy any qualifications that may be
necessary or appropriate, to evidence compliance with any applicable law or
regulation and to make any representation or warranty with respect thereto as
may be requested by the Company.
(g) Fractional Shares. The Company shall not be required to issue
-----------------
fractional shares upon the exercise of the Option.
<PAGE>
5. Non-Transferability of the Option. The Option may be exercised during
---------------------------------
the lifetime of the Optionee only by the Optionee and may not be assigned or
transferred in any manner except by will or by the laws of descent and
distribution. Following the death of the Optionee, the Option, to the extent
unexercised and exercisable by the Optionee on the date of death, may be
exercised by the Optionee's legal representative or by any person empowered to
do so under the deceased Optionee's will or under the then applicable laws of
descent and distribution.
6. Termination of the Option. The Option shall terminate and may no
-------------------------
longer be exercised on the first to occur of (a) the Option Term Date as defined
above, (b) the last date for exercising the Option following termination of
employment as described in paragraph 7 below, or (c) a Transfer of Control to
the extent provided in paragraph 8 below.
7. Termination of Employment.
-------------------------
(a) Termination of the Option. If the Optionee ceases to be an
-------------------------
employee of the Participating Company Group for any reason, except death or
disability, the Option, to the extent unexercised and exercisable by the
Optionee on the date on which the Optionee ceased to be an employee, may be
exercised by the Optionee within three (3) months after the date on which the
Optionee's employment terminated, but in any event no later than the Option Term
Date. If the Optionee ceases to be an employee of the Participating Company
Group because of the death or disability of the Optionee, the Option, to the
extent unexercised and exercisable by the Optionee on the date on which the
Optionee ceased to be an employee, may be exercised by the Optionee (or the
Optionee's legal representative) at any time prior to the expiration of twelve
(12) months from the date on which the Optionee's employment terminated, but in
any event no later than the Option Term Date. The Optionee's employment shall
be deemed to have terminated on account of death if the Optionee dies within
three (3) months after the Optionee's termination of employment. Except as the
Company and the Optionee otherwise agree, exercise of the Option pursuant to
paragraph 7(a) may not be made by delivery of a promissory note as provided in
paragraph 4(c)(1)(iii) above. Except as provided in this paragraph 7(a), the
Option shall terminate and may not be exercised after the Optionee ceases to be
an employee of the Participating Company Group. THE OPTIONEE IS CAUTIONED THAT
IF HIS OR HER EMPLOYMENT IS TERMINATED DUE TO A DISABILITY NOT DESCRIBED IN
SECTION 422(c) OF THE INTERNAL REVENUE CODE AND THE OPTIONEE CHOOSES TO EXERCISE
THE OPTION MORE THAN THREE (3) MONTHS AFTER THE DATE OF TERMINATION, THE OPTION
MAY LOSE ITS STATUS AS AN INCENTIVE STOCK OPTION AND BE TREATED INSTEAD AS A
NONSTATUTORY STOCK OPTION, AND THE OPTIONEE MAY OWE APPLICABLE WITHHOLDING TAXES
AT THE TIME OF THE EXERCISE.
(b) Employee and Termination of Employment Defined. For purposes of
----------------------------------------------
this paragraph 7, the term "employee" shall mean any person, including officers
and directors, employed by a Participating Company; provided, however, that the
term "employee" shall not include a person performing services for a
Participating Company solely as a director, consultant, advisor or other
independent contractor. For purposes of this paragraph 7, the Optionee's
employment shall be deemed to have terminated either upon an actual termination
of employment or upon the Optionee's employer ceasing to be a Participating
Company.
<PAGE>
(c) Extension if Exercise Prevented by Law. Notwithstanding the
--------------------------------------
foregoing, if the exercise of the Option within the applicable time periods set
forth above is prevented by the provisions of paragraph 4(f) above, the Option
shall remain exercisable until three (3) months after the date the Optionee is
notified by the Company that the Option is exercisable, but in any event no
later than the Option Term Date. The Company makes no representation as to the
tax consequences of any such delayed exercise. The Optionee should consult with
the Optionee's own tax advisors as to the tax consequences to the Optionee of
any such delayed exercise.
(d) Extension if Optionee Subject to Section 16(b). Notwithstanding
----------------------------------------------
the foregoing, if the exercise of the Option within the applicable time periods
set forth above would subject the Optionee to suit under Section 16(b) of the
Exchange Act, the Option shall remain exercisable until the earliest to occur of
(1) the tenth (10th) day following the date on which the Optionee would no
longer be subject to such suit, (2) the one hundred and ninetieth (190th) day
after the Optionee's termination of employment, or (3) the Option Term Date. The
Company makes no representation as to the tax consequences of any such delayed
exercise. The Optionee should consult with the Optionee's own tax advisors as
to the tax consequences to the Optionee of any such delayed exercise.
(e) Leave of Absence. For purposes hereof, the Optionee's employment
----------------
with the Participating Company Group shall not be deemed to terminate if the
Optionee takes any military leave, sick leave, or other bona fide leave of
absence approved by the Company of ninety (90) days or less. In the event of a
leave in excess of ninety (90) days, the Optionee's employment shall be deemed
to terminate on the ninety-first (91st) day of the leave unless the Optionee's
right to reemployment with the Participating Company Group remains guaranteed by
statute or contract. Notwithstanding the foregoing, however, a leave of absence
shall be treated as employment for purposes of determining the Optionee's Vested
Ratio if and only if the leave of absence is designated by the Company as (or
required by law to be) a leave for which vesting credit is given.
8. Ownership Change and Transfer of Control. An "Ownership Change"
----------------------------------------
shall be deemed to have occurred in the event any of the following occurs with
respect to the Company:
(a) the direct or indirect sale or exchange by the shareholders of the
Company of all or substantially all of the stock of the Company;
(b) a merger or consolidation in which the Company is a party;
(c) the sale, exchange, or transfer of all or substantially all of the
assets of the Company (other than a sale, exchange, or transfer to one or more
subsidiary corporations of the Company); or
(d) a liquidation or dissolution of the Company.
A "Transfer of Control" shall mean (i) an Ownership Change described
in (a) or (b) above in which the shareholders of the Company before such
Ownership Change do not
<PAGE>
retain, directly or indirectly, as a result of their ownership of shares of the
Company prior to such transaction, at least a majority of the beneficial
interest in the voting stock of the Company after such transaction, or (ii) an
Ownership Change described in (c) or (d) above.
In the event of a Transfer of Control, the Board, in its sole
discretion, may arrange with the surviving, continuing, successor, or purchasing
corporation or parent corporation thereof, as the case may be (the "Acquiring
Corporation"), for the Acquiring Corporation to either assume the Company's
rights and obligations under this Option Agreement or substitute an option for
the Acquiring Corporation's stock for the Option. The Option shall terminate
and cease to be outstanding effective as of the date of the Transfer of Control
to the extent that the Option is neither assumed or substituted for by the
Acquiring Corporation in connection with the Transfer of Control nor exercised
as of the date of the Transfer of Control.
9. Effect of Change in Stock Subject to the Option. Appropriate
-----------------------------------------------
adjustments shall be made in the number, exercise price and class of shares of
stock subject to the Option in the event of a stock dividend, stock split,
reverse stock split, recapitalization, combination, reclassification, or like
change in the capital structure of the Company. In the event a majority of the
shares which are of the same class as the shares that are subject to the Option
are exchanged for, converted into, or otherwise become (whether or not pursuant
to an Ownership Change) shares of another corporation (the "New Shares"), the
Company may unilaterally amend the Option to provide that the Option is
exercisable for New Shares. In the event of any such amendment, the number of
shares and the exercise price shall be adjusted in a fair and equitable manner.
10. Rights as a Shareholder or Employee. The Optionee shall have no
-----------------------------------
rights as a shareholder with respect to any shares covered by the Option until
the date of the issuance of a certificate or certificates for the shares for
which the Option has been exercised. No adjustment shall be made for dividends
or distributions or other rights for which the record date is prior to the date
such certificate or certificates are issued, except as provided in paragraph 9
above. Nothing in the Option shall confer upon the Optionee any right to
continue in the employ of a Participating Company or interfere in any way with
any right of the Participating Company Group to terminate the Optionee's
employment at any time.
11. Right of First Refusal.
----------------------
(a) Right of First Refusal. Except as provided in paragraph 11(g)
----------------------
below, in the event the Optionee proposes to sell, pledge, or otherwise transfer
any shares acquired upon the exercise of the Option (the "Transfer Shares") to
any person or entity, including, without limitation, any shareholder of the
Participating Company Group, the Company shall have the right to repurchase the
Transfer Shares under the terms and subject to the conditions set forth in this
paragraph 11 (the "Right of First Refusal").
(b) Notice of Proposed Transfer. Prior to any proposed transfer of
---------------------------
the Transfer Shares, the Optionee shall give a written notice (the "Transfer
Notice") to the Company describing fully the proposed transfer, including the
number of Transfer Shares, the name and address of the proposed transferee (the
"Proposed Transferee") and, if the transfer is
<PAGE>
voluntary, the proposed transfer price and containing such information necessary
to show the bona fide nature of the proposed transfer. In the event of a bona
fide gift or involuntary transfer, the proposed transfer price shall be deemed
to be the fair market value of the Transfer Shares as determined by the Company
in good faith. In the event the Optionee proposes to transfer any Transfer
Shares to more than one (1) Proposed Transferee, the Optionee shall provide a
separate Transfer Notice for the proposed transfer to each Proposed Transferee.
The Transfer Notice shall be signed by both the Optionee and the Proposed
Transferee and must constitute a binding commitment of the Optionee and the
Proposed Transferee for the transfer of the Transfer Shares to the Proposed
Transferee subject only to the Right of First Refusal.
(c) Bona Fide Transfer. In the event that the Company shall determine
------------------
that the information provided by the Optionee in the Transfer Notice is
insufficient to establish the bona fide nature of a proposed voluntary transfer,
the Company shall give the Optionee written notice of the Optionee's failure to
comply with the procedure described in this paragraph 11 and the Optionee shall
have no right to transfer the Transfer Shares without first complying with the
procedure described in this paragraph 11. The Optionee shall not be permitted
to transfer the Transfer Shares if the proposed transfer is not bona fide.
(d) Exercise of Right of First Refusal. In the event the proposed
----------------------------------
transfer is deemed to be bona fide, the Company shall have the right to purchase
all, but not less than all, of the Transfer Shares (except as the Company and
the Optionee otherwise agree) at the purchase price and on the terms set forth
in the Transfer Notice by delivery to the Optionee of a notice of exercise of
the Right of First Refusal within thirty (30) days after the date the Transfer
Notice is delivered to the Company. The Company's exercise or failure to
exercise the Right of First Refusal with respect to any proposed transfer
described in a Transfer Notice shall not affect the Company's right to exercise
the Right of First Refusal with respect to any proposed transfer described in
any other Transfer Notice, whether or not such other Transfer Notice is issued
by the Optionee or issued by a person other than the Optionee with respect to a
proposed transfer to the same Proposed Transferee. If the Company exercises the
Right of First Refusal, the Company and the Optionee shall thereupon consummate
the sale of the Transfer Shares to the Company on the terms set forth in the
Transfer Notice within sixty (60) days after the date of the Transfer Notice is
delivered to the Company (unless a longer period is offered by the Proposed
Transferee); provided, however, that in the event the Transfer Notice provides
for the payment for the Transfer Shares other than in cash, the Company shall
have the option of paying for the Transfer Shares by the present value cash
equivalent of the consideration described in the Transfer Notice as reasonably
determined by the Company. For purposes of the foregoing, cancellation of any
indebtedness of the Optionee to any Participating Company shall be treated as
payment to the Optionee in cash to the extent of the unpaid principal and any
accrued interest canceled.
(e) Failure to Exercise Right of First Refusal. If the Company fails
------------------------------------------
to exercise the Right of First Refusal in full within the period specified in
paragraph 11(d) above, the Optionee may conclude a transfer to the Proposed
Transferee of the Transfer Shares on the terms and conditions described in the
Transfer Notice, provided such transfer occurs not later than ninety (90) days
following delivery to the Company of the Transfer Notice. The Company shall
have the right to demand further assurances from the Optionee and the
<PAGE>
Proposed Transferee (in a form satisfactory to the Company) that the transfer of
the Transfer Shares was actually carried out on the terms and conditions
described in the Transfer Notice. No Transfer Shares shall be transferred on the
books of the Company until the Company has received such assurances, if so
demanded, and has approved the proposed transfer as bona fide. Any proposed
transfer on terms and conditions different from those described in the Transfer
Notice, as well as any subsequent proposed transfer by the Optionee, shall again
be subject to the Right of First Refusal and shall require compliance by the
Optionee with the procedure described in this paragraph 11.
(f) Transferees of Transfer Shares. All transferees of the Transfer
------------------------------
Shares or any interest therein, other than the Company, shall be required as a
condition of such transfer to agree in writing (in a form satisfactory to the
Company) that such transferee shall receive and hold such Transfer Shares or
interests subject to the provisions of this paragraph 11 providing for the Right
of First Refusal with respect to any subsequent transfer. Any sale or transfer
of any shares acquired upon exercise of the Option shall be void unless the
provisions of this paragraph 11 are met.
(g) Transfers Not Subject to Right of First Refusal. Notwithstanding
-----------------------------------------------
the foregoing, the Right of First Refusal shall not apply to any transfer or
exchange of the shares acquired pursuant to the exercise of the Option if such
transfer or exchange is in connection with an Ownership Change. If the
consideration received pursuant to such transfer or exchange consists of stock
of a Participating Company, such consideration shall remain subject to the Right
of First Refusal unless the provisions of paragraph 11(i) below result in a
termination of the Right of First Refusal.
(h) Assignment of Right of First Refusal. The Company shall have the
------------------------------------
right to assign the Right of First Refusal at any time, whether or not the
Optionee has attempted a transfer, to one (1) or more persons as may be selected
by the Company.
(i) Early Termination of Right of First Refusal. The other provisions
-------------------------------------------
of this paragraph 11 notwithstanding, the Right of First Refusal shall
terminate, and be of no further force and effect, upon (1) the occurrence of a
Transfer of Control, unless the Acquiring Corporation assumes the Company's
rights and obligations under the Plan, or (2) the existence of a public market
for the class of shares subject to the Right of First Refusal. A "public market"
shall be deemed to exist if (x) such stock is listed on a national securities
exchange (as that term is used in the Exchange Act) or (y) such stock is traded
on the over-the-counter market and prices therefor are published daily on
business days in a recognized financial journal.
12. Escrow.
------
(a) Establishment of Escrow. To ensure that shares subject to the
-----------------------
Right of First Refusal and/or security for any promissory note will be available
for repurchase, the Company may require the Optionee to deposit the certificate
or certificates evidencing the shares which the Optionee purchases upon exercise
of the Option with an agent designated by the Company under the terms and
conditions of escrow and security agreements approved by the Company. If the
Company does not require such deposit as a condition of exercise of the
<PAGE>
Option, the Company reserves the right at any time to require the Optionee to so
deposit the certificate or certificates in escrow. The Company shall bear the
expenses of the escrow.
(b) Delivery of Shares to Optionee. As soon as practicable after the
------------------------------
expiration of the Right of First Refusal, and after full repayment on any
promissory note secured by the shares in escrow, but not more frequently than
twice each calendar year, the agent shall deliver to the Optionee the shares no
longer subject to such restriction and no longer security for any promissory
note.
(c) Notices and Payments. In the event the shares held in escrow are
--------------------
subject to the Company's exercise of the Right of First Refusal, the notices
required to be given to the Optionee shall be given to the escrow agent and any
payment required to be given to the Optionee shall be given to the escrow agent.
Within thirty (30) days after payment by the Company, the escrow agent shall
deliver the shares which the Company has purchased to the Company and shall
deliver the payment received from the Company to the Optionee.
