-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ugo5HaH3zA3YI+1GrKJCbDqfOF7Sj2qs9NoxHT8d8efAbgwRvLP5NKD0JCl77fJv 6fe6rBpBwRy1ExrNGslljA== 0000912057-99-010570.txt : 19991228 0000912057-99-010570.hdr.sgml : 19991228 ACCESSION NUMBER: 0000912057-99-010570 CONFORMED SUBMISSION TYPE: S-8 PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 19991227 EFFECTIVENESS DATE: 19991227 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CADENCE DESIGN SYSTEMS INC CENTRAL INDEX KEY: 0000813672 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 770148231 STATE OF INCORPORATION: DE FISCAL YEAR END: 0102 FILING VALUES: FORM TYPE: S-8 SEC ACT: SEC FILE NUMBER: 333-93609 FILM NUMBER: 99780413 BUSINESS ADDRESS: STREET 1: 2655 SEELY ROAD BLDG 5 CITY: SAN JOSE STATE: CA ZIP: 95134 BUSINESS PHONE: 4089431234 MAIL ADDRESS: STREET 1: 555 RIVER OAKS PARKWAY CITY: SAN JOSE STATE: CA ZIP: 95134 FORMER COMPANY: FORMER CONFORMED NAME: ECAD INC /DE/ DATE OF NAME CHANGE: 19880609 S-8 1 S-8 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 24, 1999 REGISTRATION NO. 333- ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------ FORM S-8 REGISTRATION STATEMENT Under The Securities Act of 1933 ------------ CADENCE DESIGN SYSTEMS, INC. (Exact name of registrant as specified in its charter) DELAWARE 77-0148231 (State or Other Jurisdiction (I.R.S. Employer of Incorporation or Organization) Identification No.) 2655 SEELY AVENUE, BUILDING 5 SAN JOSE, CALIFORNIA 95134 (Address of Principal Executive Offices) (Zip Code) ---------------------- OPTIONS ASSUMED BY CADENCE DESIGN SYSTEMS, INC. ORIGINALLY GRANTED UNDER THE DIABLO RESEARCH COMPANY LLC 1997 STOCK OPTION PLAN AND THE DIABLO RESEARCH COMPANY LLC 1999 STOCK OPTION PLAN (Full titles of the Plans) ---------------------- R.L. SMITH MCKEITHEN SENIOR VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY CADENCE DESIGN SYSTEMS, INC. 2655 SEELY AVENUE, BUILDING 5, SAN JOSE, CALIFORNIA 95134 (Name and Address of Agent for Service) (408) 943-1234 (Telephone number, including area code, of agent for service) ---------------------- COPIES TO: GREGORY J. CONKLIN, ESQ. GIBSON, DUNN & CRUTCHER LLP ONE MONTGOMERY STREET, 26TH FLOOR SAN FRANCISCO, CALIFORNIA 94104 (415) 393-8200 CALCULATION OF REGISTRATION FEE ================================================================================
Title of Securities Proposed Maximum Proposed Maximum Amount of to be Registered Amount to be Registered(1) Offering Price per Share(2) Aggregate Offering Price (2) Registration Fee(2) - ------------------- -------------------------- --------------------------- ---------------------------- ------------------- Common Stock, par 245,037 shares $4.73 $1,159,025.01 $306.00 value $.01 per share
================================================================================ (1) This Registration Statement shall also cover any additional shares of Common Stock which become issuable under the Diablo Research Company LLC 1997 Stock Option Plan or the Diablo Research Company 1999 Stock Option Plan (together , the "Assumed Option Plans") by reason of any stock dividend, stock split, recapitalization or other similar transaction effected without the receipt of consideration which results in an increase in the number of the outstanding shares of Cadence Design Systems, Inc. Common Stock. (2) Calculated solely for purposes of this offering under Rule 457(h) of the Securities Act of 1933, as amended, on the basis of the maximum offering price per share at which such options may be exercised. ================================================================================ The shares of common stock subject to options registered hereunder have been assumed by Cadence Design Systems, Inc. ("Cadence" or the "Registrant") pursuant to an Agreement and Plan of Merger, dated as of November 19, 1999, as amended, among Cadence, Daffodil Acquisition III, LLC, a Delaware limited liability company and indirect wholly-owned subsidiary of Cadence, Diablo Research Company LLC, a California limited liability company ("Diablo"), and Safeguard Pioneer, Inc., a Delaware corporation, as securityholder agent. These options were originally granted to directors, employees and consultants of Diablo under the Assumed Option Plans. PART II INFORMATION REQUIRED IN THE REGISTRATION STATEMENT Item 3. INCORPORATION OF DOCUMENTS BY REFERENCE The Registrant hereby incorporates by reference into this Registration Statement the following documents previously filed with the Securities and Exchange Commission (the "Commission"): (a) The Registrant's Annual Report on Form 10-K for the fiscal year ended January 2, 1999, including all material incorporated by reference therein; (b) The Registrant's Quarterly Reports on Form 10-Q for the fiscal quarters ended April 3, 1999, July 3, 1999 and October 2, 1999, including all material incorporated by reference therein; (c) The Registrant's Current Report on Form 8-K/A filed with the Commission on January 6, 1999; (d) The Registrant's Current Report on Form 8-K filed with the Commission on May 6, 1999; (e) The Registrant's Current Report on Form 8-K/A filed with the Commission on May 20, 1999; (f) The Registrant's Current Report on Form 8-K filed with the Commission on May 26, 1999; (g) The Registrant's Current Report on Form 8-K/A filed with the Commission on June 15, 1999; (h) The description of the Registrant's Common Stock to be offered hereby contained in the Registrant's Registration Statement on Form 8-A filed with the Commission on August 29, 1990; (i) The description of the Registrant's Preferred Share Purchase Rights set forth in Exhibit 1A, 1B and 1C to the Registrant's Current Report on Form 8-A filed with the Commission on February 16, 1996. All documents filed pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended (the "1934 Act") after the date of this Registration Statement and prior to the filing of a post-effective amendment which indicates that all securities offered hereby have been sold or which deregisters all securities then remaining unsold shall be deemed to be incorporated by reference into this Registration Statement and to be a part hereof from the date of filing of such documents. Any document, and any statement contained in a document, incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Registration Statement to the extent that a statement contained herein, or in any other subsequently filed document that also is incorporated or deemed to be incorporated by reference herein, modifies or supersedes such document or statement. Any such document or statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Registration Statement. Subject to the foregoing, all information appearing in this Registration Statement is qualified in its entirety by the information appearing in the documents incorporated by reference. II-1 Item 4. DESCRIPTION OF SECURITIES Not Applicable. Item 5. INTERESTS OF NAMED EXPERTS AND COUNSEL Not Applicable. Item 6. