<PAGE>
As filed with the Securities and Exchange Commission on April 22, 1998
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 (I.R.S. Employer
of Incorporation or Organization) Identification No.)
35 Industrial Way
Rochester, New Hampshire 03867
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
YAGO SYSTEMS, INC.
1996 STOCK OPTION AND STOCK PURCHASE PLAN
YAGO SYSTEMS, INC.
1998 STOCK OPTION PLAN
---------------------------------
(Full title of the Plan)
David J. Kirkpatrick
Chief Financial Officer
Cabletron Systems, Inc.
35 Industrial Way
Rochester, New Hampshire 03867
(603) 332-9400
(Name, Address and Telephone Number, including Area Code, of Agent for Service)
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===============================================================================================
Title of Securities Amount To Be Proposed Maximum Proposed Maximum Amount of
To Be Registered Registered Offering Price Aggregate Offering Registration
Per Share Price (1) Fee
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock,
$0.01 par value 2,101,016 (1) $27,226,585 $8,033
===============================================================================================
</TABLE>
/(1)/DETERMINED PURSUANT TO RULE 457(H) SOLELY FOR THE PURPOSE OF DETERMINING
THE REGISTRATION FEE. ALL OF THE SHARES BEING REGISTERED ARE SUBJECT TO
OUTSTANDING OPTIONS UNDER THE YAGO SYSTEMS, INC. 1996 STOCK OPTION PLAN OR THE
YAGO SYSTEMS, INC. 1998 STOCK OPTION PLAN ON THE DATE HEREOF AND HAVE AN AVERAGE
EXERCISE PRICE OF $12.96 PER SHARE AND AN AGGREGATE EXERCISE PRICE OF
$27,226,585.
EXHIBIT INDEX ON PAGE II-5
PAGE 1 OF 12 PAGES.
================================================================================
<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) Annual Report on Form 10-K for the fiscal year ended February 28, 1997
filed with the Commission on June 2, 1997.
(b) Current Report on Form 8-K filed with the Commission on February 9,
1998; Quarterly Report on Form 10-Q for the quarter ended November 30,
1997 filed with the Commission on January 14, 1998; Quarterly Report on
Form 10-Q for the quarter ended August 31, 1997 filed with the Commission
on October 15, 1997; Quarterly Report on Form 10-Q for the quarter ended
May 31, 1997 filed with the Commission on July 15, 1997.
(c) Description of the Company's Common Stock contained in its registration
statement on Form 8-A.
All documents subsequently filed by the Registrant or the Plan 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 registers all
securities then remaining unsold, shall be deemed to be incorporated herein by
reference from the date of filing of such documents.
Item 4. Description of Securities.
-------------------------
Not applicable.
Item 5. Interests of Named Experts and Counsel.
--------------------------------------
Not applicable.
Item 6. Indemnification of Directors and Officers.
-----------------------------------------
Section 145 of the Delaware General Corporation Law, 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
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 interest 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 ajudged 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
II-1
<PAGE>
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 person 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 Restated Certificate of Incorporation of Registrant (Incorporated by
Reference to Exhibit 3.1. of the Registrant's Registration Statement on
Form S-1, File No. 333-28055).
4.2 Certificate of Correction of Registrant's Restated Certificate of
Incorporation (Incorporated by Reference to Exhibit 3.1.2. of the
Registrant's Registration Statement on Form S-1, File No. 33-42534).
4.3 Certificate of Amendment of the Restated Certificate of Incorporation of
the Registrant (Incorporated by Reference to Exhibit 4.3 of the
Registrant's Registration Statement on Form S-3, File No. 33-54466).
4.4 Amended By-laws of Registrant (Incorporated by Reference to Exhibit 3.2.
of the Registrant's Registration Statement on Form S-1, File No.
33-42534).
5.1 Opinion of Ropes & Gray.
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of Ropes & Gray (See Exhibit 5).
24.1 Power of Attorney (See Signature Page).
99.1 Yago Systems, Inc. 1996 Stock Option and Stock Purchase Plan.
99.2 Yago Systems, Inc. 1998 Stock Option Plan.
II-2
<PAGE>
Item 9. Undertakings.
------------
(a) The undersigned Registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement, (i) to
include any prospectus required by Section 10(a)(3) of the 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 Securities Exchange Act of 1934 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
Securities Exchange Act of 1934 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 Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-8 and has duly caused this registration
statement on Form S-8 to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Rochester, The State of New Hampshire, on this
22th day of April, 1998.
CABLETRON SYSTEMS, INC.
By: /S/ David J. Kirkpatrick
-------------------------------------
Name: David J. Kirkpatrick
Title: Senior Vice President and
Chief Financial Officer
POWER OF ATTORNEY
-----------------
Pursuant to the requirement of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated. Each person whose signature appears
below hereby authorizes and constitutes David J. Kirkpatrick his true and
lawful attorney with full power to him to sign for him and in his name in the
capacities indicated below any and all amendments (including post-effective
amendments) to this Registration Statement and to file the same, with exhibits
thereto, and other documents in connection therewith, and he hereby ratifies and
confirms his signature as it may be signed by said attorney to any and all such
amendments.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ----------------------------- --------------------------------------------- --------------
<S> <C> <C>
President, Chief Executive Officer April 22, 1998
- ------------------------------ (Principal Executive Officer), Chairman
Craig R. Benson and Director
/S/ David J. Kirkpatrick Senior Vice President and Chief Financial April 22, 1998
- ----------------------------- Officer (Principal Financial Officer and
David J. Kirkpatrick Principal Accounting Officer)
/S/ Michael D. Myerow Director April 22, 1998
- -----------------------------
Michael D. Myerow
/S/ Paul R. Duncan Director April 22, 1998
- -----------------------------
Paul R. Duncan
/S/ Donald F. McGuiness Director April 22, 1998
- -----------------------------
Donald F. McGuiness
/S/ Donald B. Reed Director April 22, 1998
- -----------------------------
Donald B. Reed
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Number Title of Exhibit Page
- ------ ------------------------------------ ----
<C> <S> <C>
4.1. Restated Certificate of Incorporation
of Registrant (Incorporated by
Reference to Exhibit 3.1. of the
Registrant's Registration Statement on
Form S-1, File No. 333-28055).
