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