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 145 of the Delaware General Corporation Law permits a corporation to indemnify any of its directors or officers who was or is a party or is threatened to be made a party to any third party proceeding by reason of the fact that such person is or was a director or officer of the corporation against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe that such person's conduct was unlawful. In a derivative action, i.e., one by or in the right of a corporation, the corporation is permitted to indemnify any of its directors or officers against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification shall be made if such person shall have been adjudged liable to the corporation, unless and only to the extent that the court in which such action or suit was brought shall determine upon application that such person is fairly and reasonably entitled to indemnity for such expenses despite such adjudication of liability. Article VII of the Registrant's currently effective Certificate of Incorporation eliminates the personal liability of its directors for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law or (iv) for any transaction from which the director derived an improper personal benefit. In addition, as permitted by Section 145 of the Delaware General Corporation Law, the Bylaws of the Registrant provide that: (a) the Registrant is required to indemnify its directors and officers and persons serving in such capacities in other business entities (including, for example, subsidiaries of the Registrant) at the Registrant's request (such directors, officers and other persons are collectively, "Covered Persons"), to the fullest extent permitted by Delaware law, including those circumstances in which indemnification would otherwise be discretionary; (b) the Registrant is required to advance expenses, as incurred to such Covered Persons in connection with defending a proceeding; (c) the indemnitee(s) of the Registrant have the right to bring suit, and to be paid the expenses of prosecuting such suit if successful, to enforce the rights to indemnification under the Bylaws or to advancement of expenses under the Bylaws; (d) the rights conferred in the Bylaws are not exclusive and the Registrant is authorized to enter into indemnification agreements with such directors, officers and employees; (e) the Registrant is required to maintain director and officer liability insurance to the extent reasonably available; and (f) the Registrant may not retroactively amend the Bylaws indemnification provision in a way that is adverse to such Covered Persons. The Registrant has entered into indemnity agreements with each of its executive officers and directors that provide the maximum indemnity allowed to officers and directors by Section 145 of the Delaware General Corporation Law and the Bylaws, as well as certain additional procedural protections. The Registrant also maintains a limited amount of director and officer insurance. The indemnification provision in the Bylaws, and the indemnity agreements entered into between the Registrant and its officers or directors, may be sufficiently broad to permit indemnification of the Registrant's officers and directors for liability arising under the Securities Act of 1933, as amended (the "1933 Act"). Item 7. EXEMPTION FROM REGISTRATION CLAIMED Not Applicable. II-2 Item 8. EXHIBITS
EXHIBIT NUMBER EXHIBIT - -------------- ------- 4.1(a) The description of the Registrant's Common Stock. Reference is made to the Registrant's Registration Statement on Form 8-A filed with the Commission on August 29, 1990 incorporated by reference pursuant to Item 3(g); 4.1(b) The description of the Registrant's Preferred Share Purchase Rights. Reference is made to Exhibit 1A, 1B and 1C to the Registrant's Current Report on Form 8-A filed with the Commission on February 16, 1996 incorporated by reference pursuant to Item 3(h). 4.2 Specimen Certificate of the Registrant's Common Stock (incorporated by reference to Exhibit 4.01 of the Registrant's Registration Statement on Form S-4 (33-43400)). 4.3 Rights Agreement, dated as of February 9, 1996, between the Registrant and Harris Trust and Savings Bank which includes as exhibits thereto the Certificate of Designation for the Series A Junior Participating Preferred Stock, the form of Rights Certificate, and the Summary of Rights to Purchase Preferred Shares (incorporated by reference to Exhibit 1A, 1B, and 1C to the Registrant's Current Report on Form 8-K filed on February 16, 1996). 5.1 Opinion and consent of Gibson, Dunn & Crutcher LLP. 23.1 Consent of Arthur Andersen LLP, Independent Public Accountants. 23.2 Consent of Gibson, Dunn & Crutcher LLP (contained in Exhibit 5.1). 99.1 Diablo Research Company LLC 1997 Stock Option Plan 99.2 Diablo Research Company LLC 1999 Stock Option Plan
Item 9. UNDERTAKING A. The undersigned Registrant hereby undertakes: (1) to file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement (i) to include any prospectus required by Section 10(a)(3) of the 1933 Act; (ii) to reflect in the prospectus any facts or events arising after the effective date of this Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in this Registration Statement; and (iii) to include any material information with respect to the plan of distribution not previously disclosed in this Registration Statement or any material change to such information in this Registration Statement; PROVIDED, HOWEVER, that clauses (1)(i) and (l)(ii) shall not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed by the Registrant pursuant to Section 13 or Section 15(d) of the 1934 Act that are incorporated by reference into this Registration Statement; (2) that for the purpose of determining any liability under the 1933 Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof, and (3) to remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold upon the termination of the offering under the Assumed Option Plans. B. The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the 1933 Act, each filing of the Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the 1934 Act that is incorporated by reference into this Registration Statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial BONA FIDE offering thereof. II-3 C. Insofar as indemnification for liabilities arising under the 1933 Act may be permitted to directors, officers or controlling persons of the Registrant pursuant to the indemnity provisions incorporated by reference in Item 6, or otherwise, the Registrant has been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the 1933 Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the 1933 Act and will be governed by the final adjudication of such issue. II-4 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-8, and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Jose, State of California, on this 23rd day of December, 1999. CADENCE DESIGN SYSTEMS, INC. By: * ----------------------------- H. Raymond Bingham President, Chief Executive Officer and Director Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE * President, Chief Executive Officer and December 23, 1999 - ---------------------------------- H. Raymond Bingham Director (Principal Executive Officer) * Senior Vice President, Chief Financial December 23, 1999 - ----------------------------------- William Porter Officer (Principal Financial Officer and Principal Accounting Officer) * Director December 23, 1999 - ----------------------------------- Carol A. Bartz * Director December 23, 1999 - ----------------------------------- Dr. Leonard Y.W. Liu * Director December 23, 1999 - ----------------------------------- Donald L. Lucas * Director December 23, 1999 - ----------------------------------- Dr. Alberto Sangiovanni- Vincentelli * Director December 23, 1999 - ----------------------------------- George M. Scalise * Director December 23, 1999 - ----------------------------------- Dr. John B. Shoven * Director December 23, 1999 - ----------------------------------- Roger S. Siboni By: /s/R.L. Smith McKeithen - ----------------------------------- R.L. Smith McKeithen Attorney-in-Fact
II-5 EXHIBIT INDEX
EXHIBIT NUMBER EXHIBIT - -------------- ------- 4.1(a) The description of the Registrant's Common Stock. Reference is made to the Registrant's Registration Statement on Form 8-A filed with the Commission on August 29, 1990 incorporated by reference pursuant to Item 3(g). (b) The description of the Registrant's Preferred Share Purchase Rights. Reference is made to Exhibit 1A, 1B and 1C to the Registrant's Current Report on Form 8-A filed with the Commission on February 16, 1996 incorporated by reference pursuant to Item 3(h). 4.2 Specimen Certificate of the Registrant's Common Stock (incorporated by reference to Exhibit 4.01 of the Registrant's Registration Statement on Form S-4 (33-43400)). 4.3 Rights Agreement, dated as of February 9, 1996, between the Registrant and Harris Trust and Savings Bank which includes as exhibits thereto the Certificate of Designation for the Series A Junior Participating Preferred Stock, the form of Rights Certificate, and the Summary of Rights to Purchase Preferred Shares (incorporated by reference to Exhibit 1A, 1B, and 1C to the Registrant's Current Report on Form 8-K filed on February 16, 1996). 5.1 Opinion and consent of Gibson, Dunn & Crutcher LLP. 23.1 Consent of Arthur Andersen LLP, Independent Public Accountants. 23.2 Consent of Gibson, Dunn & Crutcher LLP (contained in Exhibit 5). 99.1 Diablo Research Company LLC 1997 Stock Option Plan 99.2 Diablo Research Company LLC 1999 Stock Option Plan
