Exhibit 10.2

 

POLYCOM, INC. 1996 STOCK INCENTIVE PLAN

 

(AS AMENDED THROUGH MAY 27, 2009)

 

The following constitute the provisions of the 1996 Stock Incentive Plan (herein
called the “Plan”) of Polycom, Inc. (herein called the “Corporation”).

 

ARTICLE ONE

 

GENERAL PROVISIONS

 

I. PURPOSE OF THE PLAN

 

This 1996 Stock Incentive Plan is intended to promote the interests of Polycom,
Inc., a Delaware corporation, by providing eligible persons with the opportunity
to acquire a proprietary interest, or otherwise increase their proprietary
interest, in the Corporation as an incentive for them to remain in the service
of the Corporation.

 

Capitalized terms shall have the meanings assigned to such terms in the attached
Appendix.

 

II. STRUCTURE OF THE PLAN

 

A. The Plan shall be divided into three (3) separate equity programs:

 

(i) the Discretionary Option Grant Program under which eligible persons may, at
the discretion of the Plan Administrator, be granted options to purchase shares
of Common Stock,

 

(ii) the Stock Issuance Program under which eligible persons may, at the
discretion of the Plan Administrator, be issued shares of Common Stock directly,
either through the immediate purchase of such shares or as a bonus for services
rendered the Corporation (or any Parent or Subsidiary), and

 

(iii) the Automatic Option Grant Program under which Eligible Directors shall
automatically receive option grants at periodic intervals to purchase shares of
Common Stock.

 

B. The Discretionary Option Grant and Stock Issuance Programs became effective
immediately upon the Plan Effective Date, and the Automatic Option Grant Program
became effective upon the Underwriting Date.

 

C. The provisions of Articles One and Five shall apply to all equity programs
under the Plan and shall accordingly govern the interests of all persons under
the Plan.

 

III. ADMINISTRATION OF THE PLAN

 

A. Prior to the Section 12(g) Registration Date, the Discretionary Option Grant
and Stock Issuance Programs were administered by the Board. Beginning with the
Section 12(g) Registration Date, the Primary Committee shall have sole and
exclusive authority to administer the Discretionary Option Grant and Stock
Issuance Programs with respect to Section 16 Insiders.

 

B. Administration of the Discretionary Option Grant and Stock Issuance Programs
with respect to all other persons eligible to participate in those programs may,
at the Board’s discretion, be vested in the Primary Committee or a Secondary
Committee, or the Board may retain the power to administer those programs with
respect to all such persons. The members of the Secondary Committee may be Board
members who are also Employees.

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C. Members of the Primary Committee or any Secondary Committee shall serve for
such period of time as the Board may determine and may be removed by the Board
at any time. The Board may also at any time terminate the functions of any
Secondary Committee and reassume all powers and authority previously delegated
to such committee.

 

D. Each Plan Administrator shall, within the scope of its administrative
functions under the Plan, have full power and authority to establish such rules
and regulations as it may deem appropriate for proper administration of the
Discretionary Option Grant and Stock Issuance Programs and to make such
determinations under, and issue such interpretations of, the provisions of such
programs and any outstanding options or stock issuances thereunder as it may
deem necessary or advisable. Decisions of the Plan Administrator within the
scope of its administrative functions under the Plan shall be final and binding
on all parties who have an interest in the Discretionary Option Grant or Stock
Issuance Program under its jurisdiction or any stock option or stock issuance
thereunder.

 

E. Service on the Primary Committee or the Secondary Committee shall constitute
service as a Board member, and members of each such committee shall accordingly
be entitled to full indemnification and reimbursement as Board members for their
service on such committee. No member of the Primary Committee or the Secondary
Committee shall be liable for any act or omission made in good faith with
respect to the Plan or any option grants or stock issuances under the Plan.

 

F. Administration of the Automatic Option Grant Program shall be self-executing
in accordance with the terms of that program, and no Plan Administrator shall
exercise any discretionary functions with respect to option grants made
thereunder.

 

IV. ELIGIBILITY

 

A. The persons eligible to participate in the Discretionary Option Grant and
Stock Issuance Programs are as follows:

 

(i) Employees,

 

(ii) non-employee members of the Board or the board of directors of any Parent
or Subsidiary, and

 

(iii) consultants and other independent advisors who provide services to the
Corporation (or any Parent or Subsidiary).

 

B. Each Plan Administrator shall, within the scope of its administrative
jurisdiction under the Plan, have full authority (subject to the provisions of
the Plan) to determine, (i) with respect to the option grants under the
Discretionary Option Grant Program, which eligible persons are to receive option
grants, the time or times when such option grants are to be made, the number of
shares to be covered by each such grant, the status of the granted option as
either an Incentive Option or a Non-Statutory Option, the time or times at which
each option is to become exercisable, the vesting schedule (if any) applicable
to the option shares and the maximum term for which the option is to remain
outstanding and (ii) with respect to stock issuances under the Stock Issuance
Program, which eligible persons are to receive stock issuances, the time or
times when such issuances are to be made, the number of shares to be issued to
each Participant, the vesting schedule (if any) applicable to the issued shares
and the consideration to be paid for such shares.

 

C. The Plan Administrator shall have the absolute discretion either to grant
options in accordance with the Discretionary Option Grant Program or to effect
stock issuances in accordance with the Stock Issuance Program.

 

D. The individuals eligible to participate in the Automatic Option Grant Program
shall be limited to (i) those individuals serving as non-employee Board members
on the Underwriting Date, (ii) those individuals who first become non-employee
Board members after the Underwriting Date, whether through appointment by the
Board

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or election by the Corporation’s stockholders, and (iii) those individuals who
continue to serve as non-employee Board members through one or more Annual
Stockholders Meetings held after the Underwriting Date. A non-employee Board
member shall not be eligible to receive an initial option grant under the
Automatic Option Grant Program on the Underwriting Date if such individual has
previously been in the employ of the Corporation (or any Parent or Subsidiary)
or has otherwise received a prior stock option grant from the Corporation. A
non-employee Board member who first joins the Board after the Underwriting Date
shall not be eligible to receive an initial option grant under the Automatic
Option Grant Program if such individual has previously been in the employ of the
Corporation (or any Parent or Subsidiary). Non-employee Board members who have
previously been in the employ of the Corporation (or any Parent or Subsidiary)
or who have previously received a stock option grant from the Corporation shall,
however, be eligible to receive one or more annual option grants under the
Automatic Option Grant Program over their period of continued Board service.

