NETSILICON, INC.
1998 INCENTIVE AND
NON-QUALIFIED STOCK OPTION PLAN
1. PURPOSES OF PLAN. The purposes of the NETsilicon, Inc.1998 Incentive
and NonQualified Stock Option Plan (hereinafter referred to as the "Plan") are
to provide to employees and consultants of NETsilicon, Inc. (hereinafter
referred to as the "Corporation"), as well as employees and consultants
subsidiary or parent corporations which may currently exist or be formed or
acquired in the future, an opportunity for investment in the Corporation's
common stock (hereinafter referred to as the "Shares"), as an inducement for
such individuals to remain with the Corporation, and to encourage them to
increase their efforts to make the Corporation's business more successful.
2. EFFECTIVE DATE AND TERMINATION OF PLAN. The effective date of the
Plan is August 24, 1998, the date on which the Plan was adopted by the
Board of Directors of the Corporation. The Plan shall terminate on, and no
option shall be granted hereunder, after August 24, 2008; provided, however,
that the Board of Directors may at any time prior to that date terminate the
Plan; and provided further that any option granted hereunder prior to the
termination of the Plan shall remain exercisable in accordance with its terms as
then in effect.
3. ADMINISTRATION OF PLAN. The Plan shall be administered by the Board
of Directors of the Corporation. The Board of Directors may, however, to the
extent permissible under the Corporation's Articles of Organization, By-laws and
applicable law, delegate any of its functions under this Plan to a committee of
the Board of Directors or any other committee. Wherever in this Plan the term
"Board of Directors" is used it shall be construed to mean such committee to the
extent that the Board of Directors may have delegated any of its functions to
said committee and only to the extent of any such delegation. The acts of a
majority of the members present at any meeting of the Board of Directors at
which a quorum is present, or acts approved in writing by a majority of the
entire Board, shall be the acts of the Board of Directors for purposes of the
Plan.
4. ELIGIBILITY AND GRANT OF OPTIONS. Subject to the provisions of the
Plan, the Board of Directors shall (i) authorize the granting of incentive stock
options, non-qualified stock options or a combination of incentive stock options
and non-qualified stock options (hereinafter collectively referred to as
"options" unless otherwise stated); (ii) determine and designate from time to
time those employees and consultants (from the group consisting of all employees
and consultants) of the Company to whom options are to be granted and the
number of Shares to be optioned to each employee; (iii) determine the number of
Shares subject to each option; and (iv) determine the time or times when and the
manner in which each option shall be exercisable and the duration of the
exercise period. In determining the eligibility of an individual to receive an
option, as well as in determining the number of Shares to be optioned to any
individual, the Board of Directors shall consider the position and
responsibilities of the employee or consultant, the nature and value to the
Corporation, parent or subsidiary of his services and accomplishments, his
present and potential contribution to the success of the Corporation, parent
or subsidiary, and such other factors as the Board may deem relevant. To be
eligible to receive an incentive stock option or non-qualified stock option an
individual must be an employee of the Corporation, parent or subsidiary. A
Director shall abstain from voting on the grant of any options to himself, his
spouse, his children, grandchildren and parents. The grant of each option
shall be
confirmed by a Stock Option Agreement (in the form prescribed by the Board of
Directors) which shall be executed by the Corporation and the optionee as
promptly as practicable after such grant. More than one option may be granted
to an individual.
1. Incentive stock options shall be those options which
satisfy the requirements of Section 422 of the Internal Revenue Code of
1986, as amended and which the Board of Directors has specifically
identified as incentive stock options in the Stock Option Agreement
executed by the Corporation and the optionee. In the case of incentive
stock options, the aggregate fair market value, determined at the time
incentive stock options are granted, of the stock with respect to which
the incentive stock options are exercisable for the first time by such
individual during any calendar year (under all such plans the
Corporation may adopt) shall not exceed one hundred thousand dollars
($100,000.00). In the event that an incentive stock option granted
pursuant to the terms of this Plan is granted to an employee who, prior
to the grant, holds more than ten percent (10%) of the total combined
voting power of all classes of stock of the Corporation, its parent or
a subsidiary ("10% shareholder") the option price under such grant
shall be at least one hundred ten percent (110%) of the fair market
value, and such option, by its terms, shall not be exercisable more
than five (5) years from the date of grant.