4.2. Certificate of Correction of
Registrant's Restated Certificate of
Incorporation (Incorporated by
Reference to Exhibit 3.1.2. of the
Registrant's Registration Statement on
Form S-1, File No. 33-42534).
4.3 Certificate of Amendment of the
Restated Certificate of Incorporation
of the Registrant (Incorporated by
Reference to Exhibit 4.3 of the
Registrant's Registration Statement on
Form S-3, File No. 33-54466).
4.4. Amended By-laws of Registrant
(Incorporated by Reference to Exhibit
3.2. of the Registrant's Registration
Statement on Form S-1, File No. 33-
42534).
5.1 Opinion of Ropes & Gray.
23.1. Consent of KPMG Peat Marwick
LLP.
23.2. Consent of Ropes & Gray.
24.1 Power of Attorney.
99.1 Yago Systems, Inc. 1996 Stock
Option and Stock Purchase Plan.
99.2 Yago Systems, Inc. 1998 Stock
Option Plan.
</TABLE>
<PAGE>
EXHIBIT 5.1
April 20, 1998
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 2,101,016 shares of common stock,
par value $0.01 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 Yago Systems, Inc. 1996 Stock
Option and Stock Purchase Plan and the Yago Systems, Inc. 1998 Stock Option Plan
(the "Plans").
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 the Shares (i) have
been duly authorized and (ii) when issued and sold in accordance with the terms
of the Options and the Plans, 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>
EXHIBIT 23.1
The Board of Directors
Cabletron Systems, Inc.:
We consent to the use of our reports incorporated herein by reference.
KPMG Peat Marwick LLP
Boston, Massachusetts
April 21, 1998
<PAGE>
EXHIBIT 99.1
YAGO SYSTEMS, INC.
1996 STOCK OPTION AND STOCK PURCHASE PLAN
SECTION 1. PURPOSE.
- -------------------
The purpose of the Plan is to offer selected employees, directors and
consultants an opportunity to acquire a proprietary interest in the success of
the Company, or to increase such interest, to encourage such selected persons to
remain in the employ of the Company and to attract new employees with
outstanding qualifications. The Plan provides for the direct award or sale of
Shares and for the grant of Options to purchase Shares. Options granted under
the Plan may include Nonstatutory Options as well as incentive stock options
intended to qualify under section 422 of the Internal Revenue Code.
SECTION 2. DEFINITIONS.
- -----------------------
(a) "Board of Directors" shall mean the Board of Directors of the
------------------
Company, as constituted from time to time.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
----
(c) "Committee" shall mean a committee consisting of members of the Board
---------
of Directors that is appointed by the Board of Directors. If no Committee has
been appointed, the entire Board of Directors shall constitute the Committee.
At such time as the officers and directors of the Company become reporting
persons with respect to the Securities Exchange Act of 1934, the Committee shall
have membership composition which enables the Plan to qualify under Rule 16b-3
with regard to the grant of Options or other rights to acquire Shares to persons
who are subject to Section 16 of the Securities Exchange Act of 1934.
(d) "Company" shall mean Yago Systems, Inc., a Delaware corporation.
-------
(e) "Disability" shall means that an Optionee is unable to engage in any
----------
substantial gainful activity by reason of any medically determinable physical or
mental impairment.
(f) "Employee" shall mean (i) any individual who is a common-law employee
--------
of the Company or of a Subsidiary, (ii) a member of the Board of Directors, or
(iii) a consultant who performs services for the Company or
<PAGE>
a Subsidiary. Service as a member of the Board of Directors or as a consultant
shall be considered employment for all purposes under the Plan except the second
sentence of Section 4(a).
(g) "Exercise Price" shall mean the amount for which one Share may be
--------------
purchased upon exercise of an Option, as specified by the Committee in the
applicable Stock Option Agreement.
(h) "Fair Market Value" shall mean the fair market value of a Share, as
-----------------
determined by the Committee in good faith. Such determination shall be
conclusive and binding on all persons.
(i) "ISO" shall mean an employee incentive stock option described in Code
---
section 422(b).
(j) "Nonstatutory Option" shall mean an employee stock option that is not
-------------------
an ISO.
(k) "Offeree" shall mean an individual to whom the Committee has offered
-------
the right to acquire Shares (other than upon exercise of an Option).
(l) "Option" shall mean an ISO or Nonstatutory Option granted under the
------
Plan and entitling the holder to purchase Shares.
(m) "Optionee" shall mean an individual who holds an Option.
--------
(n) "Plan" shall mean this Yago Systems, Inc. 1996 Stock Option and Stock
----
Purchase Plan.
(o) "Purchase Price" shall mean the consideration for which one Share may
--------------
be acquired under the Plan (other than upon exercise of an Option), as specified
by the Committee.
(p) "Service" shall mean service as an Employee.
-------
(q) "Share" shall mean one share of Stock, as adjusted in accordance with
-----
Section 9 (if applicable).
(r) "Stock" shall mean the common stock of the Company.
-----
(s) "Stock Option Agreement" shall mean the agreement between the Company
----------------------
and an Optionee which contains the terms, conditions and restrictions pertaining
to his or her Option.
(t) "Stock Purchase Agreement" shall mean the agreement between the
------------------------
Company and an Offeree who acquires Shares under the Plan which contains the
terms, conditions and restrictions pertaining to the acquisition of such Shares.
(u) "Subsidiary" shall mean any corporation, of which the Company and/or
----------
one or more other Subsidiaries own not less than 50 percent of the total
combined voting power of all classes of outstanding stock of such corporation.
-2-
<PAGE>
A corporation that attains the status of a Subsidiary on a date after the
adoption of the Plan shall be considered a Subsidiary commencing as of such
date.