 

V. STOCK SUBJECT TO THE PLAN

 

A. The stock issuable under the Plan shall be shares of authorized but unissued
or reacquired Common Stock, including shares repurchased by the Corporation on
the open market. The maximum number of shares of Common Stock which may be
issued over the term of the Plan shall not exceed approximately 23,150,000
shares.

 

B. No one person participating in the Plan may receive options, separately
exercisable stock appreciation rights and direct stock issuances for more than
600,000 shares of Common Stock in the aggregate per calendar year, beginning
with the 1996 calendar year.

 

C. No more than ten percent (10%) of the maximum number of shares which may be
issued under the Plan may be issued pursuant to the Stock Issuance Program.

 

D. Shares of Common Stock subject to outstanding options shall be available for
subsequent issuance under the Plan to the extent (i) the options (including any
options incorporated from the Predecessor Plan) expire or terminate for any
reason prior to exercise in full or (ii) the options are canceled in accordance
with the cancellation-regrant provisions of Article Two. In addition, any
unvested shares issued under the Plan and subsequently repurchased by the
Corporation, at the option exercise or direct issue price paid per share,
pursuant to the Corporation’s repurchase rights under the Plan shall be added
back to the number of shares of Common Stock reserved for issuance under the
Plan and shall accordingly be available for reissuance through one or more
subsequent option grants or direct stock issuances under the Plan. However,
should the exercise price of an option under the Plan (including any option
incorporated from the Predecessor Plan) be paid with shares of Common Stock or
should shares of Common Stock otherwise issuable under the Plan be withheld by
the Corporation in satisfaction of the withholding taxes incurred in connection
with the exercise of an option or the vesting of a stock issuance under the
Plan, then the number of shares of Common Stock available for issuance under the
Plan shall be reduced by the gross number of shares for which the option is
exercised or which vest under the stock issuance, and not by the net number of
shares of Common Stock issued to the holder of such option or stock issuance.

 

E. Should any change be made to the Common Stock by reason of any stock split,
stock dividend, recapitalization, combination of shares, exchange of shares or
other change affecting the outstanding Common Stock as a class without the
Corporation’s receipt of consideration, appropriate adjustments shall be made to
(i) the maximum number and/or class of securities issuable under the Plan,
(ii) the maximum number and/or class of securities for which any one person may
be granted options, separately exercisable stock appreciation rights and direct
stock issuances per calendar year, (iii) the number and/or class of securities
for which automatic option grants are to be made subsequently per Eligible
Director under the Automatic Option Grant Program and (iv) the number and/or
class of securities and the exercise price per share in effect under each
outstanding option (including any option incorporated from the Predecessor Plan)
in order to prevent the dilution or enlargement of benefits thereunder. The
adjustments determined by the Plan Administrator shall be final, binding and
conclusive.

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ARTICLE TWO

 

DISCRETIONARY OPTION GRANT PROGRAM

 

I. OPTION TERMS

 

Each option shall be evidenced by one or more documents in the form approved by
the Plan Administrator; provided, however, that each such document shall comply
with the terms specified below. Each document evidencing an Incentive Option
shall, in addition, be subject to the provisions of the Plan applicable to such
options.

 

  A. EXERCISE PRICE.

 

(i) The exercise price per share shall be fixed by the Plan Administrator but
shall not be less than one hundred percent (100%) of the Fair Market Value per
share of Common Stock on the option grant date.

 

(ii) The exercise price shall become immediately due upon exercise of the option
and shall, subject to the provisions of Section I of Article Five and the
documents evidencing the option, be payable in one or more of the forms
specified below:

 

(iii) cash or check made payable to the Corporation,

 

(iv) shares of Common Stock held for the requisite period necessary to avoid a
charge to the Corporation’s earnings for financial reporting purposes and valued
at Fair Market Value on the Exercise Date, or

 

(v) to the extent the option is exercised for vested shares, through a special
sale and remittance procedure pursuant to which the Optionee shall concurrently
provide irrevocable written instructions to (a) a Corporation-designated
brokerage firm to effect the immediate sale of the purchased shares and remit to
the Corporation, out of the sale proceeds available on the settlement date,
sufficient funds to cover the aggregate exercise price payable for the purchased
shares plus all applicable Federal, state and local income and employment taxes
required to be withheld by the Corporation by reason of such exercise and
(b) the Corporation to deliver the certificates for the purchased shares
directly to such brokerage firm in order to complete the sale transaction.

 

Except to the extent such sale and remittance procedure is utilized, payment of
the exercise price for the purchased shares must be made on the Exercise Date.

 

  B. EXERCISE AND TERM OF OPTIONS. Each option shall be exercisable at such time
or times, during such period and for such number of shares as shall be
determined by the Plan Administrator and set forth in the documents evidencing
the option. However, no option shall have a term in excess of seven (7) years
measured from the option grant date.

 

  C. EFFECT OF TERMINATION OF SERVICE.

 

(i) The following provisions shall govern the exercise of any options held by
the Optionee at the time of cessation of Service or death:

 

(1) Any option outstanding at the time of the Optionee’s cessation of Service
for any reason shall remain exercisable for such period of time thereafter as
shall be determined by the Plan Administrator and set forth in the documents
evidencing the option, but no such option shall be exercisable after the
expiration of the option term.

 

(2) Any option exercisable in whole or in part by the Optionee at the time of
death may be exercised subsequently by the personal representative of the
Optionee’s estate or by the person or persons to whom the option is transferred
pursuant to the Optionee’s will or in accordance with the laws of descent and
distribution.

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(3) During the applicable post-Service exercise period, the option may not be
exercised in the aggregate for more than the number of vested shares for which
the option is exercisable on the date of the Optionee’s cessation of Service.
Upon the expiration of the applicable exercise period or (if earlier) upon the
expiration of the option term, the option shall terminate and cease to be
outstanding for any vested shares for which the option has not been exercised.
However, the option shall, immediately upon the Optionee’s cessation of Service,
terminate and cease to be outstanding to the extent the option is not otherwise
at that time exercisable for vested shares.