2. Nothing in the Plan or in any option granted pursuant to
the Plan shall confer on any individual any right to continue in the
employ of the Corporation or any parent or subsidiary or interfere in
any way with the right of the Corporation to terminate his employment
at any time.
5. NUMBER OF SHARES SUBJECT TO OPTIONS. The Board of Directors, prior
to the time options under the Plan become exercisable, shall reserve for the
purposes of the Plan a total of two million (2,000,000) Shares, which Shares may
be either authorized and unissued Shares, or previously issued Shares held in
the treasury of the Corporation, or both. Shares as to which an option granted
under the Plan shall remain unexercised at the expiration or termination
thereof, and Shares subject to options which are cancelled, may be the subject
of the grant of further options. Shares reserved pursuant to this paragraph may
be adjusted to reflect changes in the Corporation's capital structure as
discussed in paragraph 19 hereof.
6. OPTION PRICE. The option price per Share shall be determined in each
case by the Board of Directors and shall not be less than one hundred percent
(100%) (one hundred ten percent (110%) in the case of an incentive stock option
granted to a ten percent (10%) Shareholder) of the fair market value thereof as
determined by the Board by any reasonable method using market quotations on the
date the option is granted.
7. PERIOD OF OPTION AND WHEN EXERCISABLE. No option may be granted
under this Plan whose exercise date is later than ten (10) years after the date
of grant or five (5) years after the date of grant in the case of an incentive
stock option granted to a ten percent (10%) Shareholder. Generally, an option
may be exercised only by the optionee and subject to the rules set forth below
only if, at all times during the period beginning on the date of the granting of
such option and ending with the date of exercise of such option, the optionee is
an employee or consultant of the Corporation, its parent or a subsidiary.
i. Except as otherwise provided herein, in the
case of an employee who terminates
employment, incentive stock options which
are vested but unexercised as of the date of
termination of employment must be exercised
within three (3) months of termination. In
the case of an employee who is discharged
for cause, as determined in the sole
discretion of the Board of Directors, all
previously vested but unexercised options
shall be forfeited immediately.
ii. In the case of an employee who dies during
the three (3) month period discussed in (i)
above, options which are vested but
unexercised as of the date of termination of
employment must be exercised within twelve
(12) months of death.
iii. Options which are vested but unexercised as
of the date of termination of employment due
to death, must be exercised within twelve
(12) months after the death of an optionee.
iv. In the event that the employee becomes
disabled as defined in Section 22(e) (3) of
the Internal Revenue code of 1986, as
amended, options which are vested but
unexercised as of the date of termination of
employment due to disability must be
exercised within twelve (12) months
following the date of termination of the
optionee's said employment.
v. In the event an optionee's employment is
terminated for any reason (including but not
limited to, voluntary or involuntary
termination or termination resulting from
the death or disability of the optionee),
all unvested options shall be immediately
forfeited.
Notwithstanding the foregoing, options may not be exercised after the
original five (5) or ten (10) year term, Options may be exercised on behalf of
the estate of a former employee by the person or persons entitled to do so under
the optionee's will or, if the optionee shall have failed to make testamentary
disposition of such option or shall have died intestate, by the optionee's legal
representative or representatives. Such person, persons, representative, or
representatives are hereinafter referred to as the "Successors of an Optionee."
8. VESTING. Options granted to a participant shall be exercisable in
accordance with the following schedule unless the Board of Directors otherwise
specifies at the time of grant:
Cumulative Percentage of Aggregate Number
of Shares of Stock Covered by an Option
Exercise Period which may be Exercised
--------------- ----------------------
Beginning on the one year anniversary
date from date of grant 50%
Beginning on the second anniversary
date from date of grant 100%*
*less the number of Shares, if any, previously purchased under the
option. Non-vested options shall be immediately forfeited upon the
termination of employment for any reason. Vested options shall be
forfeited upon the termination of employment as provided in paragraph 7
hereof.