SECTION 3. ADMINISTRATION.
- --------------------------
(a) Committee Membership. The Plan shall be administered by the
--------------------
Committee, which shall consist of mem bers of the Board of Directors. The
members of the Committee shall be appointed by the Board of Directors. If no
Committee has been appointed, the entire Board of Directors shall constitute the
Committee.
(b) Committee Procedures. The Board of Directors shall designate one of
--------------------
the members of the Committee as chairperson. The Committee may hold meetings at
such times and places as it shall determine. The acts of a majority of the
Committee members present at meetings at which a quorum exists, or acts reduced
to or approved in writing by all Committee members, shall be valid acts of the
Committee.
(c) Committee Responsibilities. Subject to the provisions of the Plan,
--------------------------
the Committee shall have full authority and discretion to take the following
actions: (i) to interpret the Plan and to apply its provisions; (ii) to adopt,
amend or rescind rules, procedures and forms relating to the Plan; (iii) to
authorize any person to execute, on behalf of the Company, any instrument
required to carry out the purposes of the Plan; (iv) to determine when Shares
are to be awarded or offered for sale and when Options are to be granted under
the Plan; (v) to select Offerees and Optionees; (vi) to determine the number of
Shares to be awarded or offered for sale or to be made subject to each Option;
(vii) to prescribe the terms and conditions of each award or sale of Shares,
including (without limitation) the Purchase Price and vesting of the award, and
to specify the provisions of the Stock Purchase Agreement relating to such award
or sale; (viii) to prescribe the terms and conditions of each Option, including
(without limitation) the Exercise Price and vesting of the Option, to determine
whether such Option is to be classified as an ISO or as a Nonstatutory Option,
and to specify the provisions of the Stock Option Agreement relating to such
Option; (ix) to amend any outstanding Stock Purchase or Stock Option Agreement;
provided, however, that the rights and obligations under any Stock Purchase or
Stock Option Agreement shall not be materially altered or impaired adversely by
any such amendment, except with the consent of the Optionee or Offeree; (x) to
determine the disposition of an Option or other right to acquire Shares in the
event of an Optionee's or Offeree's divorce or dissolution of marriage; (xi) to
correct any defect, supply any
-3-
<PAGE>
omission, or reconcile any inconsistency in the Plan and any Stock Purchase or
Stock Option Agreement; and (xii) to take any other actions deemed necessary or
advisable for the administration of the Plan.
All decisions, interpretations and other actions of the Committee shall be
final and binding on all Offerees, Optionees, and all persons deriving their
rights from an Offeree or Optionee. No member of the Committee shall be liable
for any action that he or she has taken or has failed to take in good faith with
respect to the Plan, any Option or any other right to acquire Shares under the
Plan.
(d) Financial Reports. To the extent required by applicable law, and not
-----------------
less often than annually, the Company shall furnish to Optionees and Offerees
Company summary financial information including a balance sheet regarding the
Company's financial condition and results of operations, unless such Optionees
or Offerees have duties with the Company that assure them access to equivalent
information. Such financial statements need not be audited.
SECTION 4. ELIGIBILITY.
- ------------------------
(a) General Rule. Only Employees shall be eligible for designation as
------------
Optionees or Offerees by the Commit tee. In addition, only individuals who are
employed as common-law employees by the Company or a Subsidiary shall be
eligible for the grant of ISOs.
(b) Ten-Percent Shareholders. An Employee who owns more than 10 percent
------------------------
of the total combined voting power of all classes of outstanding stock of the
Company or any of its Subsidiaries shall not be eligible for designation as an
Optionee or Offeree unless (i) the Exercise Price for an ISO (and, to the extent
required by applicable law, the Exercise Price for a Nonstatutory Option and
Purchase Price for a sale of Shares) is at least 110 percent of the Fair Market
Value of a Share on the date of grant, and (ii) in the case of an ISO, such ISO
by its terms is not exercisable after the expiration of five years from the date
of grant.
(c) Attribution Rules. For purposes of Subsection (b) above, in
-----------------
determining stock ownership, an Employee shall be deemed to own the stock owned,
directly or indirectly, by or for his brothers, sisters, spouse, ancestors and
lineal descendants. Stock owned, directly or indirectly, by or for a
corporation, partnership, estate or trust shall be deemed to be owned
proportionately by or for its shareholders, partners or beneficiaries.
-4-
<PAGE>
(d) Outstanding Stock. For purposes of Subsection (b) above,
-----------------
"outstanding stock" shall include all stock actually issued and outstanding
immediately after the grant. "Outstanding stock" shall not include shares
authorized for issuance under outstanding options held by the Employee or by any
other person.
SECTION 5. STOCK SUBJECT TO PLAN.
- ----------------------------------
(a) Basic Limitation. Shares offered under the Plan shall be authorized
----------------
but unissued Shares, or issued Shares that have been reacquired by the Company.
The aggregate number of Shares which may be issued under the Plan (upon exercise
of Options or other rights to acquire Shares) shall not exceed three million six
hundred thousand (3,600,000) Shares, subject to adjustment pursuant to Section
9. The number of Shares which are subject to Options or other rights to acquire
Shares outstanding at any time under the Plan shall not exceed the number of
Shares which then remain available for issuance under the Plan. During the term
of the Plan, the Company shall at all times reserve and keep available
sufficient Shares to satisfy the requirements of the Plan.
(b) Additional Shares. In the event that any outstanding Option or other
-----------------
right to acquire Shares for any reason expires or is canceled or otherwise
terminated, the Shares allocable to the unexercised portion of such Option or
other right shall again be available for the purposes of the Plan.
SECTION 6. TERMS AND CONDITIONS OF AWARDS OR SALES.
- ----------------------------------------------------
(a) Stock Purchase Agreement. Each award or sale of Shares under the Plan
------------------------
(other than upon exercise of an Option) shall be evidenced by a Stock Purchase
Agreement between the Offeree and the Company. Such award or sale shall be
subject to all applicable terms and conditions of the Plan and may be subject to
any other terms and conditions which are not inconsistent with the Plan and
which the Committee deems appropriate for inclusion in a Stock Purchase
Agreement. The provisions of the various Stock Purchase Agreements entered into
under the Plan need not be identical.