 

(4) Should the Optionee’s Service be terminated for Misconduct, then all
outstanding options held by the Optionee shall terminate immediately and cease
to be outstanding.

 

(ii) The Plan Administrator shall have the discretion, exercisable either at the
time an option is granted or at any time while the option remains outstanding,
to:

 

(1) extend the period of time for which the option is to remain exercisable
following the Optionee’s cessation of Service from the period otherwise in
effect for that option to such greater period of time as the Plan Administrator
shall deem appropriate, but in no event beyond the expiration date of the option
term, and/or

 

(2) permit the option to be exercised, during the applicable post-Service
exercise period, not only with respect to the number of vested shares of Common
Stock for which such option is exercisable at the time of the Optionee’s
cessation of Service but also with respect to one or more additional
installments in which the Optionee would have vested under the option had the
Optionee continued in Service.

 

  D. STOCKHOLDER RIGHTS. The holder of an option shall have no stockholder
rights with respect to the shares subject to the option until such person shall
have exercised the option, paid the exercise price and become a holder of record
of the purchased shares.

 

  E. REPURCHASE RIGHTS. The Plan Administrator shall have the discretion to
grant options which are exercisable for unvested shares of Common Stock. Should
the Optionee cease Service while holding such unvested shares, the Corporation
shall have the right to repurchase, at the exercise price paid per share, any or
all of those unvested shares. The terms upon which such repurchase right shall
be exercisable (including the period and procedure for exercise and the
appropriate vesting schedule for the purchased shares) shall be established by
the Plan Administrator and set forth in the document evidencing such repurchase
right.

 

  F. LIMITED TRANSFERABILITY OF OPTIONS. During the lifetime of the Optionee,
Incentive Options shall be exercisable only by the Optionee and shall not be
assignable or transferable other than by will or by the laws of descent and
distribution following the Optionee’s death. However, Non-Statutory Options may,
in connection with the Optionee’s estate plan, be assigned in whole or in part
during the Optionee’s lifetime to one or more members of the Optionee’s
immediate family or to a trust established exclusively for one or more such
family members; provided, however, that unless the Plan Administrator determines
otherwise in a stock option agreement, Non-Statutory Options provided to
Optionees employed by the Company’s European subsidiaries are not so
transferable. The assigned portion may only be exercised by the person or
persons who acquire a proprietary interest in the option pursuant to the
assignment. The terms applicable to the assigned portion shall be the same as
those in effect for the option immediately prior to such assignment and shall be
set forth in such documents issued to the assignee as the Plan Administrator may
deem appropriate.

 

II. INCENTIVE OPTIONS

 

The terms specified below shall be applicable to all Incentive Options. Except
as modified by the provisions of this Section II, all the provisions of Articles
One, Two and Five shall be applicable to Incentive Options. Options which are
specifically designated as Non-Statutory Options when issued under the Plan
shall NOT be subject to the terms of this Section II.

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A. ELIGIBILITY. Incentive Options may only be granted to Employees.

 

B. DOLLAR LIMITATION. The aggregate Fair Market Value of the shares of Common
Stock (determined as of the respective date or dates of grant) for which one or
more options granted to any Employee under the Plan (or any other option plan of
the Corporation or any Parent or Subsidiary) may for the first time become
exercisable as Incentive Options during any one (1) calendar year shall not
exceed the sum of One Hundred Thousand Dollars ($100,000). To the extent the
Employee holds two (2) or more such options which become exercisable for the
first time in the same calendar year, the foregoing limitation on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.

 

C. 10% STOCKHOLDER. If any Employee to whom an Incentive Option is granted is a
10% Stockholder, then the exercise price per share shall not be less than one
hundred ten percent (110%) of the Fair Market Value per share of Common Stock on
the option grant date, and the option term shall not exceed five (5) years
measured from the option grant date.

 

III. CORPORATE TRANSACTION/CHANGE IN CONTROL

 

A. In the event of any Corporate Transaction, each outstanding option shall
automatically accelerate so that each such option shall, immediately prior to
the effective date of the Corporate Transaction, become fully exercisable with
respect to the total number of shares of Common Stock at the time subject to
such option and may be exercised for any or all of those shares as fully-vested
shares of Common Stock. However, an outstanding option shall not so accelerate
if and to the extent: (i) such option is, in connection with the Corporate
Transaction, to be assumed by the successor corporation (or parent thereof) or
(ii) such option is to be replaced with a cash incentive program of the
successor corporation which preserves the spread existing on the unvested option
shares at the time of the Corporate Transaction and provides for subsequent
payout in accordance with the same vesting schedule applicable to such option.

 

B. All outstanding repurchase rights shall also terminate automatically, and the
shares of Common Stock subject to those terminated rights shall immediately vest
in full, in the event of any Corporate Transaction, except to the extent those
repurchase rights are to be assigned to the successor corporation (or parent
thereof) in connection with such Corporate Transaction.

 

C. The Plan Administrator shall have the discretion, exercisable either at the
time the option is granted or at any time while the option remains outstanding,
to provide for the automatic acceleration of one or more outstanding options
(and the automatic termination of one or more outstanding repurchase rights with
the immediate vesting of the shares of Common Stock subject to those rights)
upon the occurrence of a Corporate Transaction, whether or not those options are
to be assumed (or those repurchase rights are to be assigned) in the Corporate
Transaction.

 

D. Immediately following the consummation of the Corporate Transaction, all
outstanding options shall terminate and cease to be outstanding, except to the
extent assumed by the successor corporation (or parent thereof).

 

E. Each option which is assumed in connection with a Corporate Transaction shall
be appropriately adjusted, immediately after such Corporate Transaction, to
apply to the number and class of securities which would have been issuable to
the Optionee in consummation of such Corporate Transaction had the option been
exercised immediately prior to such Corporate Transaction. Appropriate
adjustments shall also be made to (i) the number and class of securities
available for issuance under the Plan following the consummation of such
Corporate Transaction, (ii) the exercise price payable per share under each
outstanding option, provided the aggregate exercise price payable for such
securities shall remain the same and (iii) the maximum number and/or class of
securities for which any one person may be granted stock options, separately
exercisable stock appreciation rights and direct stock issuances under the Plan
per calendar year.