Notwithstanding the foregoing, the Board of Directors or its designees shall
have the right to grant options with shorter vesting schedules or which are
immediately exercisable under the Plan.
9. EXERCISE OF OPTIONS. Subject to Plan restrictions and vesting, an
option may be exercised, and payment in full of the option price made, by an
optionee only by written notice (in the form prescribed by the Board of
Directors) to the Corporation specifying the number of Shares to be so
purchased. Such notice shall state that the option price will be paid in full in
cash (which in the discretion of the Board of Directors may be obtained through
a loan from the Corporation or from a third party and guaranteed by the
Corporation) or other property, in the discretion of the Corporation. If the
Corporation accepts a request to pay in stock of the Corporation in satisfaction
of the exercise price, the fair market value of said stock shall at least equal
the option price, and, in the case of incentive stock options, prior to such
acceptance the Corporation must be furnished with evidence that the acquisition
of said stock and its transfer in payment of the option price satisfies the
requirements of Section 422 of the Internal Revenue Code of 1986, as amended and
other applicable law. As soon as practicable after receipt by the Corporation of
such notice and of payment in full of the option price of all the Shares with
respect to which an option has been exercised, a certificate or certificates
representing such Shares shall be registered (subject to the provisions of
paragraph 16 hereof) in the name of the optionee or the Successors of an
Optionee as defined under this Plan and delivered to the optionee or to the
Successors of an Optionee.
10. MERGER OR ASSET SALE. In the event of a merger of the Company with
or into another corporation or the sale of substantially all of the assets of
the Company, outstanding Options may be assumed or equivalent options may be
substituted by the successor corporation or a Parent or Subsidiary thereof (the
"Successor Corporation"). If an Option is assumed or substituted for, the Option
or equivalent option shall continue to be exercisable as provided in Section 7
hereof for so long as the Optionee serves as an employee of the Successor
Corporation. Following such assumption or substitution, if the Optionee's status
as an employee is terminated other than upon a voluntary resignation by the
Optionee, the Option shall become fully vested and exercisable in accordance
with Section 7 above.
1. If the Successor Corporation does not assume an outstanding
Option or substitute for it an equivalent option, the Option shall
become fully vested and exercisable, including as to Shares for which
it would not otherwise be exercisable. In such event the Board shall
notify the Optionee that the Option shall be fully exercisable for a
period of thirty (30) days from the date of such notice, and upon the
expiration of such period the Option shall terminate.
. For the purposes of this Section 10, an Option shall be
considered assumed if, following the merger or sale of assets, the
Option confers the right to purchase or receive, for each Share of
Optioned Stock subject to the Option immediately prior to the merger or
sale of assets, the consideration (whether stock, cash, or other
securities or property) received in the merger or sale of assets by
holders of Common Stock for each Share held on the effective date of
the transaction (and if holders were offered a choice of consideration,
the type of consideration chosen by the holders of a majority of the
outstanding Shares). If such consideration received in the merger or
sale of assets is not solely common stock of the successor corporation
or its Parent, the Board may, with the consent of the successor
corporation, provide for the consideration to be received upon the
exercise of the Option, for each Share of Optioned Stock subject to the
Option, to be solely common stock of the successor corporation or its
Parent equal in fair market value to the per share consideration
received by holders of Common Stock in the merger or sale of assets.
11. EMPLOYER WITHHOLDING. In the case of non-qualified stock options,
the Corporation shall be required to withhold additional income taxes
attributable to that amount which is considered compensation includible in the
optionee's gross income by reason of the exercise of such options. The
Corporation in its discretion shall determine the method and amount of
withholding.