13. Stock Dividends Subject to Option Agreement. If, from time to
-------------------------------------------
time, there is any stock dividend, stock split, or other change in the character
or amount of any of the outstanding stock of the corporation the stock of which
is subject to the provisions of this Option Agreement, then in such event any
and all new, substituted, or additional securities to which the Optionee is
entitled by reason of the Optionee's ownership of the shares acquired upon
exercise of the Option shall be immediately subject to the Right of First
Refusal and/or any security interest held by the Company with the same force and
effect as the shares subject to the Right of First Refusal and such security
interest immediately before such event.
14. Notice of Sales Upon Disqualifying Disposition. The Optionee shall
----------------------------------------------
dispose of the shares acquired pursuant to the Option only in accordance with
the provisions of this Option Agreement. In addition, the Optionee shall
promptly notify the Chief Financial Officer of the Company if the Optionee
disposes of any of the shares acquired pursuant to the Option within one (1)
year from the date the Optionee exercises all or part of the Option or within
two (2) years of the date of grant of the Option. Until such time as the
Optionee disposes of such shares in a manner consistent with the provisions of
this Option Agreement, the Optionee shall hold all shares acquired pursuant to
the Option in the Optionee's name (and not in the name of any nominee) for the
one-year period immediately after exercise of the Option and the two-year period
immediately after grant of the Option. At any time during the one-year or two-
year periods set forth above, the Company may place a legend or legends on any
certificate or certificates representing shares acquired pursuant to the Option
requesting the transfer agent for the Company's stock to notify the Company of
any such transfers. The obligation of the Optionee to notify the Company of any
such transfer shall continue notwithstanding that a legend has been placed on
the certificate or certificates pursuant to the preceding sentence.
15. Rules of the Commissioner of Corporations. The Optionee is hereby
-----------------------------------------
delivered a copy of Section 260.141.11 of the Rules of the Commissioner of
Corporations of the State of California, adopted pursuant to the California
Corporate Securities Act of 1968. References to the "Code" in the following text
are references to the California Corporations Code.
<PAGE>
260.141.11. Restriction on Transfer.
(a) The issuer of any security upon which a restriction on transfer
has been imposed pursuant to Sections 260.102.6, 260.141.10 or 260.534 shall
cause a copy of this section to be delivered to each issuee or transferee of
such security at the time the certificate evidencing the security is delivered
to the issuee or transferee.
(b) It is unlawful for the holder of any such security to consummate a
sale or transfer of such security, or any interest therein, without the prior
written consent of the Commissioner (until this condition is removed pursuant to
Section 260.141.12 of these rules), except:
(1) to the issuer;
(2) pursuant to the order or process of any court;
(3) to any person described in subdivision (i) of Section 25102
of the Code or Section 260.105.14 of these rules;
(4) to the transferor's ancestors, descendants, or spouse, or any
custodian or trustee for the account of the transferor or the transferor's
ancestors, descendants, or spouse; or to a transferee by a trustee or custodian
for the account of the transferee or the transferee's ancestors, descendants, or
spouse;
(5) to holders of securities of the same class of the same
issuer;
(6) by way of gift or donation inter vivos or on death;
(7) by or through a broker-dealer licensed under the Code (either
acting as such or as a finder) to a resident of a foreign state, territory or
country who is neither domiciled in this state to the knowledge of the broker-
dealer, nor actually present in this state if the sale of such securities is not
in violation of any securities law of the foreign state, territory or country
concerned;
(8) to a broker-dealer licensed under the Code in a principal
transaction, or as an underwriter or member of an underwriting syndicate or
selling group;
(9) if the interest sold or transferred is a pledge or other lien
given by the purchaser to the seller upon a sale of the security for which the
Commissioner's written consent is obtained or under this rule not required;
(10) by way of a sale qualified under Sections 25111, 25112,
25113, or 25121 of the Code, of the securities to be transferred, provided that
no order under Section 25140 or subdivision (a) of Section 25143 is in effect
with respect to such qualification;
(11) by a corporation to a wholly owned subsidiary of such
corporation, or by a wholly owned subsidiary of a corporation to such
corporation;
<PAGE>
(12) by way of an exchange qualified under Section 25111, 25112 or
25113 of the Code, provided that no order under Section 25140 or subdivision
(a) of Section 25143 is in effect with respect to such qualification;
(13) between residents of foreign states, territories or countries
who are neither domiciled nor actually present in this state;
(14) to the State Controller pursuant to the Unclaimed Property
Law or to the administrator of the unclaimed property law of another state;
(15) by the State Controller pursuant to the Unclaimed Property
Law or by the administrator of the unclaimed property law of another state if,
in either such case, such person (i) discloses to potential purchasers at the
sale that transfer of the securities is restricted under this rule,
(ii) delivers to each purchaser a copy of this rule, and (iii) advises the
Commissioner of the name of each purchaser;
(16) by a trustee to a successor trustee when such transfer does
not involve a change in the beneficial ownership of the securities;
(17) by way of an offer and sale of outstanding securities in an
issuer transaction that is subject to the qualification requirement of Section
25110 of the Code but exempt from that qualification requirement by subdivision
(f) of Section 25102; provided that any such transfer is on the condition that
any certificate evidencing the security issued to such transferee shall contain
the legend required by this section.
(c) The certificates representing all such securities subject to such
a restriction on transfer, whether upon initial issuance or upon any transfer
thereof, shall bear on their face a legend prominently stamped or printed
thereon in capital letters of not less than 10-point size reading as follows:
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY OR ANY
INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR
WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA,
EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES."
16. Legends. The Company may at any time place legends referencing
-------
the Right of First Refusal set forth in paragraph 11 above, and any applicable
foreign, federal or state securities law restrictions on all certificates
representing shares of stock subject to the provisions of this Option Agreement.
The Optionee shall, at the request of the Company, promptly present to the
Company any and all certificates representing shares acquired pursuant to the
Option in the possession of the Optionee in order to effectuate the provisions
of this paragraph 16. Unless otherwise specified by the Company, legends placed
on such certificates may include, but shall not be limited to, the following:
(a) "THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH
<PAGE>
ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN ACCORDANCE WITH RULE 144 OR
RULE 701 UNDER THE ACT, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT
SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT."
(b) Any legend required to be placed thereon by the Commissioner of
Corporations of the State of California.
(c) "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A RIGHT
OF FIRST REFUSAL OPTION IN FAVOR OF THE CORPORATION OR ITS ASSIGNEE SET FORTH IN
AN AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED HOLDER, OR SUCH HOLDER'S
PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF
THIS CORPORATION."
(d) "THE SHARES EVIDENCED BY THIS CERTIFICATE WERE ISSUED BY THE
CORPORATION TO THE REGISTERED HOLDER UPON EXERCISE OF AN INCENTIVE STOCK OPTION
AS DEFINED IN SECTION 422 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED
("ISO"). IN ORDER TO OBTAIN THE PREFERENTIAL TAX TREATMENT AFFORDED TO ISOs,
THE SHARES SHOULD NOT BE TRANSFERRED PRIOR TO ______________. SHOULD THE
REGISTERED HOLDER ELECT TO TRANSFER ANY OF THE SHARES PRIOR TO THIS DATE AND
FOREGO ISO TAX TREATMENT, THE TRANSFER AGENT FOR THE SHARES SHALL NOTIFY THE
CORPORATION IMMEDIATELY. THE REGISTERED HOLDER SHALL HOLD ALL SHARES PURCHASED
UNDER THE INCENTIVE STOCK OPTION IN THE REGISTERED HOLDER'S NAME (AND NOT IN THE
NAME OF ANY NOMINEE) PRIOR TO THIS DATE OR UNTIL TRANSFERRED AS DESCRIBED
ABOVE."
17. Initial Public Offering. The Optionee hereby agrees that in the
-----------------------
event of an initial public offering of stock made by the Company pursuant to an
effective registration statement filed under the Securities Act, the Optionee
shall not offer, sell, contract to sell, pledge, hypothecate, grant any option
to purchase or make any short sale of, or otherwise dispose of any shares of
stock of the Company or any rights to acquire stock of the Company for such
period of time from and after the effective date of such registration statement
as may be established by the underwriter for such initial public offering;
provided, however, that such period of time shall not exceed one hundred eighty
(180) days from the effective date of the registration statement to be filed in
connection with such initial public offering. The foregoing limitation shall
not apply to shares registered in the initial public offering under the
Securities Act. The Optionee shall be subject to this paragraph provided and
only if the officers and directors of the Company are also subject to similar
arrangements.
18. Binding Effect. This Option Agreement shall inure to the benefit
--------------
of and be binding upon the parties hereto and their respective heirs, executors,
administrators, successors and assigns.
<PAGE>
19. Termination or Amendment. The Board, including any duly appointed
------------------------
committee of the Board, may terminate or amend the Plan and/or the Option at any
time; provided, however, that no such termination or amendment may adversely
affect the Option or any unexercised portion hereof without the consent of the
Optionee unless such amendment is required to enable the Option to qualify as an
Incentive Stock Option.
20. Integrated Agreement. This Option Agreement constitutes the entire
--------------------
understanding and agreement of the Optionee and the Participating Company Group
with respect to the subject matter contained herein, and there are no
agreements, understandings, restrictions, representations, or warranties among
the Optionee and the Participating Company Group other than those as set forth
or provided for herein. To the extent contemplated herein, the provisions of
this Option Agreement shall survive any exercise of the Option and shall remain
in full force and effect.
21. Applicable Law. This Option Agreement shall be governed by the laws
--------------
of the State of California as such laws are applied to agreements between
California residents entered into and to be performed entirely within the State
of California.
ZEITNET INC.
By:
-----------------------------------
Title:
--------------------------------
The Optionee represents that the Optionee is familiar with the terms and
provisions of this Option Agreement, including the Right of First Refusal set
forth in paragraph 11, and hereby accepts the Option subject to all of the terms
and provisions thereof. The Optionee hereby agrees to accept as binding,
conclusive and final all decisions or interpretations of the Board upon any
questions arising under this Option Agreement.
The undersigned acknowledges receipt of a copy of the Plan and
Section 260.141.11 of the Rules of the Commissioner of Corporations of the State
of California regarding restriction on transfer (contained as paragraph 15
herein).
Date:
------------------------------- -----------------------------------
<PAGE>
EXHIBIT B
---------
STANDARD FORM OF
----------------
NONQUALIFIED STOCK OPTION AGREEMENT
-----------------------------------
<PAGE>
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY OR ANY INTEREST
THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN
CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT
AS PERMITTED IN THE COMMISSIONER'S RULES.
THE SECURITY REPRESENTED BY THIS CERTIFICATE HAS BEEN ACQUIRED FOR INVESTMENT
AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF.
NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.
ZEITNET INC.
NONQUALIFIED STOCK OPTION AGREEMENT
ZeitNet Inc. (the "Company") granted to the individual named below an
option to purchase certain shares of common stock of the Company, in the manner
and subject to the provisions of this Option Agreement.
1. Definitions:
-----------
(a) "Optionee" shall mean__________________________________________.
(b) "Date of Option Grant" shall mean______________________________.
(c) "Number of Option Shares" shall mean ___________________ shares
of common stock of the Company as adjusted from time to time pursuant to
paragraph 9 below.
(d) "Exercise Price" shall mean $____________ per share as adjusted
from time to time pursuant to paragraph 9 below.
(e) "Initial Exercise Date" shall be the Initial Vesting Date.
(f) "Initial Vesting Date" shall be the date occurring one (1) year
after _____________________________.
<PAGE>
(g) Determination of "Vested Ratio":
Vested Ratio
------------
Prior to Initial Vesting Date 0
On the Initial Vesting 1/4
Date, provided the Participant is
continuously employed by the
Company from the Date of Option Grant
until the Initial Vesting Date.
Plus
----
For each full six month period of 1/8
Participant's continuous employment
by a Participating Company after the
Initial Vesting Date.
In no event shall the Vested
Ratio exceed 1/1.
(h) "Option Term Date" shall mean the date ten (10) years after the
Date of Option Grant.
(i) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(j) "Company" shall mean ZeitNet Inc., a California corporation, and
any successor corporation thereto.
(k) "Participating Company" shall mean (1) the Company and (2) any
present or future parent and/or subsidiary corporation of the Company while such
corporation is a parent or subsidiary of the Company. For purposes of this
Option Agreement, a parent corporation and a subsidiary corporation shall be as
defined in Sections 424(e) and 424(f) of the Code.
(l) "Participating Company Group" shall mean at any point in time all
corporations collectively which are then a Participating Company.
(m) "Plan" shall mean the ZeitNet Inc. 1994 Stock Option Plan.
2. Status of the Option. This Option is intended to be a nonqualified
--------------------
stock option and shall not be treated as an incentive stock option as described
in Section 422(b) of the Code.
3. Administration. All questions of interpretation concerning this
--------------
Option Agreement shall be determined by the Board of Directors of the Company
(the "Board")
<PAGE>
and/or by a duly appointed committee of the Board having such powers as shall be
specified by the Board. Any subsequent references herein to the Board shall
also mean the committee if such committee has been appointed and, unless the
powers of the committee have been specifically limited, the committee shall have
all of the powers of the Board granted in the Plan, including, without
limitation, the power to terminate or amend the Plan at any time, subject to the
terms of the Plan and any applicable limitations imposed by law. All
determinations by the Board shall be final and binding upon all persons having
an interest in the Option. Any officer of a Participating Company shall have
the authority to act on behalf of the Company with respect to any matter, right,
obligation, or election which is the responsibility of or which is allocated to
the Company herein, provided the officer has apparent authority with respect to
such matter, right, obligation, or election.
4. Exercise of the Option.
----------------------
(a) Right to Exercise. Except as provided in paragraph 4(f) below,
-----------------
the Option shall first become exercisable on the Initial Exercise Date. The
Option shall be exercisable on and after the Initial Exercise Date and prior to
the termination of the Option in the amount equal to the Number of Option Shares
multiplied by the Vested Ratio as set forth in paragraph 1 above less the number
of shares previously acquired upon exercise of the Option, subject to the
Optionee's agreement that any shares purchased upon exercise are subject to the
Company's repurchase rights set forth in paragraph 11 below. In no event shall
the Option be exercisable for more shares than the Number of Option Shares. In
addition to the foregoing, in the event that the adoption of the Plan or any
amendment of the Plan is subject to the approval of the Company's shareholders
in order for the Option to comply with the requirements of Rule 16b-3,
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), the Option shall not be exercisable prior to such shareholder approval if
the Optionee is subject to Section 16(b) of the Exchange Act, unless the Board,
in its sole discretion, approves the exercise of the Option prior to such
shareholder approval.
(b) Method of Exercise. The Option may be exercised by written notice
------------------
to the Company which must state the election to exercise the Option, the number
of shares for which the Option is being exercised and such other representations
and agreements as to the Optionee's investment intent with respect to such
shares and other administrative matters as may be required pursuant to the
provisions of this Option Agreement and the exercise form used by the Company.
The written notice must be signed by the Optionee and must be delivered in
person, by certified or registered mail, return receipt requested, or by
facsimile transmission to the Chief Financial Officer of the Company, or other
authorized representative of the Participating Company Group, prior to the
termination of the Option as set forth in paragraph 6 below, accompanied by
(1) full payment of the exercise price for the number of shares being purchased
and (2) an executed copy, if required herein, of the then current forms of
escrow and security agreement referenced below.
(c) Payment of Exercise Price.
-------------------------
(i) Forms of Payment Authorized. Payment of the exercise price
---------------------------
for the number of shares for which the Option is being exercised shall be made
(i) in cash, by check, or cash equivalent, (ii) by tender to the Company of
shares of the Company's common
<PAGE>
stock owned by the Optionee having a value not less than the option price, which
either have been owned by the Optionee for more than six (6) months or were not
acquired, directly or indirectly, from the Company, (iii) if expressly
authorized by the Company, in its sole discretion, at the time of Option
exercise, by the Optionee's promissory note in a form approved by the Company;
(iv) by Immediate Sales Proceeds, as defined below, or (v) by any combination of
the foregoing.
(ii) Tender of Company Stock. Notwithstanding the foregoing,
-----------------------
the Option may not be exercised by tender to the Company of shares of the
Company's common stock to the extent such tender of stock would constitute a
violation of the provisions of any law, regulation and/or agreement restricting
the redemption of the Company's common stock.