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F. The Plan Administrator shall have full power and authority to grant options
under the Discretionary Option Grant Program which will automatically accelerate
in whole or in part should the Optionee’s Service subsequently terminate by
reason of an Involuntary Termination within a designated period (not to exceed
twelve (12) months) following the effective date of any Corporate Transaction in
which those options are assumed or replaced and do not otherwise accelerate. Any
options so accelerated shall remain exercisable for fully-vested shares until
the EARLIER of (i) the expiration of the option term or (ii) the expiration of
the one (1)-year period measured from the effective date of the Involuntary
Termination. In addition, the Plan Administrator may provide that one or more of
the Corporation’s outstanding repurchase rights with respect to shares held by
the Optionee at the time of such Involuntary Termination shall immediately
terminate in whole or in part, and the shares subject to those terminated rights
shall accordingly vest.

 

G. The Plan Administrator shall have full power and authority to grant options
under the Discretionary Option Grant Program which will automatically accelerate
in whole or in part should the Optionee’s Service subsequently terminate by
reason of an Involuntary Termination within a designated period (not to exceed
twelve (12) months) following the effective date of any Change in Control. Each
option so accelerated shall remain exercisable for fully-vested shares until the
EARLIER of (i) the expiration of the option term or (ii) the expiration of the
one (1)-year period measured from the effective date of the Involuntary
Termination. In addition, the Plan Administrator may provide that one or more of
the Corporation’s outstanding repurchase rights with respect to shares held by
the Optionee at the time of such Involuntary Termination shall immediately
terminate in whole or in part, and the shares subject to those terminated rights
shall accordingly vest.

 

H. The portion of any Incentive Option accelerated in connection with a
Corporate Transaction or Change in Control shall remain exercisable as an
Incentive Option only to the extent the applicable One Hundred Thousand Dollar
($100,000) limitation is not exceeded. To the extent such dollar limitation is
exceeded, the accelerated portion of such option shall be exercisable as a
Non-Statutory Option under the Federal tax laws.

 

I. The grant of options under the Discretionary Option Grant Program shall in no
way affect the right of the Corporation to adjust, reclassify, reorganize or
otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.

 

IV. CANCELLATION AND REGRANT OF OPTIONS

 

A. The Plan Administrator shall have the authority to effect, at any time, and
from time to time, with the consent of the affected option holders the
cancellation of any or all outstanding options under the Discretionary Option
Grant Program (including outstanding options incorporated from the Predecessor
Plan) and to grant in substitution new options covering the same or different
number of shares of Common Stock but with an exercise price per share based on
the Fair Market Value per share of Common Stock on the new grant date. However,
any repricing of stock options, effected either by reducing the exercise price
of outstanding options or canceling outstanding options and granting replacement
options with a lower exercise price, shall require the approval of the holders
of a majority of the Corporation’s voting shares, with the sole exception of
that certain exchange offer to be commenced as soon as is reasonably practicable
following May 20, 2003, pursuant to which holders of options to purchase a
maximum of 7,000,000 shares of the Corporation’s Common Stock with an exercise
price per share of at least ten percent (10%) higher than the closing price of a
share of the Company’s Common Stock on the Nasdaq National Market on the trading
day prior to the commencement of the exchange offer, shall be offered the
opportunity to elect to cancel such options (the “Cancelled Options”), in
exchange for the grant of replacement options to purchase 0.80 shares of the
Corporation’s Common Stock for each share under the Cancelled Options (the
“Replacement Options”), with such Replacement Options to be granted no less than
six months and one day following the cancellation of the Cancelled Options, at a
price equal to the fair market value of the Corporation’s Common Stock on such
date of grant (the “New Grant Date”). Each Replacement Option will have a term
equal to the lesser of (i) the remaining term of the Cancelled Option, or
(ii) five and one-half (51/2) years. The vesting commencement date and vesting
schedule for each Replacement Option will be the same as for the Cancelled
Option which it replaces, subject to adjustment for any shares previously
exercised,

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except that vesting will be suspended during the period between the cancellation
date of the Cancelled Options and the New Grant Date. Further, optionholders who
receive Replacement Options will be prohibited from exercising those Replacement
Options for an additional six months following the New Grant Date. Executive
Officers and Directors of the Corporation shall not participate in this exchange
offer, and this exchange offer will be structured so that the Corporation avoids
incurring financial accounting charges.

 

B. Notwithstanding the foregoing and any other provision set forth in the Plan
to the contrary, the Plan Administrator may, in its sole discretion, institute a
single option exchange program, as described in the proxy statement with respect
to the Company’s 2009 Annual Meeting of Stockholders, under which outstanding
options granted under the Plan may be surrendered or cancelled in exchange for a
lesser number of equity awards granted under the Company’s 2004 Equity Incentive
Plan.

 

V. STOCK APPRECIATION RIGHTS

 

A. The Plan Administrator shall have full power and authority to grant to
selected Optionees tandem stock appreciation rights and/or limited stock
appreciation rights.

 

B. The following terms shall govern the grant and exercise of tandem stock
appreciation rights:

 

(i) One or more Optionees may be granted the right, exercisable upon such terms
as the Plan Administrator may establish, to elect between the exercise of the
underlying option for shares of Common Stock and the surrender of that option in
exchange for a distribution from the Corporation in an amount equal to the
excess of (a) the Fair Market Value (on the option surrender date) of the number
of shares in which the Optionee is at the time vested under the surrendered
option (or surrendered portion thereof) over (b) the aggregate exercise price
payable for such shares.

 

(ii) No such option surrender shall be effective unless it is approved by the
Plan Administrator. If the surrender is so approved, then the distribution to
which the Optionee shall be entitled may be made in shares of Common Stock
valued at Fair Market Value on the option surrender date, in cash, or partly in
shares and partly in cash, as the Plan Administrator shall in its sole
discretion deem appropriate.