EX-5.1 2 EX-5 EXHIBIT 5.1 [Letterhead of Gibson, Dunn & Crutcher LLP] December 22,1999 Cadence Design Systems, Inc. 2655 Seely Avenue, Building 5 San Jose, CA 95134 Re: Registration Statement on Form S-8 OF CADENCE DESIGN SYSTEMS, INC. Ladies and Gentlemen: We refer to the registration statement on Form S-8 ("Registration Statement"), under the Securities Act of 1933, as amended (the "Securities Act") filed by Cadence Design Systems, Inc., a Delaware corporation (the "Company"), with respect to the proposed offering by the Company of up to 245,037 shares (the "Shares") of the common stock of the Company, $.01 par value per share (the "Common Stock"), subject to issuance by the Company upon exercise of options granted under the Diablo Research Company LLC 1997 Stock Option Plan and the Diablo Research Company LLC 1999 Stock Option Plan (the "Plans") assumed by the Company pursuant to the terms of the Agreement and Plan of Merger, dated as of November 19, 1999 among Cadence, Daffodil Acquisition III, LLC, a Delaware limited liability company and indirect wholly-owned subsidiary of Cadence, Diablo Research Company LLC, a California limited liability company ("Diablo"), and Safeguard Pioneer, Inc., a Delaware corporation, as securityholder agent. We have examined the originals or certified copies of such corporate records, certificates of officers of the Company and/or public officials and such other documents and have made such other factual and legal investigations as we have deemed relevant and necessary as the basis for the opinions set forth below. In such examination, we have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as conformed or photostatic copies and the authenticity of the originals of such copies. Based on our examination mentioned above, subject to the assumptions stated above and relying on the statements of fact contained in the documents that we have examined, we are of the opinion that (i) the issuance by the Company of the Shares has been duly authorized and (ii) when issued in accordance with the terms of the Plans, the Shares will be duly and validly issued, fully paid and non-assessable shares of Common Stock. We are admitted to practice in the State of California, and are not admitted to practice in the State of Delaware. However, for the limited purposes of our opinion set forth above, we are generally familiar with the General Corporation Law of the State of Delaware (the "DGCL") as presently in effect and have made such inquiries as we consider necessary to render this opinion with respect to a Delaware corporation. This opinion letter is limited to the laws of the State of California and, to the limited extent set forth above, the DGCL, as such laws presently exist and to the facts as they presently exist. We express no opinion with respect to the effect or applicability of the laws of any other jurisdiction. We assume no obligation to revise or supplement this opinion letter should the laws of such jurisdictions be changed after the date hereof by legislative action, judicial decision or otherwise. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement. In giving this consent, we do not admit that we are within the category of persons whose consent is required under Section 7 of the Securities Act or the General Rules and Regulations of the Securities and Exchange Commission. Very truly yours, /s/GIBSON, DUNN & CRUTCHER LLP EX-23.1 3 EX-23.1 EXHIBIT 23.1 CONSENT OF ARTHUR ANDERSEN LLP, INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference in this Registration Statement of our report dated March 26, 1999 included in Cadence Design Systems, Inc.'s Form 10-K for the year ended January 2, 1999 (as amended by Form 10-K/A). /s/ Arthur Andersen LLP Arthur Andersen LLP San Jose, California December 22, 1999 EX-99.1 4 EX-99.1 DIABLO RESEARCH COMPANY LLC ` 1997 STOCK OPTION PLAN (AS AMENDED) 1. ESTABLISHMENT, PURPOSE AND TERM OF PLAN. 1.1 ESTABLISHMENT. Diablo Research Company LLC 1997 Stock Option Plan (the "Plan") is hereby established effective as of April 23, 1997 (the "Effective Date"). 1.2 PURPOSE. The purpose of the Plan is to advance the interests of the Company and its Unit holders by providing an incentive to attract, retain and reward persons performing services for the Company and by motivating such persons to contribute to the growth and profitability of the Company. 1.3 TERM OF PLAN. The Plan shall continue in effect until the earlier of its termination by the Board or the date on which all of the Units available for issuance under the Plan have been issued and all restrictions on such Units under the terms of the Plan and the agreements evidencing Options granted under the Plan have lapsed. However, all Options shall be granted, if at all, within ten (10) years from the Effective Date. 1.4 EFFECTIVENESS OF PLAN. The Plan shall become effective as set forth in Section 1.1 above subject, however to the Unit holders of the Company approving the Plan, by the affirmative vote of a majority in interest of the Units within twelve (12) months of such effective date. Any option exercised prior to such approval by the Unit holders must be rescinded if Unit holder approval is not obtained within twelve (12) months of such effective date. 2. DEFINITIONS AND CONSTRUCTION. 2.1 DEFINITIONS. Whenever used herein, the following terms shall have their respective meanings set forth below: a. "BOARD" means the Board of Members of the Company. If one or more Committees have been appointed by the Board to administer the Plan, "Board" also means such Committee(s). b. "CODE" means the Internal Revenue Code of 1986, as amended, and any applicable regulations promulgated thereunder. c. "COMMITTEE" means a committee of the Board duly appointed to administer the Plan and having such powers as shall be specified by the Board. Unless the powers of the Committee have been specifically limited, the Committee shall have all of the powers of the Board granted herein, including, without limitation, the power to amend or terminate the Plan at any time, subject to the terms of the Plan and any applicable limitations imposed by law. 1 EXHIBIT E d. "COMPANY" means Diablo Research Company LLC, a California limited liability company. e. "CONSULTANT" means any person engaged by the Company to render services other than as an Employee or a Director. f. "DIRECTOR" means a member of the Board. g. "EMPLOYEE" means any person treated as an employee (including an officer or a Director who is also treated as an employee) by the Company; provided, however, that neither service as a Director nor payment of a director's fee shall be sufficient to constitute employment for this purpose. h. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. i. "FAIR MARKET VALUE" means, as of any date, the value of a Unit or other property as determined by the Board, in its sole discretion. j. "INSIDER" means an officer or a Director of the Company or any other person whose transactions in securities are subject to Section 16 of the Exchange Act. k. "OPERATING AGREEMENT" means the Operating Agreement of the Company dated November 12, 1996. l. "OPTION" means a right to purchase Units (subject to adjustment as provided in Section 4.2) pursuant to the terms and conditions of the Plan. All Options are nonstatutory stock options and not Incentive Stock Options as that term is defined in Section 422(b) of the Code. m "OPTION AGREEMENT" means a written agreement between the Company and an Optionee setting forth the terms, conditions and restrictions of the Option granted to the Optionee and any Units acquired upon the exercise thereof. n. "OPTIONEE" means a person who has been granted one or more Options. o. "RULE 16B-3" means Rule 16b-3 as promulgated under the Exchange Act, as amended from time to time, or any successor rule or regulation. p. "SERVICE" means employment by the Company or service as a member of the Board of the Company or service as a consultant to the Company. q. "UNITS" means the Class B Units of the Company as described in the Operating Agreement. 