(iii) Promissory Note. Unless otherwise specified by the Board
---------------
at the time the Option is granted, a promissory note permitted in accordance
with clause (c)(1)(iii) above shall not exceed the amount permitted by law to be
paid by a promissory note and shall be a full recourse note in a form
satisfactory to the Company, with principal payable four (4) years after the
date the Option is exercised. Interest on the principal balance of the
promissory note shall be payable in annual installments at the minimum interest
rate necessary to avoid imputed interest pursuant to all applicable sections of
the Code. Such recourse promissory note shall be secured by the shares of stock
acquired pursuant to the then current form of security agreement as approved by
the Company. In the event the Company at any time is subject to the regulations
promulgated by the Board of Governors of the Federal Reserve System or any other
governmental entity affecting the extension of credit in connection with the
Company's securities, any promissory note shall comply with such applicable
regulations, and the Optionee shall pay the unpaid principal and accrued
interest, if any, to the extent necessary to comply with such applicable
regulations. Except as the Company in its sole discretion shall determine, the
Optionee shall pay the unpaid principal balance of the promissory note and any
accrued interest thereon upon termination of the Optionee's employment with the
Participating Company Group for any reason, with or without cause.
(iv) Immediate Sales Proceeds. "Immediate Sales Proceeds" shall
------------------------
mean the assignment in form acceptable to the Company of the proceeds of a sale
of some or all of the shares acquired upon the exercise of the Option pursuant
to a program and/or procedure approved by the Company (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). The Company reserves, at any and all times, the right, in the Company's
sole and absolute discretion, to decline to approve any such program and/or
procedure.
(d) Tax Withholding. At the time the Option is exercised, in whole or
---------------
in part, or at any time thereafter as requested by the Company, the Optionee
hereby authorizes payroll withholding and otherwise agrees to make adequate
provision for foreign, federal and state tax withholding obligations of the
Participating Company Group, if any, which arise in connection with the Option,
including, without limitation, obligations arising upon (1) the exercise, in
whole or in part, of the Option, (2) the transfer, in whole or in part, of any
shares acquired on exercise of the Option, (3) the operation of any law or
regulation providing for the imputation of interest, or (4) the lapsing of any
restriction with respect to any shares acquired
<PAGE>
on exercise of the Option. The Optionee is cautioned that the Option is not
exercisable unless the Participating Company Group's withholding obligations are
satisfied. Accordingly, the Optionee may not be able to exercise the Option
when desired even though the Option is vested and the Company shall have no
obligation to issue a certificate for such shares.
(e) Certificate Registration. Except in the event the exercise price
------------------------
is paid by Immediate Sales Proceeds, the certificate or certificates for the
shares as to which the Option is exercised shall be registered in the name of
the Optionee, or, if applicable, the heirs of the Optionee.
(f) Restrictions on Grant of the Option and Issuance of Shares. The
----------------------------------------------------------
grant of the Option and the issuance of the shares upon exercise of the Option
shall be subject to compliance with all applicable requirements of federal,
state or foreign law with respect to such securities. The Option may not be
exercised if the issuance of shares upon such exercise would constitute a
violation of any applicable federal, state or foreign securities laws or other
law or regulations. IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS
SECURITY OR ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR,
WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE
STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES. Section
260.141.11 of the Rules of the Commissioner of Corporations of the State of
California is set forth in paragraph 15 herein. In addition, the Option may not
be exercised unless (1) a registration statement under the Securities Act of
1933, as amended (the "Securities Act"), shall at the time of exercise of the
Option be in effect with respect to the shares issuable upon exercise of the
Option or (2) in the opinion of legal counsel to the Company, the shares
issuable upon exercise of the Option may be issued in accordance with the terms
of an applicable exemption from the registration requirements of the Securities
Act. THE OPTIONEE IS CAUTIONED THAT THE OPTION MAY NOT BE EXERCISABLE UNLESS
THE FOREGOING CONDITIONS ARE SATISFIED. ACCORDINGLY, THE OPTIONEE MAY NOT BE
ABLE TO EXERCISE THE OPTION WHEN DESIRED EVEN THOUGH THE OPTION IS VESTED.
Questions concerning this restriction should be directed to the Chief Financial
Officer of the Company. As a condition to the exercise of the Option, the
Company may require the Optionee to satisfy any qualifications that may be
necessary or appropriate, to evidence compliance with any applicable law or
regulation and to make any representation or warranty with respect thereto as
may be requested by the Company.
(g) Fractional Shares. The Company shall not be required to issue
-----------------
fractional shares upon the exercise of the Option.
5. Non-Transferability of the Option. The Option may be exercised
---------------------------------
during the lifetime of the Optionee only by the Optionee and may not be assigned
or transferred in any manner except by will or by the laws of descent and
distribution. Following the death of the Optionee, the Option, to the extent
unexercised and exercisable by the Optionee on the date of death, may be
exercised by the Optionee's legal representative or by any person empowered to
do so under the deceased Optionee's will or under the then applicable laws of
descent and distribution.
<PAGE>
6. Termination of the Option. The Option shall terminate and may no
-------------------------
longer be exercised on the first to occur of (a) the Option Term Date as defined
above, (b) the last date for exercising the Option following termination of
employment as described in paragraph 7 below, or (c) a Transfer of Control to
the extent provided in paragraph 8 below.
7. Termination of Employment.
-------------------------
(a) Termination of the Option. If the Optionee ceases to be an
-------------------------
employee of the Participating Company Group for any reason, except death or
disability, the Option, to the extent unexercised and exercisable by the
Optionee on the date on which the Optionee ceased to be an employee, may be
exercised by the Optionee within three (3) months after the date on which the
Optionee's employment terminated, but in any event no later than the Option Term
Date. If the Optionee ceases to be an employee of the Participating Company
Group because of the death or disability of the Optionee, the Option, to the
extent unexercised and exercisable by the Optionee on the date on which the
Optionee ceased to be an employee, may be exercised by the Optionee (or the
Optionee's legal representative) at any time prior to the expiration of twelve
(12) months from the date on which the Optionee's employment terminated, but in
any event no later than the Option Term Date. The Optionee's employment shall
be deemed to have terminated on account of death if the Optionee dies within
three (3) months after the Optionee's termination of employment. Except as the
Company and the Optionee otherwise agree, exercise of the Option pursuant to
paragraph 7(a) may not be made by delivery of a promissory note as provided in
paragraph 4(c)(1)(iii) above. Except as provided in this paragraph 7(a), the
Option shall terminate and may not be exercised after the Optionee ceases to be
an employee of the Participating Company Group.
(b) Employee and Termination of Employment Defined. For purposes of
----------------------------------------------
this paragraph 7, the term "employee" shall mean any person, including officers
and directors, employed by a Participating Company or performing services for a
Participating Company as a director, consultant, advisor or other independent
contractor. For purposes of this paragraph 7, the Optionee's employment shall
be deemed to have terminated either upon an actual termination of employment or
upon the Optionee's employer ceasing to be a Participating Company. The
Optionee's employment shall not be deemed to have terminated merely because of a
change in the capacity in which the Optionee serves as an employee, provided
that there is no interruption or termination of the Optionee's service as an
employee.
(c) Extension if Exercise Prevented by Law. Notwithstanding the
--------------------------------------
foregoing, if the exercise of the Option within the applicable time periods set
forth above is prevented by the provisions of paragraph 4(f) above, the Option
shall remain exercisable until three (3) months after the date the Optionee is
notified by the Company that the Option is exercisable, but in any event no
later than the Option Term Date.
(d) Extension if Optionee Subject to Section 16(b). Notwithstanding
----------------------------------------------
the foregoing, if the exercise of the Option within the applicable time periods
set forth above would subject the Optionee to suit under Section 16(b) of the
Exchange Act, the Option shall remain exercisable until the earliest to occur of
(1) the tenth (10th) day following the date on which the Optionee would no
longer be subject to such suit, (2) the one hundred and ninetieth (190th) day
after the Optionee's termination of employment, or (3) the Option Term Date.
<PAGE>
(e) Leave of Absence. For purposes hereof, the Optionee's employment
----------------
with the Participating Company Group shall not be deemed to terminate if the
Optionee takes any military leave, sick leave, or other bona fide leave of
absence approved by the Company of ninety (90) days or less. In the event of a
leave in excess of ninety (90) days, the Optionee's employment shall be deemed
to terminate on the ninety-first (91st) day of the leave unless the Optionee's
right to reemployment with the Participating Company Group remains guaranteed by
statute or contract. Notwithstanding the foregoing, however, a leave of absence
shall be treated as employment for purposes of determining the Optionee's Vested
Ratio if and only if the leave of absence is designated by the Company as (or
required by law to be) a leave for which vesting credit is given.
8. Ownership Change and Transfer of Control. An "Ownership Change"
----------------------------------------
shall be deemed to have occurred in the event any of the following occurs with
respect to the Company:
(a) the direct or indirect sale or exchange by the shareholders of the
Company of all or substantially all of the stock of the Company;
(b) a merger or consolidation in which the Company is a party;
(c) the sale, exchange, or transfer of all or substantially all of the
assets of the Company (other than a sale, exchange, or transfer to one or more
subsidiary corporations of the Company); or
(d) a liquidation or dissolution of the Company.
A "Transfer of Control" shall mean (i) an Ownership Change described
in (a) or (b) above in which the shareholders of the Company before such
Ownership Change do not retain, directly or indirectly, as a result of their
ownership of shares of the Company prior to such transaction, at least a
majority of the beneficial interest in the voting stock of the Company after
such transaction, or (ii) an Ownership Change described in (c) or (d) above.
In the event of a Transfer of Control, the Board, in its sole
discretion, may arrange with the surviving, continuing, successor, or purchasing
corporation or parent corporation thereof, as the case may be (the "Acquiring
Corporation"), for the Acquiring Corporation to either assume the Company's
rights and obligations under this Option Agreement or substitute an option for
the Acquiring Corporation's stock for the Option. The Option shall terminate
and cease to be outstanding effective as of the date of the Transfer of Control
to the extent that the Option is neither assumed or substituted for by the
Acquiring Corporation in connection with the Transfer of Control nor exercised
as of the date of the Transfer of Control.
9. Effect of Change in Stock Subject to the Option. Appropriate
-----------------------------------------------
adjustments shall be made in the number, exercise price and class of shares of
stock subject to the Option in the event of a stock dividend, stock split,
reverse stock split, recapitalization, combination, reclassification, or like
change in the capital structure of the Company. In the event a majority of the
shares which are of the same class as the shares that are subject to the Option
are
<PAGE>
exchanged for, converted into, or otherwise become (whether or not pursuant to
an Ownership Change) shares of another corporation (the "New Shares"), the
Company may unilaterally amend the Option to provide that the Option is
exercisable for New Shares. In the event of any such amendment, the number of
shares and the exercise price shall be adjusted in a fair and equitable manner.
10. Rights as a Shareholder or Employee. The Optionee shall have no
-----------------------------------
rights as a shareholder with respect to any shares covered by the Option until
the date of the issuance of a certificate or certificates for the shares for
which the Option has been exercised. No adjustment shall be made for dividends
or distributions or other rights for which the record date is prior to the date
such certificate or certificates are issued, except as provided in paragraph 9
above. Nothing in the Option shall confer upon the Optionee any right to
continue in the employ of a Participating Company or interfere in any way with
any right of the Participating Company Group to terminate the Optionee's
employment at any time.
11. Right of First Refusal.
----------------------
(a) Right of First Refusal. Except as provided in paragraph 11(g)
----------------------
below, in the event the Optionee proposes to sell, pledge, or otherwise transfer
any shares acquired upon the exercise of the Option (the "Transfer Shares") to
any person or entity, including, without limitation, any shareholder of the
Participating Company Group, the Company shall have the right to repurchase the
Transfer Shares under the terms and subject to the conditions set forth in this
paragraph 11 (the "Right of First Refusal").
(b) Notice of Proposed Transfer. Prior to any proposed transfer of
---------------------------
the Transfer Shares, the Optionee shall give a written notice (the "Transfer
Notice") to the Company describing fully the proposed transfer, including the
number of Transfer Shares, the name and address of the proposed transferee (the
"Proposed Transferee") and, if the transfer is voluntary, the proposed transfer
price and containing such information necessary to show the bona fide nature of
the proposed transfer. In the event of a bona fide gift or involuntary
transfer, the proposed transfer price shall be deemed to be the fair market
value of the Transfer Shares as determined by the Company in good faith. In the
event the Optionee proposes to transfer any Transfer Shares to more than one (1)
Proposed Transferee, the Optionee shall provide a separate Transfer Notice for
the proposed transfer to each Proposed Transferee. The Transfer Notice shall be
signed by both the Optionee and the Proposed Transferee and must constitute a
binding commitment of the Optionee and the Proposed Transferee for the transfer
of the Transfer Shares to the Proposed Transferee subject only to the Right of
First Refusal.
(c) Bona Fide Transfer. In the event that the Company shall determine
------------------
that the information provided by the Optionee in the Transfer Notice is
insufficient to establish the bona fide nature of a proposed voluntary transfer,
the Company shall give the Optionee written notice of the Optionee's failure to
comply with the procedure described in this paragraph 11 and the Optionee shall
have no right to transfer the Transfer Shares without first complying with the
procedure described in this paragraph 11. The Optionee shall not be permitted
to transfer the Transfer Shares if the proposed transfer is not bona fide.
<PAGE>
(d) Exercise of Right of First Refusal. In the event the proposed
----------------------------------
transfer is deemed to be bona fide, the Company shall have the right to purchase
all, but not less than all, of the Transfer Shares (except as the Company and
the Optionee otherwise agree) at the purchase price and on the terms set forth
in the Transfer Notice by delivery to the Optionee of a notice of exercise of
the Right of First Refusal within thirty (30) days after the date the Transfer
Notice is delivered to the Company. The Company's exercise or failure to
exercise the Right of First Refusal with respect to any proposed transfer
described in a Transfer Notice shall not affect the Company's right to exercise
the Right of First Refusal with respect to any proposed transfer described in
any other Transfer Notice, whether or not such other Transfer Notice is issued
by the Optionee or issued by a person other than the Optionee with respect to a
proposed transfer to the same Proposed Transferee. If the Company exercises the
Right of First Refusal, the Company and the Optionee shall thereupon consummate
the sale of the Transfer Shares to the Company on the terms set forth in the
Transfer Notice within sixty (60) days after the date of the Transfer Notice is
delivered to the Company (unless a longer period is offered by the Proposed
Transferee); provided, however, that in the event the Transfer Notice provides
for the payment for the Transfer Shares other than in cash, the Company shall
have the option of paying for the Transfer Shares by the present value cash
equivalent of the consideration described in the Transfer Notice as reasonably
determined by the Company. For purposes of the foregoing, cancellation of any
indebtedness of the Optionee to any Participating Company shall be treated as
payment to the Optionee in cash to the extent of the unpaid principal and any
accrued interest canceled.
(e) Failure to Exercise Right of First Refusal. If the Company fails
------------------------------------------
to exercise the Right of First Refusal in full within the period specified in
paragraph 11(d) above, the Optionee may conclude a transfer to the Proposed
Transferee of the Transfer Shares on the terms and conditions described in the
Transfer Notice, provided such transfer occurs not later than ninety (90) days
following delivery to the Company of the Transfer Notice. The Company shall
have the right to demand further assurances from the Optionee and the Proposed
Transferee (in a form satisfactory to the Company) that the transfer of the
Transfer Shares was actually carried out on the terms and conditions described
in the Transfer Notice. No Transfer Shares shall be transferred on the books of
the Company until the Company has received such assurances, if so demanded, and
has approved the proposed transfer as bona fide. Any proposed transfer on terms
and conditions different from those described in the Transfer Notice, as well as
any subsequent proposed transfer by the Optionee, shall again be subject to the
Right of First Refusal and shall require compliance by the Optionee with the
procedure described in this paragraph 11.