 

(iii) If the surrender of an option is rejected by the Plan Administrator, then
the Optionee shall retain whatever rights the Optionee had under the surrendered
option (or surrendered portion thereof) on the option surrender date and may
exercise such rights at any time prior to the LATER of (a) five (5) business
days after the receipt of the rejection notice or (b) the last day on which the
option is otherwise exercisable in accordance with the terms of the documents
evidencing such option, but in no event may such rights be exercised more than
ten (10) years after the option grant date.

 

C. The following terms shall govern the grant and exercise of limited stock
appreciation rights:

 

(i) One or more Section 16 Insiders may be granted limited stock appreciation
rights with respect to their outstanding options.

 

(ii) Upon the occurrence of a Hostile Take-Over, each individual holding one or
more options with such a limited stock appreciation right shall have the
unconditional right (exercisable for a thirty (30)-day period following such
Hostile Take-Over) to surrender each such option to the Corporation, to the
extent the option is at the time exercisable for vested shares of Common Stock.
In return for the surrendered option, the Optionee shall receive a cash
distribution from the Corporation in an amount equal to the excess of (A) the
Take-Over Price of the shares of Common Stock which are at the time vested under
each surrendered option (or surrendered portion thereof) over (B) the aggregate
exercise price payable for such shares. Such cash distribution shall be paid
within five (5) days following the option surrender date.

 

(iii) The Plan Administrator shall pre-approve, at the time the limited stock
appreciation right is granted, the subsequent exercise of that right in
accordance with the terms of the grant and the provisions of this Section V.C.
No additional approval of the Plan Administrator or the Board shall be required
at the time of the actual option surrender and cash distribution.

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(iv) The balance of the option (if any) shall continue in full force and effect
in accordance with the documents evidencing such option.

 

ARTICLE THREE

 

STOCK ISSUANCE PROGRAM

 

I. STOCK ISSUANCE TERMS

 

Shares of Common Stock may be issued under the Stock Issuance Program through
direct and immediate issuances without any intervening option grants. Each such
stock issuance shall be evidenced by a Stock Issuance Agreement which complies
with the terms specified below.

 

  A. PURCHASE PRICE.

 

(i) The purchase price per share shall be fixed by the Plan Administrator, but
shall not be less than one hundred percent (100%) of the Fair Market Value per
share of Common Stock on the issuance date.

 

(ii) Subject to the provisions of Section I of Article Five, shares of Common
Stock may be issued under the Stock Issuance Program for any of the following
items of consideration which the Plan Administrator may deem appropriate in each
individual instance:

 

(1) cash or check made payable to the Corporation, or

 

(2) past services rendered to the Corporation (or any Parent or Subsidiary).

 

  B. VESTING PROVISIONS.

 

(i) Shares of Common Stock issued under the Stock Issuance Program may, in the
discretion of the Plan Administrator, be fully and immediately vested upon
issuance or may vest in one or more installments over the Participant’s period
of Service or upon attainment of specified performance objectives. The elements
of the vesting schedule applicable to any unvested shares of Common Stock issued
under the Stock Issuance Program, namely:

 

(1) the Service period to be completed by the Participant or the performance
objectives to be attained,

 

(2) the number of installments in which the shares are to vest,

 

(3) the interval or intervals (if any) which are to lapse between installments,
and

 

(4) the effect which death, Permanent Disability or other event designated by
the Plan Administrator is to have upon the vesting schedule, shall be determined
by the Plan Administrator and incorporated into the Stock Issuance Agreement.

 

(ii) Any new, substituted or additional securities or other property including
money paid other than as a regular cash dividend) which the Participant may have
the right to receive with respect to the Participant’s unvested shares of Common
Stock by reason of any stock dividend, stock split, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Corporation’s receipt of
consideration shall be issued subject to (i) the same vesting requirements
applicable to the Participant’s unvested shares of Common Stock and (ii) such
escrow arrangements as the Plan Administrator shall deem appropriate.

 

(iii) The Participant shall have full stockholder rights with respect to any
shares of Common Stock issued to the Participant under the Stock Issuance
Program, whether or not the Participant’s interest in those shares is vested.
Accordingly, the Participant shall have the right to vote such shares and to
receive any regular cash dividends paid on such shares.

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(iv) Should the Participant cease to remain in Service while holding one or more
unvested shares of Common Stock issued under the Stock Issuance Program or
should the performance objectives not be attained with respect to one or more
such unvested shares of Common Stock, then those shares shall be immediately
surrendered to the Corporation for cancellation, and the Participant shall have
no further stockholder rights with respect to those shares. To the extent the
surrendered shares were previously issued to the Participant for consideration
paid in cash or cash equivalent (including the Participant’s purchase-money
indebtedness), the Corporation shall repay to the Participant the cash
consideration paid for the surrendered shares and shall cancel the unpaid
principal balance of any outstanding purchase-money note of the Participant
attributable to the surrendered shares.

 

(v) The Plan Administrator may in its discretion waive the surrender and
cancellation of one or more unvested shares of Common Stock (or other assets
attributable thereto) which would otherwise occur upon the cessation of the
Participant’s Service or the non-attainment of the performance objectives
applicable to those shares. Such waiver shall result in the immediate vesting of
the Participant’s interest in the shares of Common Stock as to which the waiver
applies. Such waiver may be effected at any time, whether before or after the
Participant’s cessation of Service or the attainment or non-attainment of the
applicable performance objectives.

 

II. CORPORATE TRANSACTION/CHANGE IN CONTROL

 

A. All of the Corporation’s outstanding repurchase/cancellation rights under the
Stock Issuance Program shall terminate automatically, and all the shares of
Common Stock subject to those terminated rights shall immediately vest in full,
in the event of any Corporate Transaction, except to the extent those
repurchase/cancellation rights are to be assigned to the successor corporation
(or parent thereof) in connection with such Corporate Transaction.

 

B. The Plan Administrator shall have the discretionary authority, exercisable
either at the time the unvested shares are issued or any time while the
Corporation’s repurchase/cancellation rights remain outstanding under the Stock
Issuance Program, to provide that those rights shall automatically terminate in
whole or in part, and the shares of Common Stock subject to those terminated
rights shall immediately vest, in the event the Participant’s Service should
subsequently terminate by reason of an Involuntary Termination within a
designated period (not to exceed twelve (12) months) following the effective
date of any Corporate Transaction in which those repurchase/cancellation rights
are assigned to the successor corporation (or parent thereof).