(b) Duration of Offers and Nontransferability of Rights. Any right to
---------------------------------------------------
acquire Shares under the Plan (other than an Option) shall automatically expire
if not exercised by the Offeree within the number of days specified by the
Committee and communicated to the Offeree by the Committee. Such right shall
not be transferable and shall be exercisable only by the Offeree to whom such
right was granted.
-5-
<PAGE>
(c) Purchase Price. To the extent required by applicable law, the
--------------
Purchase Price of Shares to be offered under the Plan shall not be less than
eighty-five percent (85%) of the Fair Market Value of such Shares, except as
otherwise provided in Section 4(b). Subject to the preceding sentence, the
Purchase Price shall be determined by the Committee at its sole discretion. The
Purchase Price shall be payable in a form described in Section 8.
(d) Withholding Taxes. As a condition to the purchase of Shares, the
-----------------
Offeree shall make such arrangements as the Committee may require for the
satisfaction of any federal, state or local withholding tax obligations that may
arise in connection with such purchase.
(e) Restrictions on Transfer of Shares. No Shares awarded or sold under
----------------------------------
the Plan may be sold or otherwise transferred or disposed of by the Offeree
during the one hundred eighty (180) day period following the effective date of a
registration statement covering securities of the Company filed under the
Securities Act of 1933. Subject to the preceding sentence, any Shares awarded or
sold under the Plan shall be subject to such special conditions, rights of
repurchase, rights of first refusal and other transfer restrictions as the
Committee may determine. Such restrictions shall be set forth in the applicable
Stock Purchase Agreement and shall apply in addition to any general
restrictions that may apply to all holders of Shares. To the extent required by
applicable law, any service-based vesting conditions shall not be less rapid
than the schedule set forth in Section 7(e).
SECTION 7. TERMS AND CONDITIONS OF OPTIONS.
- -------------------------------------------
(a) Stock Option Agreement. Each grant of an Option under the Plan shall
----------------------
be evidenced by a Stock Option Agreement between the Optionee and the Company.
Such Option shall be subject to all applicable terms and conditions of the Plan
and may be subject to any other terms and conditions which are not inconsistent
with the Plan and which the Committee deems appropriate for inclusion in a Stock
Option Agreement. The provisions of the various Stock Option Agreements entered
into under the Plan need not be identical.
(b) Number of Shares. Each Stock Option Agreement shall specify the
----------------
number of Shares that are subject to the Option and shall provide for the
adjustment of such number in accordance with Section 9. The Stock Option
Agreement shall also specify whether the Option is an ISO or a Nonstatutory
Option.
(c) Exercise Price. Each Stock Option Agreement shall specify the
--------------
Exercise Price. The Exercise Price of an ISO shall not be less than one hundred
percent (100%) of the Fair Market Value of a Share on the date of grant,
-6-
<PAGE>
except as otherwise provided in Section 4(b). The Exercise Price of a
Nonstatutory Option shall not be less than eighty-five percent (85%) of the Fair
Market Value of a Share on the date of grant, except as otherwise provided in
Section 4(b). Subject to the preceding two sentences, the Exercise Price under
any Option shall be determined by the Committee in its sole discretion. The
Exercise Price shall be payable in a form described in Section 8.
(d) Withholding Taxes. As a condition to the exercise of an Option, the
-----------------
Optionee shall make such arrange ments as the Committee may require for the
satisfaction of any federal, state, local or foreign withholding tax obli
gations that may arise in connection with such exercise. The Optionee shall
also make such arrangements as the Committee may require for the satisfaction
of any federal, state, local or foreign withholding tax obligations that may
arise in connection with the disposition of Shares acquired by exercising an
Option.
(e) Exercisability. Each Stock Option Agreement shall specify the date
--------------
when all or any installment of the Option is to become exercisable. To the
extent required by applicable law, an Option shall become exercisable no less
rapidly than the rate of twenty percent (20%) per year for each of the first
five years from the date of grant. Subject to the preceding sentence, the
vesting of any Option shall be determined by the Committee in its sole
discretion.
(f) Term. The Stock Option Agreement shall specify the term of the
----
Option. The term shall not exceed ten (10) years from the date of grant, except
as otherwise provided in Section 4(b). Subject to the preceding sentence, the
Committee at its sole discretion shall determine when an Option is to expire.
(g) Nontransferability. No Option shall be transferable by the Optionee
------------------
other than by will or by the laws of descent and distribution. An Option may be
exercised during the lifetime of the Optionee only by him or by his guardian or
legal representative. No Option or interest therein may be transferred,
assigned, pledged or hypothecated by the Optionee during his lifetime, whether
by operation of law or otherwise, or be made subject to execution, attachment
or similar process.
(h) Exercise of Options on Termination of Service. Each Stock Option
---------------------------------------------
Agreement shall set forth the extent to which the Optionee shall have the right
to exercise the Option following termination of the Optionee's service with the
Company and its Subsidiaries. Such provisions shall be determined in the sole
discretion of the Committee, need not be uniform among all Options issued
pursuant to the Plan, and may reflect distinctions based on the reasons for
termination of employment. Notwithstanding the foregoing, to the extent
required by applicable law, each Option
-7-
<PAGE>
shall provide that the Optionee shall have the right to exercise the vested
portion of any Option held at termination for at least 30 days following
termination of service with the Company for any reason, and that the Optionee
shall have the right to exercise the Option for at least six months if the
Optionee's service terminates due to death or Disability.
(i) No Rights as a Shareholder. An Optionee, or a transferee of an
--------------------------
Optionee, shall have no rights as a shareholder with respect to any Shares
covered by an Option until the date of the issuance of a stock certificate for
such Shares.