(f) Transferees of Transfer Shares. All transferees of the Transfer
------------------------------
Shares or any interest therein, other than the Company, shall be required as a
condition of such transfer to agree in writing (in a form satisfactory to the
Company) that such transferee shall receive and hold such Transfer Shares or
interests subject to the provisions of this paragraph 11 providing for the Right
of First Refusal with respect to any subsequent transfer. Any sale or transfer
of any shares acquired upon exercise of the Option shall be void unless the
provisions of this paragraph 11 are met.
(g) Transfers Not Subject to Right of First Refusal. Notwithstanding
-----------------------------------------------
the foregoing, the Right of First Refusal shall not apply to any transfer or
exchange of the shares
<PAGE>
acquired pursuant to the exercise of the Option if such transfer or exchange is
in connection with an Ownership Change. If the consideration received pursuant
to such transfer or exchange consists of stock of a Participating Company, such
consideration shall remain subject to the Right of First Refusal unless the
provisions of paragraph 11(i) below result in a termination of the Right of
First Refusal.
(h) Assignment of Right of First Refusal. The Company shall have the
------------------------------------
right to assign the Right of First Refusal at any time, whether or not the
Optionee has attempted a transfer, to one (1) or more persons as may be selected
by the Company.
(i) Early Termination of Right of First Refusal. The other provisions
-------------------------------------------
of this paragraph 11 notwithstanding, the Right of First Refusal shall
terminate, and be of no further force and effect, upon (1) the occurrence of a
Transfer of Control, unless the Acquiring Corporation assumes the Company's
rights and obligations under the Plan, or (2) the existence of a public market
for the class of shares subject to the Right of First Refusal. A "public market"
shall be deemed to exist if (x) such stock is listed on a national securities
exchange (as that term is used in the Exchange Act) or (y) such stock is traded
on the over-the-counter market and prices therefor are published daily on
business days in a recognized financial journal.
12. Escrow.
------
(a) Establishment of Escrow. To ensure that shares subject to the
-----------------------
Right of First Refusal and/or security for any promissory note will be available
for repurchase, the Company may require the Optionee to deposit the certificate
or certificates evidencing the shares which the Optionee purchases upon exercise
of the Option with an agent designated by the Company under the terms and
conditions of escrow and security agreements approved by the Company. If the
Company does not require such deposit as a condition of exercise of the Option,
the Company reserves the right at any time to require the Optionee to so deposit
the certificate or certificates in escrow. The Company shall bear the expenses
of the escrow.
(b) Delivery of Shares to Optionee. As soon as practicable after the
------------------------------
expiration of the Right of First Refusal, and after full repayment on any
promissory note secured by the shares in escrow, but not more frequently than
twice each calendar year, the agent shall deliver to the Optionee the shares no
longer subject to such restriction and no longer security for any promissory
note.
(c) Notices and Payments. In the event the shares held in escrow are
--------------------
subject to the Company's exercise of the Right of First Refusal, the notices
required to be given to the Optionee shall be given to the escrow agent and any
payment required to be given to the Optionee shall be given to the escrow agent.
Within thirty (30) days after payment by the Company, the escrow agent shall
deliver the shares which the Company has purchased to the Company and shall
deliver the payment received from the Company to the Optionee.
13. Stock Dividends Subject to Option Agreement. If, from time to time,
-------------------------------------------
there is any stock dividend, stock split, or other change in the character or
amount of any of the outstanding stock of the corporation the stock of which is
subject to the provisions of this
<PAGE>
Option Agreement, then in such event any and all new, substituted, additional
securities to which the Optionee is entitled by reason of the Optionee's
ownership of the shares acquired upon exercise of the Option shall be
immediately subject to the Right of First Refusal and/or any security interest
held by the Company with the same force and effect as the shares subject to the
Right of First Refusal and such security interest immediately before such event.
14. Rules of the Commissioner of Corporations. The Optionee is hereby
-----------------------------------------
delivered a copy of Section 260.141.11 of the Rules of the Commissioner of
Corporations of the State of California, adopted pursuant to the California
Corporate Securities Act of 1968. References to the "Code" in the following text
are references to the California Corporations Code.
260.141.11. Restriction on Transfer.
(a) The issuer of any security upon which a restriction on transfer
has been imposed pursuant to Sections 260.102.6, 260.141.10 or 260.534 shall
cause a copy of this section to be delivered to each issuee or transferee of
such security at the time the certificate evidencing the security is delivered
to the issuee or transferee.
(b) It is unlawful for the holder of any such security to consummate a
sale or transfer of such security, or any interest therein, without the prior
written consent of the Commissioner (until this condition is removed pursuant to
Section 260.141.12 of these rules), except:
(1) to the issuer;
(2) pursuant to the order or process of any court;
(3) to any person described in subdivision (i) of Section 25102
of the Code or Section 260.105.14 of these rules;
(4) to the transferor's ancestors, descendants, or spouse, or any
custodian or trustee for the account of the transferor or the transferor's
ancestors, descendants, or spouse; or to a transferee by a trustee or custodian
for the account of the transferee or the transferee's ancestors, descendants, or
spouse;
(5) to holders of securities of the same class of the same
issuer;
(6) by way of gift or donation inter vivos or on death;
(7) by or through a broker-dealer licensed under the Code (either
acting as such or as a finder) to a resident of a foreign state, territory or
country who is neither domiciled in this state to the knowledge of the broker-
dealer, nor actually present in this state if the sale of such securities is not
in violation of any securities law of the foreign state, territory or country
concerned;
(8) to a broker-dealer licensed under the Code in a principal
transaction, or as an underwriter or member of an underwriting syndicate or
selling group;
<PAGE>
(9) if the interest sold or transferred is a pledge or other lien
given by the purchaser to the seller upon a sale of the security for which the
Commissioner's written consent is obtained or under this rule not required;
(10) by way of a sale qualified under Sections 25111, 25112,
25113, or 25121 of the Code, of the securities to be transferred, provided that
no order under Section 25140 or subdivision (a) of Section 25143 is in effect
with respect to such qualification;
(11) by a corporation to a wholly owned subsidiary of such
corporation, or by a wholly owned subsidiary of a corporation to such
corporation;
(12) by way of an exchange qualified under Section 25111, 25112 or
25113 of the Code, provided that no order under Section 25140 or subdivision (a)
of Section 25143 is in effect with respect to such qualification;
(13) between residents of foreign states, territories or countries
who are neither domiciled nor actually present in this state;
(14) to the State Controller pursuant to the Unclaimed Property
Law or to the administrator of the unclaimed property law of another state;
(15) by the State Controller pursuant to the Unclaimed Property
Law or by the administrator of the unclaimed property law of another state if,
in either such case, such person (i) discloses to potential purchasers at the
sale that transfer of the securities is restricted under this rule,
(ii) delivers to each purchaser a copy of this rule, and (iii) advises the
Commissioner of the name of each purchaser;
(16) by a trustee to a successor trustee when such transfer does
not involve a change in the beneficial ownership of the securities;
(17) by way of an offer and sale of outstanding securities in an
issuer transaction that is subject to the qualification requirement of Section
25110 of the Code but exempt from that qualification requirement by subdivision
(f) of Section 25102; provided that any such transfer is on the condition that
any certificate evidencing the security issued to such transferee shall contain
the legend required by this section.
(c) The certificates representing all such securities subject to such
a restriction on transfer, whether upon initial issuance or upon any transfer
thereof, shall bear on their face a legend prominently stamped or printed
thereon in capital letters of not less than 10-point size reading as follows:
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY OR ANY
INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR
WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA,
EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES."
15. Legends. The Company may at any time place legends referencing the
-------
Right of First Refusal set forth in paragraph 11 above, and any applicable
foreign, federal or state
<PAGE>
securities law restrictions on all certificates representing shares of stock
subject to the provisions of this Option Agreement. The Optionee shall, at the
request of the Company, promptly present to the Company any and all certificates
representing shares acquired pursuant to the Option in the possession of the
Optionee in order to effectuate the provisions of this paragraph 15. Unless
otherwise specified by the Company, legends placed on such certificates may
include, but shall not be limited to, the following:
(a) "THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN
ACCORDANCE WITH RULE 144 OR RULE 701 UNDER THE ACT, OR THE COMPANY RECEIVES AN
OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO
THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS
EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT."
(b) Any legend required to be placed thereon by the Commissioner of
Corporations of the State of California.
(c) "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A RIGHT
OF FIRST REFUSAL OPTION IN FAVOR OF THE CORPORATION OR ITS ASSIGNEE SET FORTH IN
AN AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED HOLDER, OR SUCH HOLDER'S
PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF
THIS CORPORATION."
16. Initial Public Offering. The Optionee hereby agrees that in the
-----------------------
event of an initial public offering of stock made by the Company pursuant to an
effective registration statement filed under the Securities Act, the Optionee
shall not offer, sell, contract to sell, pledge, hypothecate, grant any option
to purchase or make any short sale of, or otherwise dispose of any shares of
stock of the Company or any rights to acquire stock of the Company for such
period of time from and after the effective date of such registration statement
as may be established by the underwriter for such initial public offering;
provided, however, that such period of time shall not exceed one hundred eighty
(180) days from the effective date of the registration statement to be filed in
connection with such initial public offering. The foregoing limitation shall
not apply to shares registered in the initial public offering under the
Securities Act. The Optionee shall be subject to this paragraph provided and
only if the officers and directors of the Company are also subject to similar
arrangements.
17. Binding Effect. This Option Agreement shall inure to the benefit
--------------
of and be binding upon the parties hereto and their respective heirs, executors,
administrators, successors and assigns.
18. Termination or Amendment. The Board, including any duly appointed
------------------------
committee of the Board, may terminate or amend the Plan and/or the Option at any
time;
<PAGE>
provided, however, that no such termination or amendment may adversely affect
the Option or any unexercised portion hereof without the consent of the
Optionee.
19. Integrated Agreement. This Option Agreement constitutes the entire
--------------------
understanding and agreement of the Optionee and the Participating Company Group
with respect to the subject matter contained herein, and there are no
agreements, understandings, restrictions, representations, or warranties among
the Optionee and the Participating Company Group other than those as set forth
or provided for herein. To the extent contemplated herein, the provisions of
this Option Agreement shall survive any exercise of the Option and shall remain
in full force and effect.
20. Applicable Law. This Option Agreement shall be governed by the laws
--------------
of the State of California as such laws are applied to agreements between
California residents entered into and to be performed entirely within the State
of California.
ZEITNET INC.
By:
-------------------------------
Title:
----------------------------
The Optionee represents that the Optionee is familiar with the terms and
provisions of this Option Agreement, including the Right of First Refusal set
forth in paragraph 11, and hereby accepts the Option subject to all of the terms
and provisions thereof. The Optionee hereby agrees to accept as binding,
conclusive and final all decisions or interpretations of the Board upon any
questions arising under this Option Agreement.
The undersigned acknowledges receipt of a copy of the Plan and
Section 260.141.11 of the Rules of the Commissioner of Corporations of the State
of California regarding restriction on transfer (contained as paragraph 14
herein).
Date:
-------------------------------- -----------------------------------
<PAGE>
EXHIBIT C
---------
STANDARD FORM OF
----------------
INCENTIVE STOCK OPTION AGREEMENT
--------------------------------
FOR USE IN AN EXEMPT TRANSACTION
--------------------------------
UNDER SECTION 25102(F) OF THE CALIFORNIA CORPORATIONS CODE
----------------------------------------------------------
<PAGE>
THE SECURITY REPRESENTED BY THIS CERTIFICATE HAS BEEN ACQUIRED FOR INVESTMENT
AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF.
NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.
ZEITNET INC.
INCENTIVE STOCK OPTION AGREEMENT
For use in an Exempt Issuer Transaction
under Section 25102(f)
of the California Corporations Code
ZeitNet Inc. (the "Company") granted to the individual named below an
option to purchase certain shares of common stock of the Company, in the manner
and subject to the provisions of this Option Agreement.
1. Definitions:
-----------
(a) "Optionee" shall mean ___________________________________.
(b) "Date of Option Grant" shall mean ____________________________.
(c) "Number of Option Shares" shall mean ___________________ shares
of common stock of the Company as adjusted from time to time pursuant to
paragraph 9 below.
(d) "Exercise Price" shall mean $____________ per share as adjusted
from time to time pursuant to paragraph 9 below.
(e) "Initial Exercise Date" shall be the Initial Vesting Date.
(f) "Initial Vesting Date" shall be one year after ________________.
<PAGE>
(g) Determination of "Vested Ratio":
Vested Ratio
------------
Prior to Initial Vesting Date 0
On the Initial Vesting 1/4
Date, provided the Participant
is continuously employed by
the Company from the Date of Option
Grant until the Initial Vesting Date.
Plus
----
For each full six month period of 1/8
Participant's continuous employment
by a Participating Company after the
Initial Vesting Date.
In no event shall the Vested
Ratio exceed 1/1.
(h) "Option Term Date" shall mean the date ten (10) years after the
Date of Option Grant.
(i) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(j) "Company" shall mean ZeitNet Inc., a California corporation, and
any successor corporation thereto.
(k) "Participating Company" shall mean (i) the Company and (ii) any
present or future parent and/or subsidiary corporation of the Company while such
corporation is a parent or subsidiary of the Company. For purposes of this
Option Agreement, a parent corporation and a subsidiary corporation shall be as
defined in Sections 424(e) and 424(f) of the Code.
(l) "Participating Company Group" shall mean at any point in time all
corporations collectively which are then a Participating Company.
(m) "Plan" shall mean the ZeitNet Inc. 1994 Stock Option Plan.
2. Status of the Option. This Option is intended to be an incentive
--------------------
stock option as described in Section 422 of the Code, but the Company does not
represent or warrant that this Option qualifies as such. The Optionee should
consult with the Optionee's own tax advisors regarding the tax effects of this
Option and the requirements necessary to obtain favorable income tax treatment
under Section 422 of the Code, including, but not limited to, holding period
requirements. (NOTE: If the aggregate Exercise Price of the Option (that is,
the
<PAGE>
Exercise Price multiplied by the Number of Option Shares) plus the aggregate
exercise price of any other incentive stock options held by the Optionee
(whether granted pursuant to the Plan or any other stock option plan of the
Participating Company Group) is greater than $100,000, the Optionee should
contact the Chief Financial Officer of the Company to ascertain whether the
entire Option qualifies as an incentive stock option.)
3. Administration. All questions of interpretation concerning this
--------------
Option Agreement shall be determined by the Board of Directors of the Company
(the "Board") and/or by a duly appointed committee of the Board having such
powers as shall be specified by the Board. Any subsequent references herein to
the Board shall also mean the committee if such committee has been appointed
and, unless the powers of the committee have been specifically limited, the
committee shall have all of the powers of the Board granted in the Plan,
including, without limitation, the power to terminate or amend the Plan at any
time, subject to the terms of the Plan and any applicable limitations imposed by
law. All determinations by the Board shall be final and binding upon all
persons having an interest in the Option. Any officer of a Participating
Company shall have the authority to act on behalf of the Company with respect to
any matter, right, obligation, or election which is the responsibility of or
which is allocated to the Company herein, provided the officer has apparent
authority with respect to such matter, right, obligation, or election.
4. Exercise of the Option.
----------------------
(a) Right to Exercise. Except as provided in paragraph 4(f) below,
-----------------
the Option shall first become exercisable on the Initial Exercise Date. The
Option shall be exercisable on and after the Initial Exercise Date and prior to
the termination of the Option in the amount equal to the Number of Option Shares
multiplied by the Vested Ratio as set forth in paragraph 1 above less the number
of shares previously acquired upon exercise of the Option, subject to the
Optionee's agreement that any shares purchased upon exercise are subject to the
Company's repurchase rights set forth in paragraph 11 below. In no event shall
the Option be exercisable for more shares than the Number of Option Shares. In
addition to the foregoing, in the event that the adoption of the Plan or any
amendment of the Plan is subject to the approval of the Company's shareholders
in order for the Plan to comply with the requirements of Rule 16b-3, promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the
Option shall not be exercisable prior to such shareholder approval if the
Optionee is subject to Section 16(b) of the Exchange Act, unless the Board, in
its sole discretion, approves the exercise of the Option prior to such
shareholder approval.