 

C. The Plan Administrator shall have the discretionary authority, exercisable
either at the time the unvested shares are issued or any time while the
Corporation’s repurchase/cancellation rights remain outstanding under the Stock
Issuance Program, to provide that those rights shall automatically terminate in
whole or in part, and the shares of Common Stock subject to those terminated
rights shall immediately vest, in the event the Participant’s Service should
subsequently terminate by reason of an Involuntary Termination within a
designated period (not to exceed twelve (12) months) following the effective
date of any Change in Control.

 

III. SHARE ESCROW/LEGENDS

 

Unvested shares may, in the Plan Administrator’s discretion, be held in escrow
by the Corporation until the Participant’s interest in such shares vests or may
be issued directly to the Participant with restrictive legends on the
certificates evidencing those unvested shares.

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ARTICLE FOUR

 

AUTOMATIC OPTION GRANT PROGRAM

 

I. OPTION TERMS

 

  A. GRANT DATES. Option grants shall be made on the dates specified below:

 

(i) On the date of each Annual Stockholders Meeting held on or after May 20,
2003, each non-employee member of the Board who is to continue to serve on the
Board (an “Eligible Director”), whether or not that Eligible Director is
standing for re-election to the Board at that particular Annual Meeting, shall
automatically be granted a Non-Statutory Option to purchase an amount equal to
25,000 shares of Common Stock. There shall be no limit on the number of such
option grants any one Eligible Director may receive over his or her period of
Board service, and Eligible Directors who have previously been in the employ of
the Corporation (or any Parent or Subsidiary) or who have otherwise received a
stock option grant from the Corporation shall be eligible to receive such option
grants over their period of continued Board service. Each individual serving as
a non-employee Board member shall, upon the date such individual joins the Board
of Directors, be automatically granted on such date a non-statutory option to
purchase 30,000 shares if joining between January 27, 1999 and May 17, 2001 or
60,000 shares if joining on or after May 17, 2001 (a “Primary Grant”), provided
such individual (i) had not previously been in the employ of the Corporation (or
any parent or Subsidiary) and (ii) had not otherwise received a prior stock
option grant from the Corporation.

 

(ii) Each Eligible Director on October 26, 1999 shall automatically be granted a
Non-Statutory Option to purchase a number of shares of Common Stock equal to
(x) 30,000 minus (y) the number of shares of Common Stock Options granted to
such individual since the prior Annual Stockholders Meeting and including the
grant at such meeting (the “Interim Option”).

 

(iii) Each individual serving as a non-employee Board member on the Underwriting
Date and each Eligible Director elected to the Board prior to January 26, 1999
was automatically granted, on such date, a Non-Statutory Option to purchase
40,000 shares of Common Stock (an “Initial Grant”), provided such individual
(i) had not previously been in the employ of the Corporation (or any Parent or
Subsidiary) and (ii) had not otherwise received a prior stock option grant from
the Corporation , except that prior to the 1998 Annual Meeting such Initial
grant was for 32,000 shares instead of 40,000. On every Annual Shareholder
Meeting after the Underwriting Date but on or prior to January 26, 1999, each
Eligible Director was granted a Non-Statutory Option for 10,000 shares of Common
Stock, provided such individual was an Eligible Director for at least six
(6) months, except that prior to the 1998 Annual Meeting, such option was to
purchase 8,000 shares, not 10,000. After January 26, 1999 and prior to
October 26, 1999, Eligible Directors were granted a Non-Statutory Option to
purchase 7,500 shares of Common Stock on the date of each Annual Shareholders
Meeting and grants of Non-Statutory Options to purchase 7,500 shares of Common
Stock on the next three (3) three (3) month anniversaries following each
applicable Annual Shareholders Meeting. The automatic annual grant of 30,000
shares of Common Stock is intended to replace these previous automatic quarterly
grants.

 

  B. EXERCISE PRICE.

 

(i) The exercise price per share for any option grant under this Article Four
shall be equal to one hundred percent (100%) of the Fair Market Value per share
of Common Stock on the option grant date.

 

(ii) The exercise price shall be payable in one or more of the alternative forms
authorized under the Discretionary Option Grant Program. Except to the extent
the sale and remittance procedure specified thereunder is utilized, payment of
the exercise price for the purchased shares must be made on the Exercise Date.

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C. OPTION TERM. Each option granted on or after May 17, 2001 shall have a term
of seven (7) years measured from the grant date. Each option granted between
October 26, 1999 and May 17, 2001 shall have a term of five (5) years measured
from the grant date. The Interim Option shall have a term of five (5) years from
the date of the 1999 Annual Stockholders Meeting. Each option granted on or
after January 26, 1999 and on or before October 26, 1999 shall have a term of
two (2) years measured from the option grant date. Each option granted prior to
January 26, 1999 shall have a term of ten (10) years from its date of grant.

 

D. EXERCISE AND VESTING OF OPTIONS. Automatic option grants made on the date of
each Annual Stockholders Meeting held on or after May 20, 2003 shall vest and
become exercisable on the first anniversary of their grant date, provided the
Optionee remains a Board member on such date. Each Interim Option shall vest and
become exercisable on the first anniversary of the 1999 Annual Shareholders
Meeting, provided the Optionee remains a Board member on such date. Each option
granted on or after January 26, 1999 and on or before October 26, 1999 shall be
fully vested and immediately exercisable on the option grant date for any or all
of the option shares. Any shares purchased under an option granted prior to
January 26, 1999 shall be subject to repurchase by the Corporation, at the
exercise price paid per share, upon the Optionee’s cessation of Board service
prior to vesting in those shares. Each Initial Grant and each Primary Grant
shall vest, and the Corporation’s repurchase right shall lapse, in a series of
four (4) successive equal annual installments over the Optionee’s period of
continued service as a Board member, with the first such installment to vest
upon the Optionee’s completion of one (1) year of Board service measured from
the option grant date. With respect to annual share grants made prior to
January 26, 1999, such options shall vest, and the Corporation’s repurchase
right shall lapse, in two (2) successive equal annual installments over the
Optionee’s period of continued service as a Board member, with the first such
installment to vest upon the Optionee’s completion of one (1) year of Board
service measured from the option grant date.