12. EXERCISE BV SUCCESSORS AND PAYMENT IN FULL. An option may be
exercised, and payment in full of the option price made, by the Successors of an
Optionee only by written notice (in the form prescribed by the Board of
Directors) to the Corporation specifying the number of Shares to be purchased.
Such notice shall state that the option price will be paid in full in cash
(which in the discretion of the Board of Directors may be obtained through a
loan from the Corporation or from a third party and guaranteed by the
Corporation), property or stock of the Corporation in conformance with paragraph
9 hereof. As soon as practicable after receipt by the Corporation of such notice
and of payment in full of the option price of all the Shares with respect to
which an option has been exercised, a certificate or certificates representing
such Shares shall be registered (subject to the provisions of paragraph 16
hereof) in the name or names of such Successors of an Optionee and shall be
delivered to him.
13. NON-TRANSFERABILITY OF OPTION. Each option granted under the Plan
shall by its terms be nontransferable by the optionee except by will or the laws
of descent and distribution of the state wherein the optionee is domiciled at
the time of his death. If the Administrator makes an Option transferable, such
Option shall contain such additional terms and conditions, as the Administrator
deems appropriate.
14. OTHER TERMS OF OPTION. Options granted pursuant to the Plan shall
contain such terms, provisions, and conditions not inconsistent herewith as
shall be determined by the Board of Directors.
15. REGISTRATION OF CERTIFICATES. Certificates representing Shares may
be registered either in the name of the Optionee or in the name or names of the
Successors of an Optionee. Designation of the appropriate form of registration
of certificates shall be made in the written notice given to the Corporation
upon exercise of an option.
16. LISTING AND REGISTRATION OF SHARES. If at any time the Board of
Directors of the Corporation shall determine, in its discretion, that the
listing, registration, or qualification of any of the Shares subject to options
under the Plan upon any securities exchange or under any state or federal law,
or the consent or approval of any governmental regulatory body is necessary or
desirable as a condition of or in connection with the granting of options or the
purchase or issue of Shares thereunder, no further options may be granted and
outstanding options may not be exercised in whole or in part unless and until
such listing, registration, qualification, consent, or approval shall have been
effected or obtained free of any conditions not acceptable to the Board of
Directors. The Board of Directors shall have the authority to cause the
Corporation at its expense to take any action related to the Plan which may be
required in connection with such listing, registration, qualification, consent,
or approval. The Board of Directors may require that any person exercising an
option hereunder shall make such representations and agreements and furnish such
information as it deems appropriate to assure compliance with the foregoing or
any other applicable legal requirement.
17. INTERPRETATION AND AMENDMENTS. The Board of Directors may make such
rules and regulations and establish such procedure for the administration of the
Plan as it deems ap propriate. In the event of any dispute or disagreements as
to the interpretation of this Plan or of any rule, regulation, or procedure, or
as to any question, right or obligation arising from or related to the Plan, the
decision of the Board of Directors shall be final and binding upon all persons.
The Board of Directors may amend this Plan as it shall deem advisable. However,
in no event shall any such amendment adversely affect the rights of an optionee
under any existing stock option agreement without the consent of such optionee.
In addition, no amendment may, without further approval of the shareholders of
the Company within twelve months before or after the date on which such
amendment was adopted, (a) increase the total number of shares which may be made
subject of options granted under the 1998 Plan, (b) change the manner of
determining the option price, (c) change the criteria of determining which
employees are eligible to receive options, (d) extend the period during which
options may be granted or exercised, or (e) withdraw the administration of the
1998 Plan from the Board of Directors.
18. INDEMNIFICATION AND EXCULPATION.
1. Each person who is or shall have been a member of the Board
of Directors shall be indemnified and held harmless by the Corporation
against and from any and all loss, cost, liability, or expense that may
be imposed upon or reasonably incurred by him in connection with or
resulting from any claim, action, suit, or proceeding to which he may
be or become a party or in which he may be or become involved by reason
of any action taken or failure to act under the Plan and against and
from any and all amounts paid by him in
settlement thereof (with the Corporation's written approval) or paid by
him in satisfaction of a judgment in any such action, suit, or
proceeding, except a judgment in favor of the Corporation based upon a
finding of his lack of good faith; subject, however, to the condition
that upon the institution of any claim, action, suit, or proceeding
against him, he shall in writing give the Corporation an opportunity,
at its own expense, to handle and defend the same before he undertakes
to handle and defend it on his own behalf. The foregoing right of
indemnification shall not be exclusive of any other right to which such
person may be entitled as a matter of law or otherwise, or any power
that the Corporation may have to indemnify him or hold him harmless.