(j) Modification, Extension and Assumption of Options. Within the
-------------------------------------------------
limitations of the Plan, the Committee may modify, extend or assume outstanding
Options or may accept the cancellation of outstanding Options (whether granted
by the Company or another issuer) in return for the grant of new Options for the
same or a different number of Shares and at the same or a different Exercise
Price.
(k) Restrictions on Transfer of Shares. No Shares issued upon exercise
----------------------------------
of an Option may be sold or otherwise transferred or disposed of by the Optionee
during the one hundred eighty (180) day period following the effective date of a
registration statement covering securities of the Company filed under the
Securities Act of 1933. Subject to the preceding sentence, any Shares issued
upon exercise of an Option shall be subject to such rights of repurchase, rights
of first refusal and other transfer restrictions as the Committee may determine.
Such restrictions shall be set forth in the applicable Stock Option Agreement
and shall apply in addition to any restrictions that may apply to holders of
Shares generally.
SECTION 8. PAYMENT FOR SHARES.
- ------------------------------
(a) General Rule. The entire Exercise Price of Shares issued under the
------------
Plan shall be payable in lawful money of the United States of America at the
time when such Shares are purchased, except as provided in Subsections (b), (c)
and (d) below.
(b) Surrender of Stock. To the extent that a Stock Option Agreement so
------------------
provides, payment may be made all or in part with Shares which have already been
owned by the Optionee or the Optionee's representative for any time period
specified by the Committee and which are surrendered to the Company in good form
for transfer. Such Shares shall be valued at their Fair Market Value on the
date when the new Shares are purchased under the Plan.
-8-
<PAGE>
(c) Promissory Notes. To the extent that a Stock Option Agreement so
----------------
provides, payment may be made all or in part with a full recourse promissory
note executed by the Optionee. The interest rate and other terms and conditions
of such note shall be determined by the Committee. The Committee may require
that the Optionee pledge his or her Shares to the Company for the purpose of
securing the payment of such note. In no event shall the stock certificate(s)
representing such Shares be released to the Optionee until such note is paid in
full.
(d) Cashless Exercise. To the extent that a Stock Option Agreement so
-----------------
provides and a public market for the Shares exists, payment may be made all or
in part by delivery (on a form prescribed by the Committee) of an irrevocable
direction to a securities broker to sell Shares and to deliver all or part of
the sale proceeds to the Company in payment of the aggregate Exercise Price.
SECTION 9. ADJUSTMENT OF SHARES.
- ---------------------------------
(a) General. In the event of a subdivision of the outstanding Stock, a
-------
declaration of a dividend payable in Shares, a declaration of a dividend payable
in a form other than Shares in an amount that has a material effect on the value
of Shares, a combination or consolidation of the outstanding Stock into a lesser
number of Shares, a recapitalization, a reclassification or a similar
occurrence, the Committee shall make appropriate adjustments in one or more of
(i) the number of Shares available for future grants of Options or other rights
to acquire Shares under Section 5, (ii) the number of Shares covered by each
outstanding Option or other right to acquire Shares or (iii) the Exercise Price
of each outstanding Option or the Purchase Price of each other right to acquire
Shares.
(b) Reorganizations. In the event that the Company is a party to a
---------------
merger or reorganization, outstanding Options or other rights to acquire Shares
shall be subject to the agreement of merger or reorganization.
(c) Reservation of Rights. Except as provided in this Section 9, an
---------------------
Optionee or Offeree shall have no rights by reason of (i) any subdivision or
consolidation of shares of stock of any class, (ii) the payment of any dividend,
or (iii) any other increase or decrease in the number of shares of stock of any
class. Any issue by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall not affect, and no
adjustment by reason thereof shall be made with respect to, the number or
Exercise Price of Shares subject to an Option, or the number or Purchase Price
of shares subject to any other right to acquire Shares. The grant of an Option
or other right to acquire Shares pursuant to the Plan shall not affect in any
way the right or power of the Company to make
-9-
<PAGE>
adjustments, reclassifications, reorganizations or changes of its capital or
business structure, to merge or consolidate or to dissolve, liquidate, sell or
transfer all or any part of its business or assets.
SECTION 10. LEGAL REQUIREMENTS.
- -------------------------------
Shares shall not be issued under the Plan unless the issuance and delivery
of such Shares complies with (or is exempt from) all applicable requirements of
law, including (without limitation) the Securities Act of 1933, as amended, the
rules and regulations promulgated thereunder, state securities laws and
regulations, and the regulations of any stock exchange on which the Company's
securities may then be listed, and the Company has obtained the approval or
favorable ruling from any governmental agency which the Company determines is
necessary or advisable.
SECTION 11. NO EMPLOYMENT RIGHTS.
- ---------------------------------
No provision of the Plan, nor any Option granted or other right to acquire
Shares awarded under the Plan, shall be construed to give any person any right
to become, to be treated as, or to remain an Employee. The Company and its
Subsidiaries reserve the right to terminate any person's Service at any time and
for any reason.
SECTION 12. DURATION AND AMENDMENTS.
- ------------------------------------
(a) Term of the Plan. The Plan, as set forth herein, shall become
----------------
effective on the date of its adoption by the Board of Directors, subject to the
approval of the Company's shareholders. In the event that the shareholders fail
to approve the Plan within twelve (12) months after its adoption by the Board of
Directors, any Option grants or other right to acquire Shares already made shall
be null and void, and no additional Option grants or other right to acquire
Shares shall be made after such date. The Plan shall terminate automatically
ten (10) years after its adoption by the Board of Directors and may be
terminated on any earlier date pursuant to Subsection (b) below.
(b) Right to Amend or Terminate the Plan. The Board of Directors may
------------------------------------
amend the Plan at any time and from time to time. Rights and obligations under
any Option granted or other right to acquire Shares awarded before amendment of
the Plan shall not be materially altered, or impaired adversely, by such
amendment, except with consent of the Optionee or Offeree. An amendment of the
Plan shall be subject to the approval of the Company's shareholders only to the
extent required by applicable laws, regulations or rules.