 

E. EFFECT OF TERMINATION OF BOARD SERVICE. The following provisions shall govern
the exercise of any options held by the Optionee at the time the Optionee ceases
to serve as a Board member:

 

(i) The Optionee (or, in the event of Optionee’s death, the personal
representative of the Optionee’s estate or the person or persons to whom the
option is transferred pursuant to the Optionee’s will or in accordance with the
laws of descent and distribution) shall have a twelve (12)-month period
following the date of such cessation of Board service in which to exercise each
such option; provided, however, in no event shall the option be exercised later
than the option term provided in such option.

 

(ii) During the twelve (12)-month exercise period, the option may not be
exercised in the aggregate for more than the number of vested shares of Common
Stock for which the option is exercisable at the time of the Optionee’s
cessation of Board service.

 

(iii) Should the Optionee cease to serve as a Board member by reason of death or
Permanent Disability, then all shares at the time subject to the option shall
immediately vest so that such option may, during the twelve (12)-month exercise
period following such cessation of Board service, be exercised for all or any
portion of those shares as fully-vested shares of Common Stock.

 

(iv) In no event shall the option remain exercisable after the expiration of the
option term. Upon the expiration of the twelve (12)-month exercise period or (if
earlier) upon the expiration of the option term, the option shall terminate and
cease to be outstanding for any vested shares for which the option has not been
exercised. However, the option shall, immediately upon the Optionee’s cessation
of Board service for any reason other than death or Permanent Disability,
terminate and cease to be outstanding to the extent the option is not otherwise
at that time exercisable for vested shares.

 

  II. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER

 

A. In the event of any Corporate Transaction, the shares of Common Stock at the
time subject to each outstanding option but not otherwise vested shall
automatically vest in full so that each such option shall, immediately prior to
the effective date of the Corporate Transaction, become fully exercisable for
all of the

--------------------------------------------------------------------------------

shares of Common Stock at the time subject to such option and may be exercised
for all or any portion of those shares as fully-vested shares of Common Stock.
Immediately following the consummation of the Corporate Transaction, each
automatic option grant shall terminate and cease to be outstanding, except to
the extent assumed by the successor corporation (or parent thereof).

 

B. In connection with any Change in Control, the shares of Common Stock at the
time subject to each outstanding option but not otherwise vested shall
automatically vest in full so that each such option shall, immediately prior to
the effective date of the Change in Control, become fully exercisable for all of
the shares of Common Stock at the time subject to such option and may be
exercised for all or any portion of those shares as fully-vested shares of
Common Stock. Each such option shall remain exercisable for such fully-vested
option shares until the expiration or sooner termination of the option term.

 

C. Each option which is assumed in connection with a Corporate Transaction shall
be appropriately adjusted, immediately after such Corporate Transaction, to
apply to the number and class of securities which would have been issuable to
the Optionee in consummation of such Corporate Transaction had the option been
exercised immediately prior to such Corporate Transaction. Appropriate
adjustments shall also be made to the exercise price payable per share under
each outstanding option, provided the aggregate exercise price payable for such
securities shall remain the same.

 

D. The grant of options under the Automatic Option Grant Program shall in no way
affect the right of the Corporation to adjust, reclassify, reorganize or
otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.

 

III. REMAINING TERMS

 

The remaining terms of each option granted under the Automatic Option Grant
Program shall be the same as the terms in effect for option grants made under
the Discretionary Option Grant Program.

 

ARTICLE FIVE

 

MISCELLANEOUS

 

I. FINANCING

 

A. The Plan Administrator may permit any Optionee or Participant to pay the
option exercise price under the Discretionary Option Grant Program or the
purchase price of shares issued under the Stock Issuance Program by delivering a
promissory note payable in one or more installments. The terms of any such
promissory note (including the interest rate and the terms of repayment) shall
be established by the Plan Administrator in its sole discretion. Promissory
notes may be authorized with or without security or collateral. In all events,
the maximum credit available to the Optionee or Participant may not exceed the
sum of (i) the aggregate option exercise price or purchase price payable for the
purchased shares plus (ii) any Federal, state and local income and employment
tax liability incurred by the Optionee or the Participant in connection with the
option exercise or share purchase.

 

B. The Plan Administrator may, in its discretion, determine that one or more
such promissory notes shall be subject to forgiveness by the Corporation in
whole or in part upon such terms as the Plan Administrator may deem appropriate.

 

II. TAX WITHHOLDING

 

A. The Corporation’s obligation to deliver shares of Common Stock upon the
exercise of stock options or stock appreciation rights or upon the issuance or
vesting of such shares under the Plan shall be subject to the satisfaction of
all applicable Federal, state and local income and employment tax withholding
requirements.

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B. The Plan Administrator may, in its discretion, provide any or all holders of
Non-Statutory Options or unvested shares of Common Stock under the Plan (other
than the options granted or the shares issued under the Automatic Option Grant
Program) with the right to use shares of Common Stock in satisfaction of all or
part of the Taxes incurred by such holders in connection with the exercise of
their options or the vesting of their shares. Such right may be provided to any
such holder in either or both of the following formats:

 

(i) STOCK WITHHOLDING: The election to have the Corporation withhold, from the
shares of Common Stock otherwise issuable upon the exercise of such
Non-Statutory Option or the vesting of such shares, a portion of those shares
with an aggregate Fair Market Value equal to the percentage of the Taxes (not to
exceed one hundred percent (100%)) designated by the holder.

 

(ii) STOCK DELIVERY: The election to deliver to the Corporation, at the time the
Non-Statutory Option is exercised or the shares vest, one or more shares of
Common Stock previously acquired by such holder (other than in connection with
the option exercise or share vesting triggering the Taxes) with an aggregate
Fair Market Value equal to the percentage of the Taxes (not to exceed one
hundred percent (100%)) designated by the holder.

 

III. EFFECTIVE DATE AND TERM OF THE PLAN

 

A. The Plan became effective with respect to the Discretionary Option Grant and
the Stock Issuance Programs immediately upon the Plan Effective Date. The
Automatic Option Grant Program under the Plan became effective on the
Underwriting Date. Options may be granted under the Discretionary Option Grant
Program at any time on or after the Plan Effective Date. In addition, the
initial option grants under the Automatic Option Grant Program were made on the
Underwriting Date to each Eligible Director at that time.