(b) Method of Exercise. The Option may be exercised by written notice
------------------
to the Company which must state the election to exercise the Option, the number
of shares for which the Option is being exercised and such other representations
and agreements as to the Optionee's investment intent with respect to such
shares and other administrative matters as may be required pursuant to the
provisions of this Option Agreement and the exercise form used by the Company.
The written notice must be signed by the Optionee and must be delivered in
person or by certified or registered mail, return receipt requested, or by
facsimile transmission to the Chief Financial Officer of the Company, or other
authorized representative of the Participating Company Group, prior to the
termination of the Option as set forth in paragraph 6 below, accompanied by
(i) full payment of the exercise price for the number of
<PAGE>
shares being purchased and (ii) an executed copy, if required herein, of the
then current form of escrow agreement referenced below.
(c) Payment of Exercise Price. Payment of the exercise price for the
-------------------------
number of shares for which the Option is being exercised shall be made (i) in
cash, by check, or cash equivalent, (ii) by tender to the Company of shares of
the Company's common stock owned by the Optionee having a value not less than
the exercise price, which either have been owned by the Optionee for more than
six (6) months or were not acquired, directly or indirectly, from the Company,
(iii) by Immediate Sale Proceeds, as defined below, or (iv) by any combination
of the foregoing. Notwithstanding the foregoing, the Option may not be
exercised by tender to the Company of shares of the Company's common stock to
the extent such tender of stock would constitute a violation of the provisions
of any law, regulation and/or agreement restricting the redemption of the
Company's common stock. "Immediate Sale Proceeds" shall mean the assignment in
form acceptable to the Company of the proceeds of a sale of some or all of the
shares acquired upon the exercise of the Option pursuant to a program and/or
procedure approved by the Company (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). The Company
reserves, at any and all times, the right, in the Company's sole and absolute
discretion, to decline to approve any such program and/or procedure.
(d) Tax Withholding. At the time the Option is exercised, in whole or
---------------
in part, or at any time thereafter as requested by the Company, the Optionee
hereby authorizes payroll withholding and otherwise agrees to make adequate
provision for foreign, federal and state tax withholding obligations of the
Company, if any, which arise in connection with the Option, including, without
limitation, obligations arising upon (i) the exercise, in whole or in part, of
the Option, (ii) the transfer, in whole or in part, of any shares acquired on
exercise of the Option, (iii) the operation of any law or regulation providing
for the imputation of interest, or (iv) the lapsing of any restriction with
respect to any shares acquired on exercise of the Option. The Optionee is
cautioned that the Option is not exercisable unless the Company's withholding
obligations are satisfied. Accordingly, the Optionee may not be able to
exercise the Option when desired even though the Option is vested and the
Company shall have no obligation to issue a certificate for such shares.
(e) Certificate Registration. Except in the event the exercise price
------------------------
is paid by Immediate Sale Proceeds, the certificate or certificates for the
shares as to which the Option shall be exercised shall be registered in the name
of the Optionee, or, if applicable, the heirs of the Optionee.
(f) Restrictions on Grant of the Option and Issuance of Shares. The
----------------------------------------------------------
grant of the Option and the issuance of the shares upon exercise of the Option
shall be subject to compliance with all applicable requirements of federal,
state or foreign law with respect to such securities. The Option may not be
exercised if the issuance of shares upon such exercise would constitute a
violation of any applicable federal, state or foreign securities laws or other
law or regulations. In addition, no Option may be exercised unless (i) a
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), shall at the time of exercise of the Option be in effect with
respect to the shares issuable upon exercise of the
<PAGE>
Option or (ii) in the opinion of legal counsel to the Company, the shares
issuable upon exercise of the Option may be issued in accordance with the terms
of an applicable exemption from the registration requirements of the Securities
Act. THE OPTIONEE IS CAUTIONED THAT THE OPTION MAY NOT BE EXERCISABLE UNLESS
THE FOREGOING CONDITIONS ARE SATISFIED. ACCORDINGLY, THE OPTIONEE MAY NOT BE
ABLE TO EXERCISE THE OPTION WHEN DESIRED EVEN THOUGH THE OPTION IS VESTED.
Questions concerning this restriction should be directed to the Chief Financial
Officer of the Company. As a condition to the exercise of the Option, the
Company may require the Optionee to satisfy any qualifications that may be
necessary or appropriate, to evidence compliance with any applicable law or
regulation and to make any representation or warranty with respect thereto as
may be requested by the Company.
(g) Fractional Shares. The Company shall not be required to issue
-----------------
fractional shares upon the exercise of the Option.
5. Non-Transferability of the Option. The Option may be exercised during
---------------------------------
the lifetime of the Optionee only by the Optionee and may not be assigned or
transferred in any manner except by will or by the laws of descent and
distribution. Following the death of the Optionee, the Option, to the extent
unexercised and exercisable by the Optionee on the date of death, may be
exercised by the Optionee's legal representative or by any person empowered to
do so under the deceased Optionee's will or under the then applicable laws of
descent and distribution.
6. Termination of the Option. The Option shall terminate and may no
-------------------------
longer be exercised on the first to occur of (a) the Option Term Date as defined
above, (b) the last date for exercising the Option following termination of
employment as described in paragraph 7 below, or (c) upon a Transfer of Control
to the extent provided in paragraph 8 below.
7. Termination of Employment.
-------------------------
(a) Termination of the Option. If the Optionee ceases to be an
-------------------------
employee of the Participating Company Group for any reason, except death or
disability within the meaning of Section 422(c) of the Code, the Option, to the
extent unexercised and exercisable by the Optionee on the date on which the
Optionee ceased to be an employee, may be exercised by the Optionee within three
(3) months after the date on which the Optionee's employment terminated, but in
any event no later than the Option Term Date. If the Optionee's employment with
the Company is terminated because of the death or disability of the Optionee
within the meaning of Section 422(c) of the Code, the Option, to the extent
unexercised and exercisable by the Optionee on the date on which the Optionee
ceased to be an employee, may be exercised by the Optionee (or the Optionee's
legal representative) at any time prior to the expiration of twelve (12) months
from the date on which the Optionee's employment terminated, but in any event no
later than the Option Term Date. The Optionee's employment shall be deemed to
have terminated on account of death if the Optionee dies within three (3) months
after the Optionee's termination of employment.
(b) Employee and Termination of Employment Defined. For purposes of
----------------------------------------------
this paragraph 7, the term "employee" shall mean any person, including officers
and directors,
<PAGE>
employed by a Participating Company; provided, however, that the term "employee"
shall not include a person performing services for a Participating Company
solely as a director, consultant, advisor or other independent contractor. For
purposes of this paragraph 7, the Optionee's employment shall be deemed to have
terminated either upon an actual termination of employment or upon the
Optionee's employer ceasing to be a Participating Company.
(c) Extension if Exercise Prevented by Law. Notwithstanding the
--------------------------------------
foregoing, if the exercise of the Option within the applicable time periods set
forth above is prevented by the provisions of paragraph 4(f) above, the Option
shall remain exercisable until three (3) months after the date the Optionee is
notified by the Company that the Option is exercisable, but in any event no
later than the Option Term Date. The Company makes no representation as to the
tax consequences of any such delayed exercise. The Optionee should consult with
the Optionee's own tax advisors as to the tax consequences to the Optionee of
any such delayed exercise.
(d) Extension if Optionee Subject to Section 16(b). Notwithstanding
----------------------------------------------
the foregoing, if the exercise of the Option within the applicable time periods
set forth above would subject the Optionee to suit under Section 16(b) of the
Exchange Act, the Option shall remain exercisable until the earliest to occur of
(i) the tenth (10th) day following the date on which the Optionee would no
longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day
after the Optionee's termination of employment, or (iii) the Option Term Date.
The Company makes no representation as to the tax consequences of any such
delayed exercise. The Optionee should consult with the Optionee's own tax
advisors as to the tax consequences to the Optionee of any such delayed
exercise.
(e) Leave of Absence. For purposes hereof, the Optionee's employment
----------------
with the Participating Company Group shall not be deemed to terminate if the
Optionee takes any military leave, sick leave, or other bona fide leave of
absence approved by the Company of ninety (90) days or less. In the event of a
leave in excess of ninety (90) days, the Optionee's employment shall be deemed
to terminate on the ninety-first (91st) day of the leave unless the Optionee's
right to reemployment with the Participating Company Group remains guaranteed by
statute or contract. Notwithstanding the foregoing, however, a leave of absence
shall be treated as employment for purposes of determining the Optionee's Vested
Ratio if and only if the leave of absence is designated by the Company as (or
required by law to be) a leave for which vesting credit is given.
8. Ownership Change and Transfer of Control. An "Ownership Change" shall
----------------------------------------
be deemed to have occurred in the event any of the following occurs with respect
to the Company:
(a) the direct or indirect sale or exchange by the shareholders of the
Company of all or substantially all of the stock of the Company;
(b) a merger or consolidation in which the Company is a party;
<PAGE>
(c) the sale, exchange, or transfer of all or substantially all of the
assets of the Company (other than a sale, exchange, or transfer to one or more
subsidiary corporations of the Company); or
(d) a liquidation or dissolution of the Company.
A "Transfer of Control" shall mean an Ownership Change described in
(a) or (b) above in which the shareholders of the Company before such Ownership
Change do not retain, directly or indirectly, at least a majority of the
beneficial interest in the voting stock of the Company after such transaction or
any Ownership Change described in (c) or (d) above.
In the event of a Transfer of Control, the Board, in its sole
discretion, may arrange with the surviving, continuing, successor, or purchasing
corporation or parent corporation thereof, as the case may be (the "Acquiring
Corporation"), for the Acquiring Corporation to either assume the Company's
rights and obligations under this Option Agreement or substitute an option for
the Acquiring Corporation's stock for the Option. The Option shall terminate and
cease to be outstanding effective as of the date of the Transfer of Control to
the extent that the Option is neither assumed or substituted for by the
Acquiring Corporation in connection with the Transfer of Control nor exercised
as of the date of the Transfer of Control.
9. Effect of Change in Stock Subject to the Option. Appropriate
-----------------------------------------------
adjustments shall be made in the number, exercise price and class of shares of
stock subject to the Option in the event of a stock dividend, stock split,
reverse stock split, recapitalization, combination, reclassification, or like
change in the capital structure of the Company. In the event a majority of the
shares which are of the same class as the shares that are subject to the Option
are exchanged for, converted into, or otherwise become (whether or not pursuant
to an Ownership Change) shares of another corporation (the "New Shares"), the
Company may unilaterally amend the Option to provide that the Option is
exercisable for New Shares. In the event of any such amendment, the number of
shares and the exercise price shall be adjusted in a fair and equitable manner.
10. Rights as a Shareholder or Employee. The Optionee shall have no rights
-----------------------------------
as a shareholder with respect to any shares covered by the Option until the date
of the issuance of a certificate or certificates for the shares for which the
Option has been exercised. No adjustment shall be made for dividends or
distributions or other rights for which the record date is prior to the date
such certificate or certificates are issued, except as provided in paragraph 9
above. Nothing in the Option shall confer upon the Optionee any right to
continue in the employ of a Participating Company or interfere in any way with
any right of the Participating Company Group to terminate the Optionee's
employment at any time.
11. Right of First Refusal.
----------------------
(a) Right of First Refusal. In the event the Optionee proposes to
----------------------
sell, pledge, or otherwise transfer any shares acquired upon the exercise of the
Option (the "Transfer Shares") to any person or entity, including, without
limitation, any shareholder of the Participating Company Group, the Company
shall have the right to repurchase the Transfer
<PAGE>
Shares under the terms and subject to the conditions set forth in this
paragraph 11 (the "Right of First Refusal").
(b) Notice of Proposed Transfer. Prior to any proposed transfer of
---------------------------
the Transfer Shares, the Optionee shall give a written notice (the "Transfer
Notice") to the Company describing fully the proposed transfer, including the
number of Transfer Shares, the name and address of the proposed transferee (the
"Proposed Transferee") and, if the transfer is voluntary, the proposed transfer
price and containing such information necessary to show the bona fide nature of
the proposed transfer. In the event of a bona fide gift or involuntary
transfer, the proposed transfer price shall be deemed to be the fair market
value of the Transfer Shares as determined by the Company in good faith. In the
event the Optionee proposes to transfer any shares acquired upon the exercise of
the Option to more than one (1) Proposed Transferee, the Optionee shall provide
a separate Transfer Notice for the proposed transfer to each Proposed
Transferee. The Transfer Notice shall be signed by both the Optionee and the
Proposed Transferee and must constitute a binding commitment of the Optionee and
the Proposed Transferee for the transfer of the Transfer Shares to the Proposed
Transferee subject only to the Right of First Refusal.
(c) Bona Fide Transfer. In the event that the Company shall determine
------------------
that the information provided by the Optionee in the Transfer Notice is
insufficient to establish the bona fide nature of a proposed voluntary transfer,
the Company shall give the Optionee written notice of the Optionee's failure to
comply with the procedure described in this paragraph 11 and the Optionee shall
have no right to transfer the Transfer Shares without first complying with the
procedure described in this paragraph 11. The Optionee shall not be permitted
to transfer the Transfer Shares if the proposed transfer is not bona fide.
(d) Exercise of the Right of First Refusal. In the event the proposed
--------------------------------------
transfer is deemed to be bona fide, the Company shall have the right to purchase
all, but not less than all, of the Transfer Shares (except as the Company and
the Optionee otherwise agree) at the purchase price and on the terms set forth
in the Transfer Notice by delivery to the Optionee of a notice of exercise of
the Right of First Refusal within thirty (30) days after the date the Transfer
Notice is delivered to the Company. The Company's exercise or failure to
exercise the Right of First Refusal with respect to any proposed transfer
described in a Transfer Notice shall not affect the Company's ability to
exercise the Right of First Refusal with respect to any proposed transfer
described in any other Transfer Notice, whether or not such other Transfer
Notice is issued by the Optionee or issued by a person other than the Optionee
with respect to a proposed transfer to the same Proposed Transferee. If the
Company exercises the Right of First Refusal, the Company and the Optionee shall
thereupon consummate the sale of the Transfer Shares to the Company on the terms
set forth in the Transfer Notice within sixty (60) days after the date of the
Transfer Notice is delivered to the Company (unless a longer period is offered
by the Proposed Transferee); provided, however, that in the event the Transfer
Notice provides for the payment for the Transfer Shares other than in cash, the
Company shall have the option of paying for the Transfer Shares by the
discounted cash equivalent of the consideration described in the Transfer Notice
as reasonably determined by the Company. For purposes of the foregoing,
cancellation of any indebtedness of the Optionee to any Participating Company
shall be treated as payment to the Optionee in cash to the extent of the unpaid
principal and any accrued interest canceled.
<PAGE>
(e) Failure to Exercise the Right of First Refusal. If the Company
----------------------------------------------
fails to exercise the Right of First Refusal in full within the period specified
in paragraph 11(d) above, the Optionee may conclude a transfer to the Proposed
Transferee of the Transfer Shares on the terms and conditions described in the
Transfer Notice, provided such transfer occurs not later than one hundred twenty
(120) days following delivery to the Company of the Transfer Notice. The Company
shall have the right to demand further assurances from the Optionee and the
Proposed Transferee (in a form satisfactory to the Company) that the transfer of
the Transfer Shares was actually carried out on the terms and conditions
described in the Transfer Notice. No Transfer Shares shall be transferred on the
books of the Company until the Company has received such assurances, if so
demanded, and has approved the proposed transfer as bona fide. Any proposed
transfer on terms and conditions different from those described in the Transfer
Notice, as well as any subsequent proposed transfer by the Optionee, shall again
be subject to the Right of First Refusal and shall require compliance by the
Optionee with the procedure described in this paragraph 11.
(f) Transferees of the Transfer Shares. All transferees of the
----------------------------------
Transfer Shares or any interest therein, other than the Company, shall be
required as a condition of such transfer to agree in writing (in a form
satisfactory to the Company) that such transferee shall receive and hold such
Transfer Shares or interests subject to the provisions of this paragraph 11
providing for the Right of First Refusal with respect to any subsequent
transfer. Any sale or transfer of any shares acquired upon exercise of the
Option shall be void unless the provisions of this paragraph 11 are met.