-10-
<PAGE>
(c) Effect of Amendment or Termination. No Shares shall be issued or
----------------------------------
sold under the Plan after the termination thereof, except upon exercise of an
Option granted prior to such termination. The termination of the Plan, or any
amendment thereof, shall not affect any Share previously issued or Option
previously granted under the Plan.
-11-
<PAGE>
SECTION 13. EXECUTION.
- ----------------------
To record the adoption of the Plan by the Board of Directors as of November
18, 1996, the Company has caused its authorized officer to execute the same.
YAGO SYSTEMS, INC.
By
---------------------------------
Title
------------------------------
-12-
<PAGE>
Exhibit 99.2
YAGO SYSTEMS, INC.
1998 STOCK OPTION PLAN
1. Purpose. The purpose of this Stock Option Plan (the "Plan") is to advance
-------
the interests of Yago Systems, Inc. (the "Company") by enhancing its ability to
attract and retain employees who are in a position to make significant
contributions to the success of the Company and its subsidiaries; reward
employees for such contributions; and encourage employees to take into account
the long-term interests of the Company through ownership of shares of the
Company's common stock ("Stock").
The Plan is intended to accomplish these goals by enabling the Company to
grant Options to eligible employees.
2. Administration. The Plan will be administered by the Board of Directors of
--------------
the Company (the "Board"). The Board will have authority, not inconsistent with
the express provisions of the Plan and in addition to other authority granted
under the Plan, to grant Options at such time or times as it may choose;
determine the size of each Option, including the number of shares of Stock
subject to the Option; determine the type or types of Options; determine the
terms and conditions of each Option; waive compliance by a Participant with any
obligation to be performed by him or her under an Option and waive any term or
condition of an Option; with the consent of the Participant, cancel an existing
Option in whole or in part; grant the Participant another Option to replace an
Option or portion thereof that has been canceled; prescribe the form or forms
of instruments that are required under the Plan, including any written notices
and elections required of Participants, or are deemed appropriate by the Board,
and change such forms from time to time; adopt, amend and rescind rules and
regulations for the administration of the Plan; and interpret the Plan and
decide any questions and settle all controversies and disputes that may arise in
connection with the Plan. Such determinations and actions of the Board, and all
other determinations and actions of the Board made or taken under authority
granted by any provision of the Plan, will be conclusive and will bind all
parties.
3. Effective Date and Term of Plan. The Plan will become effective on the
-------------------------------
date on which it is approved by the stockholders of the Company. Grants of
Options under the Plan may be made prior to that date (but after Board adoption
of the Plan), subject to such approval of the Plan.
No Option may be granted under the Plan after the tenth anniversary of the
date on which the Plan was adopted by the Board, but Options previously granted
may extend beyond that date.
4. Shares Subject to The Plan. Subject to adjustment as provided in Section
--------------------------
8.6 below, the aggregate number of shares of Stock that may be delivered under
the Plan will be 4,394,549. If any Option requiring exercise by the Participant
for delivery of Stock terminates without having
<PAGE>
been exercised in full, or if any Option payable in Stock or cash is satisfied
in cash rather than Stock, the number of shares of Stock as to which such Option
was not exercised or for which cash was substituted will be available for future
grants.
Stock delivered under the Plan may be either authorized but unissued Stock
or previously issued Stock acquired by the Company and held in treasury. No
fractional shares of Stock will be delivered under the Plan.
5. Eligibility and Participation. Those eligible to receive Options under the
-----------------------------
Plan will be persons in the employ of the Company or any of its subsidiaries
("Employees") who, in the opinion of the Board, are in a position to make a
significant contribution to the success of the Company or its subsidiaries. A
"subsidiary" for purposes of the Plan will be a corporation in which the Company
owns, directly or indirectly, stock possessing 50% or more of the total combined
voting power of all classes of stock. The Board will from time to time select
the eligible Employees who are to be granted Options ("Participants").
6. Option Grants.
-------------
a. Nature of Options. An Option is an Option entitling the recipient on
-----------------
exercise thereof to purchase Stock at a specified exercise price. Both
"incentive stock options," as defined in Section 422(b) of the Internal
Revenue Code of 1986, as amended (the "Code"), and Options that are not
incentive stock options, may be granted under the Plan. Any Option
intended to qualify as an incentive stock option will be referred to in the
Plan as an "ISO". Instruments evidencing ISOs must contain such provisions
as are required under applicable provisions of the Code. Once an ISO has
been granted, no action by the Board that would cause the Option to lose
its status under the Code as an incentive stock option will be effective
without the consent of the Option holder.
b. Exercise Price. The exercise price of an Option will be determined by
--------------
the Board subject to the following:
i. The exercise price of an Option which is not an ISO may be any
amount which is not less than 50% of the fair market value (as defined
in Section 8.8) per share of the Stock at the time the Option is
granted.
ii. The exercise price of an ISO may not be less than 100% (110% in
the case of an ISO granted to a ten-percent shareholder) of the fair
market value per share of the Stock at the time the Option is granted.
A "ten-percent shareholder" is any person who at the time of grant
owns directly or indirectly, or is deemed to own by reason of the
attribution rules of Section 424(d) of the Code, stock possessing more
than 10% of the total combined voting power of all classes of stock of
the Company or of any of its subsidiaries.
-2-
<PAGE>
iii. In no case may the exercise price paid for Stock which is part of
an original issue of authorized Stock be less than the par value per
share of the Stock.
iv. The Board may reduce the exercise price of an Option at any time
after the time of grant, but the Option will be treated as a new
Option granted on the date of the reduction.
c. Duration of Options. The latest date on which an Option may be
-------------------
exercised will be the tenth anniversary (fifth anniversary, in the case of
an ISO granted to a ten-percent shareholder) of the date the Option was
granted, or such earlier date as may have been specified by the Board at
the time the Option was granted.
d. Exercise of Options. An Option will become exercisable at such time or
-------------------
times, and on such conditions, as the Board may specify. The Board may at
any time accelerate the time at which all or any part of the Option may be
exercised.