2. Each member of the Board of Directors, and each officer and
employee of the Corporation shall be fully justified in relying or
acting in good faith upon any information furnished in connection with
the administration of the Plan by any appropriate person or persons
other than himself. In no event shall any person who is or shall have
been a member of the Board of Directors, or an officer or employee of
the Corporation be held liable for any determination made or other
action taken or any omission to act in reliance upon any such
information, or for any action (including the furnishing of
information) taken or any failure to act, if in good faith.
19. CHANGES IN CAPITAL STRUCTURE. In the event that a dividend shall be
declared upon the Shares payable in Shares, the number of shares then subject to
any option outstanding under the Plan and the number of Shares reserved for the
grant of options pursuant to the Plan but not yet subject to option shall be
adjusted by adding to each such Share the number of Shares which would be
distributable in respect thereof if such Shares had been outstanding on the date
fixed for determining the shareholders of the Corporation entitled to receive
such Share dividend. In the event that the outstanding Shares shall be changed
into or exchanged for a different number of Shares or other securities of the
Corporation or of another corporation, whether through reorganization,
recapitalization, split-up, combination of shares, merger, or consolidation,
then there shall be substituted for each Share subject to any such option and
for each Share reserved for the grant of options pursuant to the Plan but not
yet subject to option the number and kind of Shares or other securities into
which each outstanding Share shall have been so changed or for which each such
share shall have been exchanged. In the event there shall be any change, other
than as specified above in this paragraph, in the number or kind of outstanding
Shares or of any shares or other securities into which such Shares shall have
been changed or for which they shall have been exchanged, then if the Board of
Directors shall in its sole discretion determine that such change equitably
requires an adjustment in the number or kind of Shares theretofore reserved for
the grant of options pursuant to the Plan but not yet subject to option and of
the Shares then subject to an option or options. such adjustments shall be made
by the Board of Directors and shall be effective and binding for all purposes of
the Plan and of each option outstanding thereunder. In the case of any such
substitution or adjustment as provided for in this paragraph, the aggregate
option exercise price set forth for all outstanding options for all Shares
covered thereby prior to such substitution or adjustment will be the option
exercise price for all shares or other securities which shall have been adjusted
pursuant to this paragraph. No adjustment or substitution provided for in this
paragraph shall require the Corporation to sell a fractional Share, and the
total substitution or adjustment with
respect to each outstanding option shall be limited accordingly. Upon any
adjustment made pursuant to this paragraph, the Corporation will, upon request,
deliver to the optionee or to his successors a certificate setting forth the
option price thereafter in effect and the number and kind of shares or other
securities thereafter purchasable on the exercise of the option.
20. NOTICES. All notices under the Plan shall be in writing, and if to
the Corporation, shall be delivered. to the Treasurer of the Corporation or
mailed to its principal office, addressed to the attention of the Treasurer; and
if to the optionee, shall be delivered personally or mailed to the optionee at
the address appearing in the payroll records of the Corporation. Such addresses
may be changed at any time by written notice to the other party.
21. CORPORATION'S OPTION. As of the date of the adoption of the Plan,
the Corporation intends to commence an initial public offering of shares of its
Common Stock. Until such time as such offering is completed, the Corporation
shall have the right to purchase from any optionee (or his or her successor,
assignee or transferee) shares of common stock issued upon the exercise of
options granted hereunder for a price per share equal to the exercise price per
share paid for such shares.