2 2.2 CONSTRUCTION. Captions and title contained herein are for convenience only and shall not affect the meaning or interpretation of any provision of the Plan. Except when otherwise indicated by the context, the singular shall include the plural, and the plural shall include the singular, and the term "or" shall include the conjunctive as well as the disjunctive. 3. ADMINISTRATION. 3.1 ADMINISTRATION BY THE BOARD. The Plan shall be administered by the Board.. MI questions of interpretation of the Plan or of any Option shall be determined by the Board, and such determinations shall be final and binding upon all person having an interest in the Plan or such Option. 3.2 POWERS OF THE BOARD. In addition to any other powers set forth in the Plan and subject to the provisions of the Plan, the Board shall have the full and final power and authority, in its sole discretion: a. to determine the persons to whom, and the time or times at which, Options shall be granted and the number of Units to be subject to each Option; b. to determine the Fair Market Value of Units or other property; c. to determine the terms, conditions and restrictions applicable to each Option (which need not be identical) and any Units acquired upon the exercise thereof, including, without limitation, (i) the exercise price of the Option, (ii) the method of payment for Units purchased upon the exercise of the Option, (iii) the method for satisfaction of any tax withholding obligation arising in connection with the Option or such Units, (iv) the timing, terms and conditions of the exercisability of the Option or the vesting of any Units acquired upon the exercise thereof, (v) the time of the expiration of the Option, (vi) the effect of the Optionee's termination of employment or service with the Company on any of the foregoing, and (vii) all other terms, conditions and restrictions applicable to the Option or such Units not inconsistent with the terms of the Plan; d. to approve one or more forms of Option Agreement; e. to amend, modify, extend or renew, or grant a new Option in substitution for, any Option or to waive any restrictions or conditions applicable to any Option or any Units acquired upon the exercise thereof; f. to correct any defect, supply any omission or reconcile any inconsistency in the Plan or any Option Agreement and to make all other determinations and take such other actions with respect to the Plan or any Option as the Board may deem advisable to the extent consistent with the Plan and applicable law. 3.3 DISINTERESTED ADMINISTRATION. With respect to participation by Insiders in the Plan, at any time that any class of equity security of the Company is registered pursuant to Section 12 of the Exchange Act, the Plan shall be administered by the Board in compliance with the "disinterested administration" requirements, if any, of Rule 16b-3. 3 4. UNITS SUBJECT TO PLAN. 4.1 MAXIMUM NUMBER OF UNITS ISSUABLE. Subject to adjustment as provided in Section 4.2, the maximum aggregate number of Units that may be issued under the Plan shall be Three Million Sixty-three Thousand Four Hundred Seventy-six (3,063,476) and shall consist of authorized but unissued Units or reacquired Units or any combination thereof If an outstanding Option for any reason expires or is terminated or canceled or if Units acquired) subject to repurchase, upon the exercise of an Option are repurchased by the Company, the Units allocable to the unexercised portion of such Option or such repurchased Units shall again be available for issuance under the Plan. 4.2 ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of any changes in the capital structure of the Company analogous to a corporate stock dividend) stock split, reverse stock split, recapitalization, combination, or reclassification, appropriate adjustments shall be made in the number and class of Units subject to the Plan and to any outstanding Options and in the exercise price of any outstanding Options. If a majority of the Units is exchanged for, converted into) or otherwise become (whether or not pursuant to an Ownership Change Event as defined in Section 8.1) securities of another limited liability company, securities of a limited partnership or shares of a corporation (the 'New Securities"), the Board may unilaterally amend the outstanding Options to provide that such Options are exercisable for New Securities. In the event of any such amendment, the number of Units subject to, and the exercise price of, the outstanding Options shall be adjusted in a fair and equitable manner as determined by the Board, in its sole discretion. Notwithstanding the foregoing, any fractional Unit resulting from an adjustment pursuant to this Section 4.2 shall be rounded up or down to the nearest whole number, as determined by the Board. 5. ELIGIBILITY AND OPTION LIMITATIONS. 5.1 PERSONS ELIGIBLE FOR OPTIONS. Options may be granted only to Employees, Consultants, and Directors. Eligible persons may be granted more than one (1) Option. 5.2 DIRECTORS SERVING ON COMMITTEE. At any time that any class of equity security of the Company is registered pursuant to Section 12 of the Exchange Act, no member of a Committee established to administer the Plan in compliance with the "disinterested administration" requirements, if any, of Rule 16b-3, while a member, shall be eligible to be granted an Option. 6. TERMS AND CONDITIONS OF OPTIONS. Options shall be evidenced by Option Agreements specifying the number of Units covered thereby, in such form as the Board shall from time to time establish. Option Agreements may incorporate all or any of the terms of the Plan by reference and shall comply with and be subject to the following terms and conditions: 6.1 EXERCISE PRICE. The exercise price for each Option shall be established in the sole discretion of the Board provided, however, such exercise price shall not be less than 85% of the fair market value of the underlying Units at the time of the Option is granted and that such exercise price shall be at least 110% of the fair market value if the recipient of the Option 4 owns Units possessing more than 10% of the total combined voting power of classes of Units of the Company. 6.2 VESTING. The right to exercise Options shall vest at a Tate of at least twenty percent (20%) per year from the date the Option is granted subject to reasonable conditions such as continued employment with the Company. 6.3 EXERCISE PERIOD. Options shall be exercisable at such time or times and subject to such terms, conditions, performance criteria, and restrictions as shall be determined by the Board and set forth in the Option Agreement evidencing such Option; provided, however; a. MAXIMUM PERIOD. No Option shall be exercisable after the expiration often (10) years after the date such Option is granted. The provisions of subsection b through d immediately below shall not extend such period. b. DEATH OF OPTIONEE. If the Optionee dies while in the Service of the Company, the Option shall expire no earlier than six (6) months from the date of death. c. DISABILITY' OF OPTIONEE. If the Optionee suffers a permanent disability (as defined in Section 22(e)(3) of the Code) while in the Service of the Company, the Option shall expire no earlier than six (6) months from the date of the permanent disability. d. OTHER TERMINATIONS OF SERVICE. If the Optionee ceases to remain in the Service of the Company for any reason other than death or permanent disability, then the Option shall terminate upon the earlier to occur of (a) thirty (30) days from the date such Service terminates in the case of an Employee and (b) one (1) year from the date such Service terminates in the case of an Optionee who is not an Employee. 