Any exercise of an Option must be in writing, signed by the proper person
and delivered or mailed to the Company, accompanied by (1) any documents
required by the Board and (2) payment in full in accordance with Section 6.5
below for the number of shares for which the Option is exercised.
e. Payment for Stock. Stock purchased on exercise of an Option must be
-----------------
paid for as follows: (1) in cash or by check (acceptable to the Company in
accordance with guidelines established for this purpose), bank draft or
money order payable to the order of the Company or (2) if so permitted by
the instrument evidencing the Option (or, in the case of an Option which is
not an ISO, by the Board at or after grant of the Option), (i) through the
delivery of shares of Stock which have been outstanding for at least six
months (unless the Board expressly approves a shorter period) and which
have a fair market value on the last business day preceding the date of
exercise equal to the exercise price, or (ii) by delivery of a promissory
note of the Option holder to the Company, payable on such terms as are
specified by the Board (provided that, if the Stock delivered upon exercise
of the Option is an original issue of authorized Stock, at least so much of
the exercise price as represents the par value of such Stock must be paid
in cash), or (iii) by delivery of an unconditional and irrevocable
undertaking by a broker to deliver promptly to the Company sufficient funds
to pay the exercise price, or (iv) by any combination of the permissible
forms of payment.
f. Discretionary Payments. If the market price of shares of Stock subject
----------------------
to an Option exceeds the exercise price of the Option at the time of its
exercise, the Board may cancel the Option and cause the Company to pay in
cash to the person exercising the Option an amount equal to the difference
between the fair market value of the Stock which would have been purchased
pursuant to the exercise (determined on the date the Option is canceled)
and the aggregate exercise price which would have been paid. The Board may
-3-
<PAGE>
exercise its discretion to take such action only if it has received a
written request from the person exercising the Option, but such a request
will not be binding on the Board.
g. Special Rule for ISOs. Consistent with Section 422 of the Code and any
---------------------
associated regulations, notices or other official pronouncements of general
applicability, to the extent the aggregate fair market value (determined as
of the time the Option is granted) of the shares of Stock with respect to
which ISOs are exercisable for the first time by the optionee during any
calendar year (under all plans of the Company and its subsidiaries) exceeds
$100,000, such Options shall not be treated as ISOs. Nothing in this
special rule shall be construed as limiting the exercisability of any
Option unless the Board provides for such a limitation at time of grant.
h. Exemption from Qualification. All Options granted hereunder shall be
----------------------------
subject to such additional terms and conditions as may be necessary to
ensure that the Options are exempt pursuant to Section 25102(o) of the
California Corporations Code.
7. Events Affecting Outstanding Options.
------------------------------------
a. Retirement, Death and Disability. If a Participant ceases to be an
--------------------------------
Employee by reason of retirement with consent of the Company after
attainment of age 62, death or total and permanent disability (as
determined by the Board), the following will apply:
i. Subject to paragraph (b) below, each Option held by the
Participant when his or her employment ended will immediately become
exercisable in full and will continue to be exercisable until the
earlier of (1) the third anniversary of the date on which his or her
employment ended, and (2) the date on which the Option would have
terminated had the Participant remained an Employee. If the
Participant has died, his or her Option may be exercised within such
limits by his or her executor or administrator, or by the person or
persons to whom the Option is transferred by will or the applicable
laws of descent and distribution (the Participant's "legal
representative").
ii. If, when the Participant's employment ended, exercise of an
Option was subject to performance or other conditions (other than
conditions relating to the mere passage of time and continued
employment) which had not been satisfied at such time, the Board may
remove or modify such conditions or provide that the Participant will
receive the benefit of the Option if and when the conditions are
subsequently satisfied. If the Board does not take such action,
however, such Option will terminate as of the date on which the
Participant's employment ended above.
If a Participant dies after his or her employment has ended but while an
Option held by him or her is still exercisable, his or her legal representative
will be entitled to exercise such Option
-4-
<PAGE>
until the earlier of (1) the third anniversary of his or her death and (2) the
date on which the Option would have terminated had the Participant remained an
Employee.
b. Other Termination of Employment. If a Participant ceases to be an
-------------------------------
Employee for any reason other than those specified in Section 7.1 above all
Options held by the Participant that were not exercisable when his or her
employment ended will terminate. Any Options that were so exercisable will
continue to be exercisable until the earlier of (1) the date which is three
months after the date on which his or her employment ended and (2) the date
on which the Option would have terminated had the Participant remained an
Employee.
For purposes of this Section 7.2, an Employee's employment will not be
considered to have ended (1) in the case of sick leave or other leave of absence
approved for purposes of the Plan by the Board, so long as his or her right to
reemployment is guaranteed either by statute or by contract or under the policy
pursuant to which the leave of absence was granted or if the Board otherwise so
provides in writing, or (2) in the case of a transfer of employment between the
Company and an affiliated company or between affiliated companies, or to the
employment of a corporation (or a parent or subsidiary corporation of such
corporation) issuing or assuming an Option in a transaction to which Section
424(a) of the Code applies.
c. Mergers, Consolidations, etc. In the event of a merger or
----------------------------
consolidation in which the Company is not the surviving corporation or
which results in the acquisition of substantially all of the Company's
outstanding stock by a single person or entity or by a group of persons or
entities acting in concert, or in the event of sale or transfer of all or
substantially all of the Company's assets (a "covered transaction"), all
outstanding Options may be terminated by the Board as of the effective date
of the covered transaction.