(g) Transfers Not Subject to the Right of First Refusal. The Right of
---------------------------------------------------
First Refusal shall not apply to any transfer or exchange of the shares acquired
pursuant to the exercise of the Option if such transfer or exchange is in
connection with an Ownership Change. If the consideration received pursuant to
such transfer or exchange consists of stock of a Participating Company, such
consideration shall remain subject to the Right of First Refusal unless the
provisions of paragraph 11(i) below result in a termination of the Right of
First Refusal.
(h) Assignment of the Right of First Refusal. The Company shall have
----------------------------------------
the right to assign the Right of First Refusal at any time, whether or not the
Optionee has attempted a transfer, to one (1) or more persons as may be selected
by the Company.
(i) Early Termination of the Right of First Refusal. The other
-----------------------------------------------
provisions of this paragraph 11 notwithstanding, the Right of First Refusal
shall terminate, and be of no further force and effect, upon (i) the occurrence
of a Transfer of Control, unless the surviving, continuing, successor, or
purchasing corporation, as the case may be, assumes the Company's rights and
obligations under the Plan, or (ii) the existence of a public market for the
class of shares subject to the Right of First Refusal. A "public market" shall
be deemed to exist if (x) such stock is listed on a national securities exchange
(as that term is used in the Exchange Act) or (y) such stock is traded on the
over-the-counter market and prices therefor are published daily on business days
in a recognized financial journal.
12. Escrow.
------
<PAGE>
(a) Establishment of Escrow. To ensure that shares subject to the
-----------------------
Right of First Refusal will be available for repurchase, the Company may require
the Optionee to deposit the certificate or certificates evidencing the shares
which the Optionee purchases upon exercise of the Option with an agent
designated by the Company under the terms and conditions of an escrow agreement
approved by the Company. If the Company does not require such deposit as a
condition of exercise of the Option, the Company reserves the right at any time
to require the Optionee to so deposit the certificate or certificates in escrow.
The Company shall bear the expenses of the escrow.
(b) Delivery of Shares to Optionee. As soon as practicable after the
------------------------------
expiration of the Right of First Refusal, but not more frequently than twice
each calendar year, the agent shall deliver to the Optionee the shares no longer
subject to such restriction.
(c) Notices and Payments. In the event the shares held in escrow are
--------------------
subject to the Company's exercise of the Right of First Refusal, the notices
required to be given to the Optionee shall be given to the escrow agent and any
payment required to be given to the Optionee shall be given to the escrow agent.
Within thirty (30) days after payment by the Company, the escrow agent shall
deliver the shares which the Company has purchased to the Company and shall
deliver the payment received from the Company to the Optionee.
13. Stock Dividends Subject to Option Agreement. If, from time to time,
-------------------------------------------
there is any stock dividend, stock split, or other change in the character or
amount of any of the outstanding stock of the corporation the stock of which is
subject to the provisions of this Option Agreement, then in such event any and
all new, substituted or additional securities to which the Optionee is entitled
by reason of the Optionee's ownership of the shares acquired upon exercise of
the Option shall be immediately subject to the Right of First Refusal with the
same force and effect as the shares subject to the Right of First Refusal
immediately before such event.
14. Notice of Sales Upon Disqualifying Disposition. The Optionee shall
----------------------------------------------
dispose of the shares acquired pursuant to the Option only in accordance with
the provisions of this Option Agreement. In addition, the Optionee shall
promptly notify the Chief Financial Officer of the Company if the Optionee
disposes of any of the shares acquired pursuant to the Option within one (1)
year from the date the Optionee exercises all or part of the Option or within
two (2) years of the date of grant of the Option. Until such time as the
Optionee disposes of such shares in a manner consistent with the provisions of
this Option Agreement, the Optionee shall hold all shares acquired pursuant to
the Option in the Optionee's name (and not in the name of any nominee) for the
one-year period immediately after exercise of the Option and the two-year period
immediately after grant of the Option. At any time during the one-year or two-
year periods set forth above, the Company may place a legend or legends on any
certificate or certificates representing shares acquired pursuant to the Option
requesting the transfer agent for the Company's stock to notify the Company of
any such transfers. The obligation of the Optionee to notify the Company of any
such transfer shall continue notwithstanding that a legend has been placed on
the certificate or certificates pursuant to the preceding sentence.
<PAGE>
15. Representations and Warranties. In connection with the receipt of the
------------------------------
Option, the Optionee hereby agrees, represents and warrants as follows:
(a) The Optionee is acquiring the Option and any shares of Stock
acquired upon exercise of the Option for the Optionee's own account, and not on
behalf of any other person or as a nominee, for investment and not with a view
to, or sale in connection with, any distribution of the Option or such shares.
(b) The Optionee has either (a) a preexisting personal or business
relationship with the Company or any of its officers, directors, or controlling
persons, consisting of personal or business contacts of a nature and duration to
enable the Optionee to be aware of the character, business acumen and general
business and financial circumstances of the person with whom such relationship
exists, or (b) such knowledge and experience in financial and business matters
(or has relied on the financial and business knowledge and experience of the
Optionee's professional advisor who is unaffiliated with and who is not,
directly or indirectly, compensated by the Company or any affiliate or selling
agent of the Company) as to make the Optionee capable of evaluating the merits
and risks of the Option and any investment in shares acquired pursuant to the
Option and to protect the Optionee's own interests in the transaction, or
(c) both such relationship and such knowledge and experience.
(c) The Optionee understands that Option and any shares acquired upon
exercise of the Option have not been qualified under the Corporate Securities
Law of 1968, as amended, of the State of California by reason of a specific
exemption therefrom, which exemption depends upon, among other things, the bona
fide nature of the Optionee's representations as expressed herein. The Optionee
understands that the Company is relying on the Optionee's representations and
warrants that the Company is entitled to rely on such representations and that
such reliance is reasonable.
16. Legends. The Company may at any time place legends referencing the
-------
Right of First Refusal set forth in paragraph 11 above, and any applicable
foreign, federal or state securities law restrictions on all certificates
representing shares of stock subject to the provisions of this Option Agreement.
The Optionee shall, at the request of the Company, promptly present to the
Company any and all certificates representing shares acquired pursuant to the
Option in the possession of the Optionee in order to effectuate the provisions
of this paragraph 16. Unless otherwise specified by the Company, legends placed
on such certificates may include, but shall not be limited to, the following:
(a) "THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN
ACCORDANCE WITH RULE 144 OR RULE 701 UNDER THE ACT, OR THE COMPANY RECEIVES AN
OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO
THE COMPANY, STATING THAT SUCH SALE, TRANSFER,
<PAGE>
ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS
DELIVERY REQUIREMENTS OF SUCH ACT."
(b) Any legend required to be placed thereon by the Commissioner of
Corporations of the State of California.
(c) "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A RIGHT
OF FIRST REFUSAL OPTION IN FAVOR OF THE CORPORATION OR ITS ASSIGNEE SET FORTH IN
AN AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED HOLDER, OR SUCH HOLDER'S
PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF
THIS CORPORATION."
(d) "THE SHARES EVIDENCED BY THIS CERTIFICATE WERE ISSUED BY THE
CORPORATION TO THE REGISTERED HOLDER UPON EXERCISE OF AN INCENTIVE STOCK OPTION
AS DEFINED IN SECTION 422 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED
("ISO"). IN ORDER TO OBTAIN THE PREFERENTIAL TAX TREATMENT AFFORDED TO ISOs,
THE SHARES SHOULD NOT BE TRANSFERRED PRIOR TO ______________. SHOULD THE
REGISTERED HOLDER ELECT TO TRANSFER ANY OF THE SHARES PRIOR TO THIS DATE AND
FOREGO ISO TAX TREATMENT, THE TRANSFER AGENT FOR THE SHARES SHALL NOTIFY THE
CORPORATION IMMEDIATELY. THE REGISTERED HOLDER SHALL HOLD ALL SHARES PURCHASED
UNDER THE INCENTIVE STOCK OPTION IN THE REGISTERED HOLDER'S NAME (AND NOT IN THE
NAME OF ANY NOMINEE) PRIOR TO THIS DATE OR UNTIL TRANSFERRED AS DESCRIBED
ABOVE."
17. Initial Public Offering. The Optionee hereby agrees that in the
-----------------------
event of an initial public offering of stock made by the Company pursuant to an
effective registration statement filed under the Securities Act, the Optionee
shall not offer, sell, contract to sell, pledge, hypothecate, grant any option
to purchase or make any short sale of, or otherwise dispose of any shares of
stock of the Company or any rights to acquire stock of the Company for such
period of time from and after the effective date of such registration statement
as may be established by the underwriter for such initial public offering;
provided, however, that such period of time shall not exceed one hundred eighty
(180) days from the effective date of the registration statement to be filed in
connection with such initial public offering. The foregoing limitation shall
not apply to shares registered in the initial public offering under the
Securities Act. The Optionee shall be subject to this paragraph provided and
only if the officers and directors of the Company are also subject to similar
arrangements.
18. Binding Effect. This Option Agreement shall inure to the benefit
--------------
of and be binding upon the parties hereto and their respective heirs, executors,
administrators, successors and assigns.
19. Termination or Amendment. The Board, including any duly
------------------------
appointed committee of the Board, may terminate or amend the Plan and/or the
Option at any time; provided, however, that no such termination or amendment may
adversely affect the Option or
<PAGE>
any unexercised portion hereof without the consent of the Optionee unless such
amendment is required to enable the Option to qualify as an Incentive Stock
Option.
20. Integrated Agreement. This Option Agreement constitutes the entire
--------------------
understanding and agreement of the Optionee and the Participating Company Group
with respect to the subject matter contained herein, and there are no
agreements, understandings, restrictions, representations, or warranties among
the Optionee and the Company other than those as set forth or provided for
herein. To the extent contemplated herein, the provisions of this Option
Agreement shall survive any exercise of the Option and shall remain in full
force and effect.
21. Applicable Law. This Option Agreement shall be governed by the laws
--------------
of the State of California as such laws are applied to agreements between
California residents entered into and to be performed entirely within the State
of California.
ZEITNET INC.
By:
--------------------------------
Title:
-----------------------------
The Optionee represents that the Optionee is familiar with the terms and
provisions of this Option Agreement, including the Right of First Refusal set
forth in paragraph 11, and hereby accepts the Option subject to all of the terms
and provisions thereof. The Optionee hereby agrees to accept as binding,
conclusive and final all decisions or interpretations of the Board upon any
questions arising under this Option Agreement. The Optionee acknowledges receipt
of a copy of the Plan.
Date:
-------------------------------- -----------------------------------
<PAGE>
EXHIBIT D
---------
STANDARD FORM OF
----------------
NONQUALIFIED STOCK OPTION AGREEMENT
-----------------------------------
FOR USE IN AN EXEMPT TRANSACTION
--------------------------------
UNDER SECTION 25102(F) OF THE CALIFORNIA CORPORATIONS CODE
----------------------------------------------------------
<PAGE>
THE SECURITY REPRESENTED BY THIS CERTIFICATE HAS BEEN ACQUIRED FOR INVESTMENT
AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF.
NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.
ZEITNET INC.
NONQUALIFIED STOCK OPTION AGREEMENT
For use in an Exempt Issuer Transaction
under Section 25102(f)
of the California Corporations Code
ZeitNet Inc. (the "Company") granted to the individual named below an
option to purchase certain shares of common stock of the Company, in the manner
and subject to the provisions of this Option Agreement.
1. Definitions:
-----------
(a) "Optionee" shall mean ___________________________________.
(b) "Date of Option Grant" shall mean ____________________________.
(c) "Number of Option Shares" shall mean ___________________ shares
of common stock of the Company as adjusted from time to time pursuant to
paragraph 9 below.
(d) "Exercise Price" shall mean $____________ per share as adjusted
from time to time pursuant to paragraph 9 below.
(e) "Initial Exercise Date" shall be the Initial Vesting Date.
(f) "Initial Vesting Date" shall be one year after _________________.
<PAGE>
(g) Determination of "Vested Ratio":
<TABLE>
<CAPTION>
Vested Ratio
<S> <C>
Prior to Initial Vesting Date 0
On the Initial Vesting 1/4
Date, provided the Participant
is continuously employed by the
Company from the Date of Option
Grant until the Initial Vesting Date.
Plus
----
For each full six month period of 1/8
Participant's continuous employment
by a Participating Company after the
Initial Vesting Date.
</TABLE>
In no event shall the Vested
Ratio exceed 1/1.
(h) "Option Term Date" shall mean the date ten (10) years after the
Date of Option Grant.
(i) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(j) "Company" shall mean ZeitNet Inc., a California corporation, and
any successor corporation thereto.
(k) "Participating Company" shall mean (i) the Company and (ii) any
present or future parent and/or subsidiary corporation of the Company while such
corporation is a parent or subsidiary of the Company. For purposes of this
Option Agreement, a parent corporation and a subsidiary corporation shall be as
defined in Sections 424(e) and 424(f) of the Code.
(l) "Participating Company Group" shall mean at any point in time all
corporations collectively which are then a Participating Company.
(m) "Plan" shall mean the ZeitNet Inc. 1994 Stock Option Plan.
2. Status of the Option. This Option is intended to be a nonqualified
--------------------
stock option and shall not be treated as an incentive stock option within the
meaning of Section 422 of the Code.
<PAGE>
3. Administration. All questions of interpretation concerning this
--------------
Option Agreement shall be determined by the Board of Directors of the Company
(the "Board") and/or by a duly appointed committee of the Board having such
powers as shall be specified by the Board. Any subsequent references herein to
the Board shall also mean the committee if such committee has been appointed
and, unless the powers of the committee have been specifically limited, the
committee shall have all of the powers of the Board granted in the Plan,
including, without limitation, the power to terminate or amend the Plan at any
time, subject to the terms of the Plan and any applicable limitations imposed by
law. All determinations by the Board shall be final and binding upon all
persons having an interest in the Option. Any officer of a Participating
Company shall have the authority to act on behalf of the Company with respect to
any matter, right, obligation, or election which is the responsibility of or
which is allocated to the Company herein, provided the officer has apparent
authority with respect to such matter, right, obligation, or election.
4. Exercise of the Option.
----------------------
(a) Right to Exercise. Except as provided in paragraph 4(f) below,
-----------------
the Option shall first become exercisable on the Initial Exercise Date. The
Option shall be exercisable on and after the Initial Exercise Date and prior to
the termination of the Option in the amount equal to the Number of Option Shares
multiplied by the Vested Ratio as set forth in paragraph 1 above less the number
of shares previously acquired upon exercise of the Option, subject to the
Optionee's agreement that any shares purchased upon exercise are subject to the
Company's repurchase rights set forth in paragraph 11 below. In no event shall
the Option be exercisable for more shares than the Number of Option Shares. In
addition to the foregoing, in the event that the adoption of the Plan or any
amendment of the Plan is subject to the approval of the Company's shareholders
in order for the Plan to comply with the requirements of Rule 16b-3, promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the
Option shall not be exercisable prior to such shareholder approval if the
Optionee is subject to Section 16(b) of the Exchange Act, unless the Board, in
its sole discretion, approves the exercise of the Option prior to such
shareholder approval.
(b) Method of Exercise. The Option may be exercised by written notice
------------------
to the Company which must state the election to exercise the Option, the number
of shares for which the Option is being exercised and such other representations
and agreements as to the Optionee's investment intent with respect to such
shares and other administrative matters as may be required pursuant to the
provisions of this Option Agreement and the exercise form used by the Company.
The written notice must be signed by the Optionee and must be delivered in
person or by certified or registered mail, return receipt requested, or by
facsimile transmission to the Chief Financial Officer of the Company, or other
authorized representative of the Participating Company Group, prior to the
termination of the Option as set forth in paragraph 6 below, accompanied by
(i) full payment of the exercise price for the number of shares being purchased
and (ii) an executed copy, if required herein, of the then current form of
escrow agreement referenced below.