6.4 PAYMENT OF EXERCISE PRICE. a. FORMS OF PAYMENT AUTHORIZED. Except as otherwise provided below, payment of the exercise price for the number of Units being purchased pursuant to any Option shall be made (i) in cash, by check, or cash equivalent, (ii) by tender to the Company of Units owned by the Optionee having a Fair Market Value (as determined by the Company without regard to any restrictions on transferability applicable to such Units by reason of federal or state securities laws or agreements with an underwriter for the Company) not less than the exercise price, (iii) by the assignment of the proceeds of a sale or loan with respect to some or all of the Units being acquired upon the exercise of the Option (including, without limitation, through an exercise complying with the provisions of Regulation T as promulgated from time to time by the Board of Governors of the Federal Reserve System) (a "Cashless Exercise"), (iv) by the Optionee's promissory note in a form approved by the Company, (v) by such other consideration as may be approved by the Board from time to time to the extent permitted by applicable law, or (vi) by any combination thereof The Board may at any time or from time to time, by adoption of or by amendment to the standard forms of Option Agreement described in Section 7, or by other means, grant Options which do not permit all of the foregoing forms of consideration to be used in payment of the exercise price or which otherwise restrict one or more forms of consideration. 5 b. TENDER OF UNITS. Notwithstanding the foregoing, an Option may not be exercised by tender to the Company of Units to the extent such tender would constitute a violation of the provisions of any law, regulation or agreement restricting the redemption of the Company's Securities. Unless otherwise provided by the Board, an Option may not be exercised by tender to the Company of Units unless such Units either have been owned by the Optionee for more than six (6) months or were not acquired, directly or indirectly, from the Company. c. CASHLESS EXERCISE. The Company reserves, at any and all times, the right, in the Company's sole and absolute discretion, to establish, decline to approve or terminate any program or procedures for the exercise of Options by means of a Cashless Exercise. d. PAYMENT BY PROMISSORY NOTE. No promissory note shall be permitted if the exercise of an Option using a promissory note would be a violation of any law. Any permitted promissory note shall be due and payable not more than ten (10) years after the Option is exercised, and interest shall be payable at least annually and at a rate at least equal to the minimum interest rate necessary to avoid imputed interest pursuant to all applicable sections of the Code. The Board shall have the authority to permit or require the Optionee to secure any promissory note used to exercise an Option with the Units acquired upon the exercise of the Option or with other collateral acceptable to the Company. 6.5 TAX WITHHOLDING. The Company shall have the right, but not the obligation, to deduct from the Units issuable upon the exercise of an Option, or to accept from the Optionee the tender of, a number of Units having a Fair Market Value, as determined by the Company, equal to all or any part of the federal, state and local taxes, if any, required by law to be withheld by the Company with respect to such Option. Alternatively, in its sole discretion, the Company shall have the right to require the Optionee, through payroll withholding or otherwise, to make adequate provision for any such tax withholding obligations of the Company arising in connection with the Option. The Company shall have no obligation to deliver Units or to release Units from an escrow established pursuant to the Option Agreement until the Company's tax withholding obligations have been satisfied by the Optionee. 6.6 REPURCHASE RIGHTS. Units issued under the Plan may be subject to a right of first refusal, one or more repurchase options, or other conditions and restrictions as determined by the Board, in its sole discretion, at the time the Option is granted. The Company shall have the right to assign at any time any repurchase right it may have, whether or not such right is then exercisable, to one or more persons as may be selected by the Company. Upon request by the Company, each Optionee shall execute any agreement evidencing such transfer restrictions prior to the receipt of Units hereunder and shall promptly present to the Company any and all certificates representing Units acquired hereunder for the placement on such certificates of appropriate legends evidencing any such transfer restrictions. Any repurchase right which the Company shall have shall be: (i) at not less than the fair market value of the Units on the date of termination of Service and such right must be exercised for cash or cancellation of purchase money indebtedness for the Units within ninety (90) days of termination of service (or in the case of securities issued after termination of service, ninety (90) days after exercise or (ii) at the original purchase price provided that this right lapses at the rate of at least twenty percent (20%) 6 per year over five (5) years from the date of the Option grants and the right to repurchase is exercised within the time and manner set forth in clause (i) immediately above. 7. TRANSFER OF CONTROL. 7.1 DEFINITIONS. a. An "Ownership Change Event" shall be deemed to have occurred if any of the following occurs with respect to the Company: (i) the direct or indirect sale or exchange in a single or series of related transactions by the Members and economic interest owners of the Company of more than fifty percent (50%) of the voting securities of the Company; (ii) a merger or consolidation in which the Company is a party; (iii) the sale, exchange or transfer of all or substantially all of the assets of the Company; or (iv) a liquidation or dissolution of the Company. b. A "Transfer of Control" shall mean an Ownership Change Event or a series of related Ownership Change Events (collectively, the "Transaction") wherein the Members and economic interest owners of the Company immediately before the Transaction do not retain immediately after the Transaction, in substantially the same proportions as their ownership of the Company's voting Securities immediately before the Transaction, direct or indirect beneficial ownership of more than fifty percent (50%) of the total combined voting power of the outstanding voting securities of the Company or the corporation, limited liability company, or limited partnership to which the assets of the Company were transferred (the "Transferee Corporation(s)"). For purposes of the preceding sentence, indirect beneficial ownership shall include, without limitation, an interest resulting from ownership of the voting securities of one or more subsidiary corporations. The Board shall have the right to determine whether multiple sales or exchanges of the voting stock of the Company or multiple Ownership Change Events are related, and its determination shall be final, binding and conclusive. 