8. General Provisions.
------------------
a. Documentation of Options. Options will be evidenced by written
------------------------
instruments prescribed by the Company from time to time. Such instruments
may be in the form of agreements, to be executed by both the Participant
and the Company, or certificates, letters or similar instruments, which
need not be executed by the Participant but acceptance of which will
evidence agreement to the terms thereof.
b. Rights as a Stockholder; Dividend Equivalents. Except as specifically
---------------------------------------------
provided by the Plan, the receipt of an Option will not give a Participant
rights as a stockholder; the Participant will obtain such rights, subject
to any limitations imposed by the Plan or the instrument evidencing the
Option, upon actual receipt of Stock.
c. Conditions on Delivery of Stock. The Company will not be obligated to
-------------------------------
deliver any shares of Stock pursuant to the Plan or to remove restrictions
from shares previously delivered under the Plan (a) until all conditions of
the Option have been satisfied or removed, (b) until, in the opinion of the
Company's counsel, all applicable federal and
-5-
<PAGE>
state laws and regulations have been complied with, (c) if the outstanding
Stock is at the time listed on any stock exchange, until the shares to be
delivered have been listed or authorized to be listed on such exchange upon
official notice of issuance, and (d) until all other legal matters in
connection with the issuance and delivery of such shares have been approved
by the Company's counsel. If the sale of Stock has not been registered
under the Securities Act of 1933, as amended, the Company may require, as a
condition to exercise of the Option, such representations or agreements as
counsel for the Company may consider appropriate to avoid violation of such
Act and may require that the certificates evidencing such Stock bear an
appropriate legend restricting transfer.
If an Option is exercised by the Participant's legal representative, the
Company will be under no obligation to deliver Stock pursuant to such exercise
until the Company is satisfied as to the authority of such representative.
d. Tax Withholding. The Company will withhold from any cash payment made
---------------
pursuant to an Option an amount sufficient to satisfy all federal, state
and local withholding tax requirements (the "withholding requirements").
In the case of an Option pursuant to which Stock may be delivered, the
Board will have the right to require that the Participant or other appropriate
person remit to the Company an amount sufficient to satisfy the withholding
requirements, or make other arrangements satisfactory to the Board with regard
to such requirements, prior to the delivery of any Stock. If and to the extent
that such withholding is required, the Board may permit the Participant or such
other person to elect at such time and in such manner as the Board provides to
have the Company hold back from the shares to be delivered, or to deliver to the
Company, Stock having a value calculated to satisfy the withholding requirement.
If at the time an ISO is exercised the Board determines that the Company
could be liable for withholding requirements with respect to a disposition of
the Stock received upon exercise, the Board may require as a condition of
exercise that the person exercising the ISO agree (a) to inform the Company
promptly of any disposition (within the meaning of Section 424(c) of the Code)
of Stock received upon exercise, and (b) to give such security as the Board
deems adequate to meet the potential liability of the Company for the
withholding requirements and to augment such security from time to time in any
amount reasonably deemed necessary by the Board to preserve the adequacy of such
security.
e. Nontransferability of Options. Except as otherwise specifically
-----------------------------
provided by the Board, no Option (other than an Option in the form of an
outright transfer of cash or unrestricted Stock) may be transferred other
than by will or by the laws of descent and distribution, and during an
Employee's lifetime an Option requiring exercise may be exercised only by
him or her (or, in the event of incapacity, the person or persons properly
appointed to act on his or her behalf).
-6-
<PAGE>
f. Adjustments in the Event of Certain Transactions.
------------------------------------------------
i. In the event of a stock dividend, stock split or combination of
shares, recapitalization or other change in the Company's
capitalization, or other distribution with respect to common
stockholders other than normal cash dividends, the Board will make any
appropriate adjustments to the maximum number of shares that may be
delivered under the Plan under Section 4 above.
ii. In any event referred to in paragraph (a) the Board will also
make any appropriate adjustments to the number and kind of shares of
stock or securities subject to Options then outstanding or
subsequently granted, any exercise prices relating to Options and any
other provisions of Options affected by such change. The Board may
also make such adjustments to take into account material changes in
law or in accounting practices or principles, mergers, consolidations,
acquisitions, dispositions or similar corporate transactions, or any
other event, if it is determined by the Board that adjustments are
appropriate to avoid distortion in the operation of the Plan, but no
such adjustments other than those required by law may adversely affect
the rights of any Participant (without the Participant's consent)
under any Option previously granted.
g. Employment Rights. Neither the adoption of the Plan nor the grant of
-----------------
Options will confer upon any person any right to continued employment with
the Company or any subsidiary or affect in any way the right of the Company
or subsidiary to terminate an employment relationship at any time. Except
as specifically provided by the Board in any particular case, the loss of
existing or potential profit in Options granted under the Plan will not
constitute an element of damages in the event of termination of an
employment relationship even if the termination is in violation of an
obligation of the Company to the Employee.
h. Fair Market Value. For purposes of the Plan, fair market value of a
-----------------
share of Stock on any date will be the value determined in good faith of
the Board in accordance with applicable law.
i. Deferral of Payments. The Board may agree at any time, upon request of
--------------------
the Participant, to defer the date on which any payment under an Option
will be made.
j. Past Services as Consideration. Where a Participant purchases Stock
------------------------------
under an Option for a price equal to the par value of the Stock, the Board
may determine that such price has been satisfied by past services rendered
by the Participant.
9. Effect, Discontinuance, Cancellation, Amendment and Termination. Neither
---------------------------------------------------------------
adoption of the Plan nor the grant of Options to a Participant will affect the
Company's right to grant to such Participant Options that are not subject to the
Plan, to issue to such Participant Stock as a bonus or otherwise, or to adopt
other plans or arrangements under which Stock may be issued to Employees.
-7-
<PAGE>
The Board may at any time discontinue granting Options under the Plan. The
Board may at any time or times amend the Plan or any outstanding Option for any
purpose which may at the time be permitted by law, or may at any time terminate
the Plan as to any further grants of Options, provided that (except to the
extent expressly required or permitted by the Plan) no such amendment will,
without the approval of the stockholders of the Company, (a) increase the
maximum number of shares available under the Plan, (b) change the group of
persons eligible to receive Options under the Plan, (c) extend the time within
which Options may be granted, or (d) amend the provisions of this Section 9, and
no amendment or termination of the Plan may adversely affect the rights of any
Participant (without his or her consent) under any Option previously granted.
YAGO SYSTEMS, INC.
By
---------------------------------
Title
------------------------------
-8-