(c) Payment of Exercise Price. Payment of the exercise price for the
-------------------------
number of shares for which the Option is being exercised shall be made (i) in
cash, by check, or cash equivalent, (ii) by tender to the Company of shares of
the Company's common stock
<PAGE>
owned by the Optionee having a value not less than the exercise price, which
either have been owned by the Optionee for more than six (6) months or were not
acquired, directly or indirectly, from the Company, (iii) by Immediate Sale
Proceeds, as defined below, or (iv) by any combination of the foregoing.
Notwithstanding the foregoing, the Option may not be exercised by tender to the
Company of shares of the Company's common stock to the extent such tender of
stock would constitute a violation of the provisions of any law, regulation
and/or agreement restricting the redemption of the Company's common stock.
"Immediate Sale Proceeds" shall mean the assignment in form acceptable to the
Company of the proceeds of a sale of some or all of the shares acquired upon the
exercise of the Option pursuant to a program and/or procedure approved by the
Company (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). The Company reserves, at any and all
times, the right, in the Company's sole and absolute discretion, to decline to
approve any such program and/or procedure.
(d) Tax Withholding. At the time the Option is exercised, in whole or
---------------
in part, or at any time thereafter as requested by the Company, the Optionee
hereby authorizes payroll withholding and otherwise agrees to make adequate
provision for foreign, federal and state tax withholding obligations of the
Company, if any, which arise in connection with the Option, including, without
limitation, obligations arising upon (i) the exercise, in whole or in part, of
the Option, (ii) the transfer, in whole or in part, of any shares acquired on
exercise of the Option, (iii) the operation of any law or regulation providing
for the imputation of interest, or (iv) the lapsing of any restriction with
respect to any shares acquired on exercise of the Option. The Optionee is
cautioned that the Option is not exercisable unless the Company's withholding
obligations are satisfied. Accordingly, the Optionee may not be able to
exercise the Option when desired even though the Option is vested and the
Company shall have no obligation to issue a certificate for such shares.
(e) Certificate Registration. Except in the event the exercise price
------------------------
is paid by Immediate Sale Proceeds, the certificate or certificates for the
shares as to which the Option shall be exercised shall be registered in the name
of the Optionee, or, if applicable, the heirs of the Optionee.
(f) Restrictions on Grant of the Option and Issuance of Shares. The
----------------------------------------------------------
grant of the Option and the issuance of the shares upon exercise of the Option
shall be subject to compliance with all applicable requirements of federal,
state or foreign law with respect to such securities. The Option may not be
exercised if the issuance of shares upon such exercise would constitute a
violation of any applicable federal, state or foreign securities laws or other
law or regulations. In addition, no Option may be exercised unless (i) a
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), shall at the time of exercise of the Option be in effect with
respect to the shares issuable upon exercise of the Option or (ii) in the
opinion of legal counsel to the Company, the shares issuable upon exercise of
the Option may be issued in accordance with the terms of an applicable exemption
from the registration requirements of the Securities Act. THE OPTIONEE IS
CAUTIONED THAT THE OPTION MAY NOT BE EXERCISABLE UNLESS THE FOREGOING
CONDITIONS ARE SATISFIED. ACCORDINGLY, THE OPTIONEE MAY NOT BE ABLE TO
EXERCISE THE OPTION WHEN DESIRED EVEN THOUGH THE OPTION IS
<PAGE>
VESTED. Questions concerning this restriction should be directed to the Chief
Financial Officer of the Company. As a condition to the exercise of the Option,
the Company may require the Optionee to satisfy any qualifications that may be
necessary or appropriate, to evidence compliance with any applicable law or
regulation and to make any representation or warranty with respect thereto as
may be requested by the Company.
(g) Fractional Shares. The Company shall not be required to issue
-----------------
fractional shares upon the exercise of the Option.
5. Non-Transferability of the Option. The Option may be exercised
---------------------------------
during the lifetime of the Optionee only by the Optionee and may not be assigned
or transferred in any manner except by will or by the laws of descent and
distribution. Following the death of the Optionee, the Option, to the extent
unexercised and exercisable by the Optionee on the date of death, may be
exercised by the Optionee's legal representative or by any person empowered to
do so under the deceased Optionee's will or under the then applicable laws of
descent and distribution.
6. Termination of the Option. The Option shall terminate and may no
-------------------------
longer be exercised on the first to occur of (a) the Option Term Date as defined
above, (b) the last date for exercising the Option following termination of
employment as described in paragraph 7 below, or (c) upon a Transfer of Control
to the extent provided in paragraph 8 below.
7. Termination of Employment.
-------------------------
(a) Termination of the Option. If the Optionee ceases to be an
-------------------------
employee of the Participating Company Group for any reason, except death or
disability within the meaning of Section 422(c) of the Code, the Option, to the
extent unexercised and exercisable by the Optionee on the date on which the
Optionee ceased to be an employee, may be exercised by the Optionee within three
(3) months after the date on which the Optionee's employment terminated, but in
any event no later than the Option Term Date. If the Optionee's employment with
the Company is terminated because of the death or disability of the Optionee
within the meaning of Section 422(c) of the Code, the Option, to the extent
unexercised and exercisable by the Optionee on the date on which the Optionee
ceased to be an employee, may be exercised by the Optionee (or the Optionee's
legal representative) at any time prior to the expiration of twelve (12) months
from the date on which the Optionee's employment terminated, but in any event no
later than the Option Term Date. The Optionee's employment shall be deemed to
have terminated on account of death if the Optionee dies within three (3) months
after the Optionee's termination of employment.
(b) Employee and Termination of Employment Defined. For purposes of
----------------------------------------------
this paragraph 7, the term "employee" shall mean any person, including officers
and directors, employed by a Participating Company or performing services for a
Participating Company as a director, consultant, advisor or other independent
contractor. For purposes of this paragraph 7, the Optionee's employment shall
be deemed to have terminated either upon an actual termination of employment or
upon the Optionee's employer ceasing to be a Participating Company. The
Optionee's employment shall not be deemed to have terminated merely
<PAGE>
because of a change in the capacity in which the Optionee serves as an employee,
provided that there is no interruption or termination of the Optionee's service
as an employee.
(c) Extension if Exercise Prevented by Law. Notwithstanding the
--------------------------------------
foregoing, if the exercise of the Option within the applicable time periods set
forth above is prevented by the provisions of paragraph 4(f) above, the Option
shall remain exercisable until three (3) months after the date the Optionee is
notified by the Company that the Option is exercisable, but in any event no
later than the Option Term Date. The Company makes no representation as to the
tax consequences of any such delayed exercise. The Optionee should consult with
the Optionee's own tax advisors as to the tax consequences to the Optionee of
any such delayed exercise.
(d) Extension if Optionee Subject to Section 16(b). Notwithstanding
----------------------------------------------
the foregoing, if the exercise of the Option within the applicable time periods
set forth above would subject the Optionee to suit under Section 16(b) of the
Exchange Act, the Option shall remain exercisable until the earliest to occur of
(i) the tenth (10th) day following the date on which the Optionee would no
longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day
after the Optionee's termination of employment, or (iii) the Option Term Date.
The Company makes no representation as to the tax consequences of any such
delayed exercise. The Optionee should consult with the Optionee's own tax
advisors as to the tax consequences to the Optionee of any such delayed
exercise.
(e) Leave of Absence. For purposes hereof, the Optionee's employment
----------------
with the Participating Company Group shall not be deemed to terminate if the
Optionee takes any military leave, sick leave, or other bona fide leave of
absence approved by the Company of ninety (90) days or less. In the event of a
leave in excess of ninety (90) days, the Optionee's employment shall be deemed
to terminate on the ninety-first (91st) day of the leave unless the Optionee's
right to reemployment with the Participating Company Group remains guaranteed by
statute or contract. Notwithstanding the foregoing, however, a leave of absence
shall be treated as employment for purposes of determining the Optionee's Vested
Ratio if and only if the leave of absence is designated by the Company as (or
required by law to be) a leave for which vesting credit is given.
8. Ownership Change and Transfer of Control. An "Ownership Change" shall
----------------------------------------
be deemed to have occurred in the event any of the following occurs with respect
to the Company:
(a) the direct or indirect sale or exchange by the shareholders of the
Company of all or substantially all of the stock of the Company;
(b) a merger or consolidation in which the Company is a party;
(c) the sale, exchange, or transfer of all or substantially all of the
assets of the Company (other than a sale, exchange, or transfer to one or more
subsidiary corporations of the Company); or
(d) a liquidation or dissolution of the Company.
<PAGE>
A "Transfer of Control" shall mean an Ownership Change described in
(a) or (b) above in which the shareholders of the Company before such Ownership
Change do not retain, directly or indirectly, at least a majority of the
beneficial interest in the voting stock of the Company after such transaction or
any Ownership Change described in (c) or (d) above.
In the event of a Transfer of Control, the Board, in its sole
discretion, may arrange with the surviving, continuing, successor, or purchasing
corporation or parent corporation thereof, as the case may be (the "Acquiring
Corporation"), for the Acquiring Corporation to either assume the Company's
rights and obligations under this Option Agreement or substitute an option for
the Acquiring Corporation's stock for the Option. The Option shall terminate
and cease to be outstanding effective as of the date of the Transfer of Control
to the extent that the Option is neither assumed or substituted for by the
Acquiring Corporation in connection with the Transfer of Control nor exercised
as of the date of the Transfer of Control.
9. Effect of Change in Stock Subject to the Option. Appropriate
-----------------------------------------------
adjustments shall be made in the number, exercise price and class of shares of
stock subject to the Option in the event of a stock dividend, stock split,
reverse stock split, recapitalization, combination, reclassification, or like
change in the capital structure of the Company. In the event a majority of the
shares which are of the same class as the shares that are subject to the Option
are exchanged for, converted into, or otherwise become (whether or not pursuant
to an Ownership Change) shares of another corporation (the "New Shares"), the
Company may unilaterally amend the Option to provide that the Option is
exercisable for New Shares. In the event of any such amendment, the number of
shares and the exercise price shall be adjusted in a fair and equitable manner.
10. Rights as a Shareholder or Employee. The Optionee shall have no
-----------------------------------
rights as a shareholder with respect to any shares covered by the Option until
the date of the issuance of a certificate or certificates for the shares for
which the Option has been exercised. No adjustment shall be made for dividends
or distributions or other rights for which the record date is prior to the date
such certificate or certificates are issued, except as provided in paragraph 9
above. Nothing in the Option shall confer upon the Optionee any right to
continue in the employ of a Participating Company or interfere in any way with
any right of the Participating Company Group to terminate the Optionee's
employment at any time.
11. Right of First Refusal.
----------------------
(a) Right of First Refusal. In the event the Optionee proposes to
----------------------
sell, pledge, or otherwise transfer any shares acquired upon the exercise of the
Option (the "Transfer Shares") to any person or entity, including, without
limitation, any shareholder of the Participating Company Group, the Company
shall have the right to repurchase the Transfer Shares under the terms and
subject to the conditions set forth in this paragraph 11 (the "Right of First
Refusal").
(b) Notice of Proposed Transfer. Prior to any proposed transfer of
---------------------------
the Transfer Shares, the Optionee shall give a written notice (the "Transfer
Notice") to the Company describing fully the proposed transfer, including the
number of Transfer Shares, the
<PAGE>
name and address of the proposed transferee (the "Proposed Transferee") and, if
the transfer is voluntary, the proposed transfer price and containing such
information necessary to show the bona fide nature of the proposed transfer. In
the event of a bona fide gift or involuntary transfer, the proposed transfer
price shall be deemed to be the fair market value of the Transfer Shares as
determined by the Company in good faith. In the event the Optionee proposes to
transfer any shares acquired upon the exercise of the Option to more than one
(1) Proposed Transferee, the Optionee shall provide a separate Transfer Notice
for the proposed transfer to each Proposed Transferee. The Transfer Notice
shall be signed by both the Optionee and the Proposed Transferee and must
constitute a binding commitment of the Optionee and the Proposed Transferee for
the transfer of the Transfer Shares to the Proposed Transferee subject only to
the Right of First Refusal.
(c) Bona Fide Transfer. In the event that the Company shall determine
------------------
that the information provided by the Optionee in the Transfer Notice is
insufficient to establish the bona fide nature of a proposed voluntary transfer,
the Company shall give the Optionee written notice of the Optionee's failure to
comply with the procedure described in this paragraph 11 and the Optionee shall
have no right to transfer the Transfer Shares without first complying with the
procedure described in this paragraph 11. The Optionee shall not be permitted
to transfer the Transfer Shares if the proposed transfer is not bona fide.
(d) Exercise of the Right of First Refusal. In the event the proposed
--------------------------------------
transfer is deemed to be bona fide, the Company shall have the right to purchase
all, but not less than all, of the Transfer Shares (except as the Company and
the Optionee otherwise agree) at the purchase price and on the terms set forth
in the Transfer Notice by delivery to the Optionee of a notice of exercise of
the Right of First Refusal within thirty (30) days after the date the Transfer
Notice is delivered to the Company. The Company's exercise or failure to
exercise the Right of First Refusal with respect to any proposed transfer
described in a Transfer Notice shall not affect the Company's ability to
exercise the Right of First Refusal with respect to any proposed transfer
described in any other Transfer Notice, whether or not such other Transfer
Notice is issued by the Optionee or issued by a person other than the Optionee
with respect to a proposed transfer to the same Proposed Transferee. If the
Company exercises the Right of First Refusal, the Company and the Optionee shall
thereupon consummate the sale of the Transfer Shares to the Company on the terms
set forth in the Transfer Notice within sixty (60) days after the date of the
Transfer Notice is delivered to the Company (unless a longer period is offered
by the Proposed Transferee); provided, however, that in the event the Transfer
Notice provides for the payment for the Transfer Shares other than in cash, the
Company shall have the option of paying for the Transfer Shares by the
discounted cash equivalent of the consideration described in the Transfer Notice
as reasonably determined by the Company. For purposes of the foregoing,
cancellation of any indebtedness of the Optionee to any Participating Company
shall be treated as payment to the Optionee in cash to the extent of the unpaid
principal and any accrued interest canceled.
(e) Failure to Exercise the Right of First Refusal. If the Company
----------------------------------------------
fails to exercise the Right of First Refusal in full within the period specified
in paragraph 11(d) above, the Optionee may conclude a transfer to the Proposed
Transferee of the Transfer Shares on the terms and conditions described in the
Transfer Notice, provided such transfer occurs not later than one hundred twenty
(120) days following delivery to the Company of the Transfer Notice.
<PAGE>
The Company shall have the right to demand further assurances from the Optionee
and the Proposed Transferee (in a form satisfactory to the Company) that the
transfer of the Transfer Shares was actually carried out on the terms and
conditions described in the Transfer Notice. No Transfer Shares shall be
transferred on the books of the Company until the Company has received such
assurances, if so demanded, and has approved the proposed transfer as bona fide.
Any proposed transfer on terms and conditions different from those described in
the Transfer Notice, as well as any subsequent proposed transfer by the
Optionee, shall again be subject to the Right of First Refusal and shall require
compliance by the Optionee with the procedure described in this paragraph 11.
(f) Transferees of the Transfer Shares. All transferees of the
----------------------------------
Transfer Shares or any interest therein, other than the Company, shall be
required as a condition of such transfer to agree in writing (in a form
satisfactory to the Company) that such transferee shall receive and hold such
Transfer Shares or interests subject to the provisions of this paragraph 11
providing for the Right of First Refusal with respect to any subsequent
transfer. Any sale or transfer of any shares acquired upon exercise of the
Option shall be void unless the provisions of this paragraph 11 are met.
(g) Transfers Not Subject to the Right of First Refusal. The Right of
---------------------------------------------------
First Refusal shall not apply to any transfer or exchange of the shares acquired
pursuant to the exercise of the Option if such transfer or exchange is in
connection with an Ownership Change. If the consideration received pursuant to
such transfer or exchange consists of stock of a Participating Company, such
consideration shall remain subject to the Right of First Refusal unless the
provisions of paragraph 11(i) below result in a termination of the Right of
First Refusal.
(h) Assignment of the Right of First Refusal. The Company shall have
----------------------------------------
the right to assign the Right of First Refusal at any time, whether or not the
Optionee has attempted a transfer, to one (1) or more persons as may be selected
by the Company.