7.2 EFFECT OF TRANSFER OF CONTROL ON OPTIONS. In the event of a Transfer of Control, the Board, in its sole discretion, may arrange with the surviving, continuing, successor, or purchasing limited liability company, limited partnership or corporation or parent corporation thereof, as the case may be (the "Acquiring Company"), for the Acquiring Company to either assume the Company's rights and obligations under outstanding Options or substitute for outstanding Options substantially equivalent options for the Acquiring Company's stock. The Company shall provide each Optionee holding an outstanding Option with at least ten (10) days advance written notice of the pending Transfer of Control prior to the consummation thereof. Any Options which are neither assumed or substituted for by the Acquiring Company in connection with the Transfer of Control nor exercised as of the date of the Transfer of Control shall terminate and cease to be outstanding effective as of the date of the Transfer of Control. Notwithstanding the foregoing, Units acquired upon exercise of an Option prior to the Transfer 7 of Control and any consideration received pursuant to the Transfer of Control with respect to such Units shall continue to be subject to all applicable provisions of the Option Agreement evidencing such Option except as otherwise provided in such Option Agreement. 8. NONTRANSFERABILITY OF OPTIONS. During the lifetime of the Optionee, an Option shall be exercisable only by the Optionee or the Optionee's guardian or legal representative. No Option shall be assignable or transferable by the Optionee, except by will or by the laws of descent and distribution. Notwithstanding the foregoing, an Option shall be assignable or transferable to the extent permitted by the Board and set forth in the Option Agreement evidencing such Option. 9. PROVISION OF INFORMATION. At least annually a copy of the Company's balance sheet and income statement for the just completed fiscal year shall be furnished shed to each Optionee. 10. VOTING RIGHTS. The Units shall have equal voting rights with other Class B Units on all matters where such vote is permitted by applicable law. 11. TERMINATION OR AMENDMENT OF PLAN. The Board may terminate or amend the Plan at any time. No termination or amendment of the Plan may adversely affect any then outstanding Option or any unexercised portion thereof, without the consent of the Optionee, unless such termination or amendment is necessary to comply with any applicable law or government regulation. IN WITNESS WHEREOF, the undersigned Assistant Secretary of the Company certifies that the foregoing Diablo Research Company LLC 1997 Stock Option Plan was duly adopted by the Board on April 23, 1997. /s/ Lawrence A. Klein ------------------------------ LAWRENCE A. KLEIN 8 EX-99.2 5 EX-99.2 DIABLO RESEARCH COMPANY LLC 1999 STOCK OPTION PLAN 1. ESTABLISHMENT, PURPOSE AND TERM OF PLAN. 1.1 ESTABLISHMENT. Diablo Research Company LLC 1999 Stock Option Plan (the "Plan") is hereby established effective as of April 21, 1999 (the "Effective Date"). 1.2 PURPOSE. The purpose of the Plan is to advance the interests of the Company and its Unit holders by providing an incentive to attract, retain and reward persons performing services for the Company and by motivating such persons to contribute to the growth and profitability of the Company. 1.3 TERM OF PLAN. The Plan shall continue in effect until the earlier of its termination by the Board or the date on which all of the Units available for issuance under the Plan have been issued and all restrictions on such Units under the terms of the Plan and the agreements evidencing Options granted under the Plan have lapsed. However, all Options shall be granted, if at all, within ten (10) years from the Effective Date. 1.4 EFFECTIVENESS OF PLAN. The Plan shall become effective as set forth in Section 1.1 above subject, however to the Unit holders of the Company approving the Plan, by the affirmative vote of a majority in interest of the Units within twelve (12) months of such effective date. Any option exercised prior to such approval by the Unit holders must be rescinded if Unit holder approval is not obtained within twelve (12) months of such effective date. 2. DEFINITIONS AND CONSTRUCTION. 2.1 DEFINITIONS. Whenever used herein, the following terms shall have their respective meanings set forth below: a. "BOARD" means the Board of Members of the Company. If one or more Committees have been appointed by the Board to administer the Plan, "Board" also means such Committee(s). b. "CODE" means the Internal Revenue Code of 1986, as amended, and any applicable regulations promulgated thereunder. c. "COMMITTEE" means a committee of the Board duly appointed to administer the Plan and having such powers as shall be specified by the Board. Unless the powers of the Committee have been specifically limited, the Committee shall have all of the powers of the Board granted herein, including, without limitation, the power to amend or terminate the Plan at any time, subject to the terms of the Plan and any applicable limitations imposed by law. d. "COMPANY" means Diablo Research Company LLC, a California limited liability company. e. "CONSULTANT" means any person engaged by the Company to render services other than as an Employee or a Director. f. "DIRECTOR" means a member of the Board. g. "EMPLOYEE" means any person treated as an employee (including an officer or a Director who is also treated as an employee) by the Company; provided, however, that neither service as a Director nor payment of a director's fee shall be sufficient to constitute employment for this purpose. h. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. i. "FAIR MARKET VALUE" means, as of any date, the value of a Unit or other property as determined by the Board, in its sole discretion. j. "INSIDE" means an officer or a Director of the Company or any other person whose transactions in securities are subject to Section 16 of the Exchange Act. k. "OPERATING AGREEMENT" means the Operating Agreement of the Company dated November 12, 1996. l. "OPTION" means a right to purchase Units (subject to adjustment as provided in Section 4.2) pursuant to the terms and conditions of the Plan. All Options are nonstatutory stock options and not Incentive Stock Options as that term is defined in Section 422(b) of the Code. m. "OPTION AGREEMENT" means a written agreement between the Company and an Optionee setting forth the terms, conditions and restrictions of the Option granted to the Optionee and any Units acquired upon the exercise thereof. n. "OPTIONEE" means a person who has been granted one or more Options. o. "RULE 16B-3" means Rule 16b-3 as promulgated under the Exchange Act, as amended from time to time, or any successor rule or regulation. p. "SERVICE" means employment by the Company or service as a member of the Board of the Company or service as a consultant to the Company. q. "UNITS" means the Class B Units of the Company as described in the Operating Agreement. 2.2 CONSTRUCTION. Captions and title contained herein are for convenience only and shall not affect the meaning or interpretation of any provision of the Plan. Except when 2 otherwise indicated by the context, the singular shall include the plural, and the plural shall include the singular, and the term "or" shall include the conjunctive as well as the disjunctive. 3. ADMINISTRATION. 3.1 ADMINISTRATION BY THE BOARD. The Plan shall be administered by the Board.. All questions of interpretation of the Plan or of any Option shall be determined by the Board, and such determinations shall be final and binding upon all person having an interest in the Plan or such Option. 3.2 POWERS OF THE BOARD. In addition to any other powers set forth in the Plan and subject to the provisions of the Plan, the Board shall have the full and final power and authority, in its sole discretion: a. to determine the persons to whom, and the time or times at which, Options shall be granted and the number of Units to be subject to each Option; b. to determine the Fair Market Value of Units or other property; c. to determine the terms, conditions and restrictions applicable to each Option (which need not be identical) and any Units acquired upon the exercise thereof, including, without limitation, (i) the exercise price of the Option, (ii) the method of payment for Units purchased upon the exercise of the Option, (iii) the method for satisfaction of any tax withholding obligation arising in connection with the Option or such Units, (iv) the timing, terms and conditions of the exercisability of the Option or the vesting of any Units acquired upon the exercise thereof, (v) the time of the expiration of the Option, (vi) the effect of the Optionee's termination of employment or service with the Company on any of the foregoing, and (vii) all other terms, conditions and restrictions applicable to the Option or such Units not inconsistent with the terms of the Plan; d. to approve one or more forms of Option Agreement; e. to amend, modify, extend or renew, or grant a new Option in substitution for, any Option or to waive any restrictions or conditions applicable to any Option or any Units acquired upon the exercise thereof; f. to correct any defect, supply any omission or reconcile any inconsistency in the Plan or any Option Agreement and to make all other determinations and take such other actions with respect to the Plan or any Option as the Board may deem advisable to the extent consistent with the Plan and applicable law. 3.3 DISINTERESTED ADMINISTRATION. With respect to participation by Insiders in the Plan, at any time that any class of equity security of the Company is registered pursuant to Section 12 of the Exchange Act, the Plan shall be administered by the Board in compliance with the "disinterested administration" requirements, if any, of Rule 16b-3. 3 4. UNITS SUBJECT TO PLAN. 4.1 Maximum Number of Units Issuable. Subject to adjustment as provided in Section 4.2, the maximum aggregate number of Units that may be issued under the Plan shall be Nine Hundred Ninety-Four Thousand Three Hundred (994,300) and shall consist of authorized but unissued Units or reacquired Units or any combination thereof. If an outstanding Option for any reason expires or is terminated or canceled or if Units acquired, subject to repurchase, upon the exercise of an Option are repurchased by the Company, the Units allocable to the unexercised portion of such Option or such repurchased Units shall again be available for issuance under the Plan. 4.2 ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of any changes in the capital structure of the Company analogous to a corporate stock dividend, stock split, reverse stock split, recapitalization, combination, or reclassification, appropriate adjustments shall be made in the number and class of Units subject to the Plan and to any outstanding Options and in the exercise price of any outstanding Options. If a majority of the Units is exchanged for, converted into, or otherwise become (whether or not pursuant to an Ownership Change Event as defined in Section 8.1) securities of another limited liability company, securities of a limited partnership or shares of a corporation (the "New Securities"), the Board may unilaterally amend the outstanding Options to provide that such Options are exercisable for New Securities. In the event of any such amendment, the number of Units subject to, and the exercise price of, the outstanding Options shall be adjusted in a fair and equitable manner as determined by the Board, in its sole discretion. Notwithstanding the foregoing, any fractional Unit resulting from an adjustment pursuant to this Section 4.2 shall be rounded up or down to the nearest whole number, as determined by the Board. 5. ELIGIBILITY AND OPTION LIMITATIONS. 5.1 PERSONS ELIGIBLE FOR OPTIONS. Options may be granted only to Employees, Consultants, and Directors. Eligible persons may be granted more than one (1) Option. 5.2 DIRECTORS SERVING ON COMMITTEE. At any time that any class of equity security of the Company is registered pursuant to Section 12 of the Exchange Act, no member of a Committee established to administer the Plan in compliance with the "disinterested administration" requirements, if any, of Rule 16b-3, while a member, shall be eligible to be granted an Option. 6. TERMS AND CONDITIONS OF OPTIONS. Options shall be evidenced by Option Agreements specifying the number of Units covered thereby, in such form as the Board shall from time to time establish. Option Agreements may incorporate all or any of the terms of the Plan by reference and shall comply with and be subject to the following terms and conditions: 6.1 EXERCISE PRICE. The exercise price for each Option shall be established in the sole discretion of the Board provided, however, such exercise price shall not be less than 85% of the fair market value of the underlying Units at the time of the Option is granted and that such exercise price shall be at least 110% of the fair market value if the recipient of the Option 4 owns Units possessing more than 10% of the total combined voting power of classes of Units of the Company. 6.2 VESTING. The right to exercise Options shall vest at a rate of at least twenty percent (20%) per year from the date the Option is granted subject to reasonable conditions such as continued employment with the Company. 6.3 EXERCISE PERIOD. Options shall be exercisable at such time or times and subject to such terms, conditions, performance criteria, and restrictions as shall be determined by the Board and set forth in the Option Agreement evidencing such Option; provided, however; a. Maximum Period. No Option shall be exercisable after the expiration often (10) years after the date such Option is granted. The provisions of subsection b through d immediately below shall not extend such period. b. Death of Optionee. If the Optionee dies while in the Service of the Company, the Option shall expire no earlier than six (6) months from the date of death. c. Disability of Optionee. If the Optionee suffers a permanent disability (as defined in Section 22(e)(3) of the Code) while in the Service of the Company, the Option shall expire no earlier than six (6) months from the date of the permanent disability. d. Other Terminations of Service. If the Optionee ceases to remain in the Service of the Company for any reason other than death or permanent disability, then the Option shall terminate upon the earlier to occur of (a) thirty (30) days from the date such Service terminates in the case of an Employee and (b) one (1) year from the date such Service terminates in the case of an Optionee who is not an Employee. 6.4 PAYMENT OF EXERCISE PRICE. a. FORMS OF PAYMENT AUTHORIZED. Except as otherwise provided below, payment of the exercise price for the number of Units being purchased pursuant to any Option shall be made (i) in cash, by check, or cash equivalent, (ii) by tender to the Company of Units owned by the Optionee having a Fair Market Value (as determined by the Company without regard to any restrictions on transferability applicable to such Units by reason of federal or state securities laws or agreements with an underwriter for the Company) not less than the exercise price, (iii) by the assignment of the proceeds of a sale or loan with respect to some or all of the Units being acquired upon the exercise of the Option (including, without limitation, through an exercise complying with the provisions of Regulation T as promulgated from time to time by the Board of Governors of the Federal Reserve System) (a "Cashless Exercise"), (iv) by the Optionee's promissory note in a form approved by the Company, (v) by such other consideration as may be approved by the Board from time to time to the extent permitted by applicable law, or (vi) by any combination thereof The Board may at any time or from time to time, by adoption of or by amendment to the standard forms of Option Agreement described in Section 7, or by other means, grant Options which do not permit all of the foregoing forms of consideration to be used in payment of the exercise price or which otherwise restrict one or more forms of consideration. 