(i) Early Termination of the Right of First Refusal. The other
-----------------------------------------------
provisions of this paragraph 11 notwithstanding, the Right of First Refusal
shall terminate, and be of no further force and effect, upon (i) the occurrence
of a Transfer of Control, unless the surviving, continuing, successor, or
purchasing corporation, as the case may be, assumes the Company's rights and
obligations under the Plan, or (ii) the existence of a public market for the
class of shares subject to the Right of First Refusal. A "public market" shall
be deemed to exist if (x) such stock is listed on a national securities exchange
(as that term is used in the Exchange Act) or (y) such stock is traded on the
over-the-counter market and prices therefor are published daily on business days
in a recognized financial journal.
12. Escrow.
------
(a) Establishment of Escrow. To ensure that shares subject to the
-----------------------
Right of First Refusal will be available for repurchase, the Company may require
the Optionee to deposit the certificate or certificates evidencing the shares
which the Optionee purchases upon exercise of the Option with an agent
designated by the Company under the terms and conditions of an escrow agreement
approved by the Company. If the Company does not
<PAGE>
require such deposit as a condition of exercise of the Option, the Company
reserves the right at any time to require the Optionee to so deposit the
certificate or certificates in escrow. The Company shall bear the expenses of
the escrow.
(b) Delivery of Shares to Optionee. As soon as practicable after the
------------------------------
expiration of the Right of First Refusal, but not more frequently than twice
each calendar year, the agent shall deliver to the Optionee the shares no longer
subject to such restriction.
(c) Notices and Payments. In the event the shares held in escrow are
--------------------
subject to the Company's exercise of the Right of First Refusal, the notices
required to be given to the Optionee shall be given to the escrow agent and any
payment required to be given to the Optionee shall be given to the escrow agent.
Within thirty (30) days after payment by the Company, the escrow agent shall
deliver the shares which the Company has purchased to the Company and shall
deliver the payment received from the Company to the Optionee.
13. Stock Dividends Subject to Option Agreement. If, from time to time,
-------------------------------------------
there is any stock dividend, stock split, or other change in the character or
amount of any of the outstanding stock of the corporation the stock of which is
subject to the provisions of this Option Agreement, then in such event any and
all new, substituted or additional securities to which the Optionee is entitled
by reason of the Optionee's ownership of the shares acquired upon exercise of
the Option shall be immediately subject to the Right of First Refusal with the
same force and effect as the shares subject to the Right of First Refusal
immediately before such event.
14. Representations and Warranties. In connection with the receipt of
------------------------------
the Option, the Optionee hereby agrees, represents and warrants as follows:
(a) The Optionee is acquiring the Option and any shares of Stock
acquired upon exercise of the Option for the Optionee's own account, and not on
behalf of any other person or as a nominee, for investment and not with a view
to, or sale in connection with, any distribution of the Option or such shares.
(b) The Optionee has either (a) a preexisting personal or business
relationship with the Company or any of its officers, directors, or controlling
persons, consisting of personal or business contacts of a nature and duration to
enable the Optionee to be aware of the character, business acumen and general
business and financial circumstances of the person with whom such relationship
exists, or (b) such knowledge and experience in financial and business matters
(or has relied on the financial and business knowledge and experience of the
Optionee's professional advisor who is unaffiliated with and who is not,
directly or indirectly, compensated by the Company or any affiliate or selling
agent of the Company) as to make the Optionee capable of evaluating the merits
and risks of the Option and any investment in shares acquired pursuant to the
Option and to protect the Optionee's own interests in the transaction, or
(c) both such relationship and such knowledge and experience.
(c) The Optionee understands that Option and any shares acquired upon
exercise of the Option have not been qualified under the Corporate Securities
Law of 1968, as
<PAGE>
amended, of the State of California by reason of a specific exemption therefrom,
which exemption depends upon, among other things, the bona fide nature of the
Optionee's representations as expressed herein. The Optionee understands that
the Company is relying on the Optionee's representations and warrants that the
Company is entitled to rely on such representations and that such reliance is
reasonable.
15. Legends. The Company may at any time place legends referencing the
-------
Right of First Refusal set forth in paragraph 11 above, and any applicable
foreign, federal or state securities law restrictions on all certificates
representing shares of stock subject to the provisions of this Option Agreement.
The Optionee shall, at the request of the Company, promptly present to the
Company any and all certificates representing shares acquired pursuant to the
Option in the possession of the Optionee in order to effectuate the provisions
of this paragraph 16. Unless otherwise specified by the Company, legends placed
on such certificates may include, but shall not be limited to, the following:
(a) "THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN
ACCORDANCE WITH RULE 144 OR RULE 701 UNDER THE ACT, OR THE COMPANY RECEIVES AN
OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO
THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS
EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT."
(b) Any legend required to be placed thereon by the Commissioner of
Corporations of the State of California.
(c) "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A RIGHT
OF FIRST REFUSAL OPTION IN FAVOR OF THE CORPORATION OR ITS ASSIGNEE SET FORTH IN
AN AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED HOLDER, OR SUCH HOLDER'S
PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF
THIS CORPORATION."
(d) "THE SHARES EVIDENCED BY THIS CERTIFICATE WERE ISSUED BY THE
CORPORATION TO THE REGISTERED HOLDER UPON EXERCISE OF AN INCENTIVE STOCK OPTION
AS DEFINED IN SECTION 422 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED
("ISO"). IN ORDER TO OBTAIN THE PREFERENTIAL TAX TREATMENT AFFORDED TO ISOs,
THE SHARES SHOULD NOT BE TRANSFERRED PRIOR TO ______________. SHOULD THE
REGISTERED HOLDER ELECT TO TRANSFER ANY OF THE SHARES PRIOR TO THIS DATE AND
FOREGO ISO TAX TREATMENT, THE TRANSFER AGENT FOR THE SHARES SHALL NOTIFY THE
CORPORATION IMMEDIATELY. THE REGISTERED HOLDER SHALL HOLD ALL SHARES PURCHASED
UNDER THE INCENTIVE STOCK OPTION IN THE
<PAGE>
REGISTERED HOLDER'S NAME (AND NOT IN THE NAME OF ANY NOMINEE) PRIOR TO THIS DATE
OR UNTIL TRANSFERRED AS DESCRIBED ABOVE."
16. Initial Public Offering. The Optionee hereby agrees that in the
-----------------------
event of an initial public offering of stock made by the Company pursuant to an
effective registration statement filed under the Securities Act, the Optionee
shall not offer, sell, contract to sell, pledge, hypothecate, grant any option
to purchase or make any short sale of, or otherwise dispose of any shares of
stock of the Company or any rights to acquire stock of the Company for such
period of time from and after the effective date of such registration statement
as may be established by the underwriter for such initial public offering;
provided, however, that such period of time shall not exceed one hundred eighty
(180) days from the effective date of the registration statement to be filed in
connection with such initial public offering. The foregoing limitation shall
not apply to shares registered in the initial public offering under the
Securities Act. The Optionee shall be subject to this paragraph provided and
only if the officers and directors of the Company are also subject to similar
arrangements.
17. Binding Effect. This Option Agreement shall inure to the benefit of
--------------
and be binding upon the parties hereto and their respective heirs, executors,
administrators, successors and assigns.
18. Termination or Amendment. The Board, including any duly
------------------------
appointed committee of the Board, may terminate or amend the Plan and/or the
Option at any time; provided, however, that no such termination or amendment may
adversely affect the Option or any unexercised portion hereof without the
consent of the Optionee unless such amendment is required to enable the Option
to qualify as an Incentive Stock Option.
19. Integrated Agreement. This Option Agreement constitutes the entire
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understanding and agreement of the Optionee and the Participating Company Group
with respect to the subject matter contained herein, and there are no
agreements, understandings, restrictions, representations, or warranties among
the Optionee and the Company other than those as set forth or provided for
herein. To the extent contemplated herein, the provisions of this Option
Agreement shall survive any exercise of the Option and shall remain in full
force and effect.
20. Applicable Law. This Option Agreement shall be governed by the laws
--------------
of the State of California as such laws are applied to agreements between
California residents entered into and to be performed entirely within the State
of California.
ZEITNET INC.
By:
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Title:
--------------------------
<PAGE>
The Optionee represents that the Optionee is familiar with the terms and
provisions of this Option Agreement, including the Right of First Refusal set
forth in paragraph 11, and hereby accepts the Option subject to all of the terms
and provisions thereof. The Optionee hereby agrees to accept as binding,
conclusive and final all decisions or interpretations of the Board upon any
questions arising under this Option Agreement. The Optionee acknowledges receipt
of a copy of the Plan.
Date:
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<PAGE>
EXHIBIT 99.2
Form of Stock Option Assumption Agreement used in connection
with the 1994 Stock Option Plan
1994 STOCK OPTION PLAN
CABLETRON SYSTEMS, INC.
STOCK OPTION ASSUMPTION AGREEMENT
---------------------------------
OPTIONEE:
STOCK OPTION ASSUMPTION AGREEMENT issued as of the ___ day of July, 1996 by
Cabletron Systems, Inc., a Delaware corporation ("Cabletron").
WHEREAS, the undersigned individual ("Optionee") holds one or more
outstanding options to purchase shares of the common stock of ZeitNet Inc., a
California corporation ("ZeitNet"), which were granted to Optionee under the
ZeitNet Inc. 1994 Stock Option Plan (the "Plan") and are evidenced by either an
Incentive Stock Option Agreement, an Incentive Stock Option Agreement for use in
an exempt transaction under Section 25102(f) of the California Corporations
Code, a Nonqualified Stock Option Agreement, or a Nonqualified Stock Option
Agreement for use in an exempt transaction under Section 25102(f) of the
California Corporations Code (collectively the "Option Agreement") between
ZeitNet and Optionee.
WHEREAS, ZeitNet has this day been acquired by Cabletron through merger of
a wholly-owned Cabletron subsidiary, Cabletron Systems of California, Inc.
("Acquisition Corporation"), with and into ZeitNet (the "Merger") pursuant to
the Agreement and Plan of Merger dated as of June 3, 1996 by and among
Cabletron, ZeitNet and Acquisition Corporation (the "Merger Agreement").
WHEREAS, the provisions of the Merger Agreement require Cabletron to assume
all obligations of ZeitNet under all options outstanding under the Plan at the
consummation of the Merger and to issue to the holder of each outstanding option
a notice setting forth such holder's rights after consummation of the Merger.
WHEREAS, pursuant to the provisions of the Merger Agreement, the exchange
ratio in effect for the Merger is .15737 of a share of Cabletron common stock
("Cabletron Stock") for each outstanding share of ZeitNet common stock (the
"Exchange Rate").
WHEREAS, this Agreement is to become effective immediately upon the
consummation of the Merger (the "Effective Time") in order to reflect certain
adjustments to Optionee's outstanding options under the Plan which have become
necessary by reason of the assumption of those options by Cabletron in
connection with the Merger.
<PAGE>
NOW, THEREFORE, it is hereby agreed as follows:
1. The number of shares of ZeitNet common stock subject to the stock
options held by Optionee under the Plan immediately prior to the Effective Time
(the "ZeitNet Options") and the exercise price payable per share are set forth
in Exhibit A hereto. Cabletron hereby assumes, as of the Effective Time, all
the duties and obligations of ZeitNet under each of the ZeitNet Options. In
connection with such assumption, the number of shares of Cabletron Stock
purchasable under each ZeitNet Option hereby assumed and the exercise price
payable thereunder have been adjusted to reflect the Exchange Rate at which
shares of ZeitNet common stock were converted into shares of Cabletron Stock in
consummation of the Merger. Accordingly, the number of shares of Cabletron Stock
subject to each ZeitNet Option hereby assumed, and the adjusted exercise price
payable per share of Cabletron Stock under the assumed ZeitNet Option, shall be
as indicated for that option in attached Exhibit B.
2. The intent of the foregoing adjustments to each assumed ZeitNet Option
is to assure that the spread between the aggregate fair market value of the
shares of Cabletron Stock purchasable under that option and the aggregate
exercise price as adjusted hereunder will, immediately after the consummation of
the Merger, equal the spread which existed, immediately prior to the Merger,
between the then aggregate fair market value of the ZeitNet common stock subject
to the ZeitNet Option and the aggregate exercise price in effect at such time
under the Option Agreement. Such adjustments are also designed to preserve, on
a per share basis immediately after the Merger, the same ratio of exercise price
per option share to fair market value per share which existed under the ZeitNet
Option immediately prior to the Merger.
3. The following provisions shall govern each ZeitNet Option hereby
assumed by Cabletron:
- Unless the context otherwise requires, all references to the "Company"
in each Option Agreement and in the Plan (as incorporated into such Option
Agreement) shall mean Cabletron, all references to "Stock" shall mean shares of
Cabletron Stock, and all references to the "Board" shall mean the Incentive
Compensation Committee of the Board of Directors of Cabletron.
- The grant date and the expiration date of each assumed ZeitNet Option
and all other provisions which govern either the exercisability or the
termination of the assumed ZeitNet Option shall remain the same as set forth in
the Option Agreement applicable to that option and shall accordingly govern and
control Optionee's rights under this Agreement to purchase Cabletron Stock.
- Each assumed ZeitNet Option shall remain exercisable in accordance with
the same installment exercise schedule in effect under the applicable Option
Agreement immediately prior to the Effective Time, with the number of shares of
Cabletron Stock subject to each such
-2-
<PAGE>
installment adjusted to reflect the Exchange Rate. Accordingly, no accelerated
vesting of the ZeitNet Options shall be deemed to occur by reason of the Merger,
and the grant date for each assumed ZeitNet Option shall accordingly remain the
same as in effect under the applicable Option Agreement immediately prior to the
Merger.
- For purposes of applying any and all provisions of the Option Agreement
relating to Optionee's status as an employee with the Company, Optionee shall be
deemed to continue in such employee status for so long as Optionee renders
services as an employee to Cabletron or any present or future Cabletron
subsidiary, including (without limitation) ZeitNet. Accordingly, the provisions
of the Option Agreement governing the termination of the assumed ZeitNet Option
upon the Optionee's cessation of employee status with ZeitNet shall hereafter be
applied on the basis of the Optionee's cessation of employee status with
Cabletron and its subsidiaries, and each assumed ZeitNet Option shall
accordingly terminate, within the designated time period in effect under the
Option Agreement for that option, following such cessation of employment with
Cabletron and its subsidiaries.
- The adjusted exercise price payable for the Cabletron Stock subject to
each assumed ZeitNet Option shall be payable in any of the forms authorized
under the Option Agreement applicable to that option. For purposes of
determining the holding period of any shares of Cabletron Stock delivered in
payment of such adjusted exercise price, the period for which such shares were
held as ZeitNet common stock prior to the Merger shall be taken into account.
- In order to exercise each assumed ZeitNet Option, Optionee must deliver
to Cabletron a written notice of exercise in which the number of shares of
Cabletron Stock to be purchased thereunder must be indicated. The exercise
notice must be accompanied by payment of the adjusted exercise price payable for
the purchased shares of Cabletron Stock and should be delivered to Cabletron at
the following address:
Cabletron Systems, Inc.
35 Industrial Way
Rochester, New Hampshire 03867
Attention: Edward Cortes
4. Except to the extent specifically modified by this Option Assumption
Agreement, all of the terms and conditions of each Option Agreement as in effect
immediately prior to the Merger shall continue in full force and effect and
shall not in any way be amended, revised or otherwise affected by this Stock
Option Assumption Agreement.
-3-
<PAGE>
IN WITNESS WHEREOF, Cabletron Systems, Inc. has caused this Stock Option
Assumption Agreement to be executed on its behalf by its duly-authorized officer
as of the ___ day of _________, 1996.
CABLETRON SYSTEMS, INC.
By:
------------------------------
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<PAGE>
EXHIBIT A
Optionee's Outstanding Options to Purchase Shares of ZeitNet Inc.
Common Stock (Pre-Merger)
-5-
<PAGE>
EXHIBIT B
Optionee's Outstanding Options to Purchase Shares of Cabletron Systems, Inc.
Common Stock (Post-Merger)
-6-