5 b. TENDER OF UNITS. Notwithstanding the foregoing, an Option may not be exercised by tender to the Company of Units to the extent such tender would constitute a violation of the provisions of any law, regulation or agreement restricting the redemption of the Company's Securities. Unless otherwise provided by the Board, an Option may not be exercised by tender to the Company of Units unless such Units either have been owned by the Optionee for more than six (6) months or were not acquired, directly or indirectly, from the Company. c. CASHLESS EXERCISE. The Company reserves, at any and all times, the right, in the Company's sole and absolute discretion, to establish, decline to approve or terminate any program or procedures for the exercise of Options by means of a Cashless Exercise. d. PAYMENT BY PROMISSORY NOTE. No promissory note shall be permitted if the exercise of an Option using a promissory note would be a violation of any law. Any permitted promissory note shall be due and payable not more than ten (10) years after the Option is exercised, and interest shall be payable at least annually and at a rate at least equal to the minimum interest rate necessary to avoid imputed interest pursuant to all applicable sections of the Code. The Board shall have the authority to permit or require the Optionee to secure any promissory note used to exercise an Option with the Units acquired upon the exercise of the Option or with other collateral acceptable to the Company. 6.5 TAX WITHHOLDING. The Company shall have the right, but not the obligation, to deduct from the Units issuable upon the exercise of an Option, or to accept from the Optionee the tender of, a number of Units having a Fair Market Value, as determined by the Company, equal to all or any part of the federal, state and local taxes, if any, required by law to be withheld by the Company with respect to such Option. Alternatively, in its sole discretion, the Company shall have the right to require the Optionee, through payroll withholding or otherwise, to make adequate provision for any such tax withholding obligations of the Company arising in connection with the Option. The Company shall have no obligation to deliver Units or to release Units from an escrow established pursuant to the Option Agreement until the Company's tax withholding obligations have been satisfied by the Optionee. 6.6 REPURCHASE RIGHTS. Units issued under the Plan may be subject to a right of first refusal, one or more repurchase options, or other conditions and restrictions as determined by the Board, in its sole discretion, at the time the Option is granted. The Company shall have the right to assign at any time any repurchase right it may have, whether or not such right is then exercisable, to one or more persons as may be selected by the Company. Upon request by the Company, each Optionee shall execute any agreement evidencing such transfer restrictions prior to the receipt of Units hereunder and shall promptly present to the Company any and all certificates representing Units acquired hereunder for the placement on such certificates of appropriate legends evidencing any such transfer restrictions. Any repurchase right which the Company shall have shall be: (i) at not less than the fair market value of the Units on the date of termination of Service and such right must be exercised for cash or cancellation of purchase money indebtedness for the Units within ninety (90) days of termination of service (or in the case of securities issued after termination of service, ninety (90) days after exercise or (ii) at the original purchase price provided that this right lapses at the rate of at least 6 twenty percent (20%) per year over five (5) years from the date of the Option grants and the right to repurchase is exercised within the time and manner set forth in clause (i) immediately above. 7. TRANSFER OF CONTROL. 7.1 DEFINITIONS. a. An "Ownership Change Event" shall be deemed to have occurred if any of the following occurs with respect to the Company: (i) the direct or indirect sale or exchange in a single or series of related transactions by the Members and economic interest owners of the Company of more than fifty percent (50%) of the voting securities of the Company; (ii) a merger or consolidation in which the Company is a party; (iii) the sale, exchange, or transfer of all or substantially all of the assets of the Company; or (iv) a liquidation or dissolution of the Company. b. A "Transfer of Control" shall mean an Ownership Change Event or a series of related Ownership Change Events (collectively, the "Transaction") wherein the Members and economic interest owners of the Company immediately before the Transaction do not retain immediately after the Transaction, in substantially the same proportions as their ownership of the Company's voting securities immediately before the Transaction, direct or indirect beneficial ownership of more than fifty percent (50%) of the total combined voting power of the outstanding voting securities of the Company or the corporation, limited liability company, or limited partnership to which the assets of the Company were transferred (the "Transferee Corporation(s)"). For purposes of the preceding sentence, indirect beneficial ownership shall include, without limitation, an interest resulting from ownership of the voting securities of one or more subsidiary corporations. The Board shall have the right to determine whether multiple sales or exchanges of the voting stock of the Company or multiple Ownership Change Events are related, and its determination shall be final, binding and conclusive. 7.2 EFFECT OF TRANSFER OF CONTROL ON OPTIONS. In the event of a Transfer of Control, the Board, in its sole discretion, may arrange with the surviving, continuing, successor, or purchasing limited liability company, limited partnership or corporation or parent corporation thereof, as the case may be (the "Acquiring Company"), for the Acquiring Company to either assume the Company's rights and obligations under outstanding Options or substitute for outstanding Options substantially equivalent options for the Acquiring Company's stock. The Company shall provide each Optionee holding an outstanding Option with at least ten (10) days advance written notice of the pending Transfer of Control prior to the consummation thereof. Any Options which are neither assumed or substituted for by the Acquiring Company in connection with the Transfer of Control nor exercised as of the date of the Transfer of Control shall terminate and cease to be outstanding effective as of the date of the Transfer of Control. Notwithstanding the foregoing, Units acquired upon exercise of an Option prior to the Transfer of Control and any consideration received pursuant to the Transfer of Control with respect to 7 such Units shall continue to be subject to all applicable provisions of the Option Agreement evidencing such Option except as otherwise provided in such Option Agreement. 8. NONTRANSFERABILITY OF OPTIONS. During the lifetime of the Optionee, an Option shall be exercisable only by the Optionee or the Optionee's guardian or legal representative. No Option shall be assignable or transferable by the Optionee, except by will or by the laws of descent and distribution. Notwithstanding the foregoing, an Option shall be assignable or transferable to the extent permitted by the Board and set forth in the Option Agreement evidencing such Option. 9. PROVISION OF INFORMATION. At least annually a copy of the Company's balance sheet and income statement for the just completed fiscal year shall be furnished to each Optionee. 10. VOTING RIGHTS. The Units shall have equal voting rights with other Class B Units on all matters where such vote is permitted by applicable law. 11. TERMINATION OR AMENDMENT OF PLAN. The Board may terminate or amend the Plan at any time. No termination or amendment of the Plan may adversely affect any then outstanding Option or any unexercised portion thereof, without the consent of the Optionee, unless such termination or amendment is necessary to comply with any applicable law or government regulation. IN WITNESS WHEREOF, the undersigned Assistant Secretary of the Company certifies that the foregoing Diablo Research Company LLC 1999 Stock Option Plan was duly adopted by the Board on April 21, 1999. /s/ Lawrence A. Klein ------------------------------------- LAWRENCE A. KLEIN -----END PRIVACY-ENHANCED MESSAGE-----