 

B. The Plan shall serve as the successor to the Predecessor Plan, and no further
option grants or direct stock issuances shall be made under the Predecessor Plan
after the Plan Effective Date. All options outstanding under the Predecessor
Plan as of such date shall be incorporated into the Plan at that time and shall
be treated as outstanding options under the Plan.

 

However, each outstanding option so incorporated shall continue to be governed
solely by the terms of the documents evidencing such option, and no provision of
the Plan shall be deemed to affect or otherwise modify the rights or obligations
of the holders of such incorporated options with respect to their acquisition of
shares of Common Stock.

 

C. One or more provisions of the Plan, including (without limitation) the
option/vesting acceleration provisions of Article Two relating to Corporate
Transactions and Changes in Control, may, in the Plan Administrator’s
discretion, be extended to one or more options incorporated from the Predecessor
Plan which do not otherwise contain such provisions.

 

D. The Plan shall terminate upon the earliest of (i) December 31, 2005, (ii) the
date on which all shares available for issuance under the Plan shall have been
issued pursuant to the exercise of the options or the issuance of shares
(whether vested or unvested) under the Plan or (iii) the termination of all
outstanding options in connection with a Corporate Transaction. Upon such Plan
termination, all outstanding stock options and unvested stock issuances shall
continue to have force and effect in accordance with the provisions of the
documents evidencing such options or issuances.

 

IV. AMENDMENT OF THE PLAN

 

A. The Board shall have complete and exclusive power and authority to amend or
modify the Plan in any or all respects. However, no such amendment or
modification shall adversely affect any rights and obligations with respect to
options, stock appreciation rights or unvested stock issuances at the time
outstanding under the Plan unless the Optionee or the Participant consents to
such amendment or modification. In addition, certain

--------------------------------------------------------------------------------

amendments may require stockholder approval pursuant to applicable laws or
regulations. Notwithstanding the foregoing, the approval of the holders of not
less than a majority of the outstanding common stock of the Corporation entitled
to vote shall be required to take the following actions:

 

(i) amend the Plan to materially modify the requirements for eligibility under
the Plan;

 

(ii) amend the Plan to materially increase the number of shares of Common Stock
which may be issued over the term of the Plan; or

 

(iii) amend the Plan to materially increase the benefits accruing to
participants under the Plan as such benefits are currently set forth in the
Plan.

 

B. Options to purchase shares of Common Stock may be granted under the
Discretionary Option Grant Program and shares of Common Stock may be issued
under the Stock Issuance

 

Program that are in each instance in excess of the number of shares then
available for issuance under the Plan, provided any excess shares actually
issued under those programs are held in escrow until there is obtained
stockholder approval of an amendment sufficiently increasing the number of
shares of Common Stock available for issuance under the Plan. If such
stockholder approval is not obtained within twelve (12) months after the date
the first such excess grants or issuances are made, then (i) any unexercised
options granted on the basis of such excess shares shall terminate and cease to
be outstanding and (ii) the Corporation shall promptly refund to the Optionees
and the Participants the exercise or purchase price paid for any excess shares
issued under the Plan and held in escrow, together with interest (at the
applicable Short-Term Federal Rate) for the period the shares were held in
escrow, and such shares shall thereupon be automatically canceled and cease to
be outstanding.

 

V. USE OF PROCEEDS

 

Any cash proceeds received by the Corporation from the sale of shares of Common
Stock under the Plan shall be used for general corporate purposes.

 

VI. REGULATORY APPROVALS

 

A. The implementation of the Plan, the granting of any option or stock
appreciation right under the Plan and the issuance of any shares of Common Stock
(i) upon the exercise of any option or stock appreciation right or (ii) under
the Stock Issuance Program shall be subject to the Corporation’s procurement of
all approvals and permits required by regulatory authorities having jurisdiction
over the Plan, the options and stock appreciation rights granted under it and
the shares of Common Stock issued pursuant to it.

 

B. No shares of Common Stock or other assets shall be issued or delivered under
the Plan unless and until there shall have been compliance with all applicable
requirements of Federal and state securities laws, including the filing and
effectiveness of the Form S-8 registration statement for the shares of Common
Stock issuable under the Plan, and all applicable listing requirements of any
stock exchange (or the Nasdaq National Market, if applicable) on which Common
Stock is then listed for trading.

 

VII. NO EMPLOYMENT/SERVICE RIGHTS

 

Nothing in the Plan shall confer upon the Optionee or the Participant any right
to continue in Service for any period of specific duration or interfere with or
otherwise restrict in any way the rights of the Corporation (or any Parent or
Subsidiary employing or retaining such person) or of the Optionee or the
Participant, which rights are hereby expressly reserved by each, to terminate
such person’s Service at any time for any reason, with or without cause.

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APPENDIX TO 1996 STOCK INCENTIVE PLAN

 

The following definitions shall be in effect under the Plan:

 

A. AUTOMATIC OPTION GRANT PROGRAM shall mean the automatic option grant program
in effect under the Plan.

 

B. BOARD shall mean the Corporation’s Board of Directors.

 

C. CHANGE IN CONTROL shall mean a change in ownership or control of the
Corporation effected through either of the following transactions:

 

(i) the acquisition, directly or indirectly, by any person or related group of
persons (other than the Corporation or a person that directly or indirectly
controls, is controlled by, or is under common control with, the Corporation),
of beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act) of
securities possessing more than fifty percent (50%) of the total combined voting
power of the Corporation’s outstanding securities pursuant to a tender or
exchange offer made directly to the Corporation’s stockholders, or

 

(ii) a change in the composition of the Board over a period of thirty-six
(36) consecutive months or less such that a majority of the Board members
ceases, by reason of one or more contested elections for Board membership, to be
comprised of individuals who either (A) have been Board members continuously
since the beginning of such period or (B) have been elected or nominated for
election as Board members during such period by at least a majority of the Board
members described in clause (A) who were still in office at the time the Board
approved such election or nomination.

 

D. CODE shall mean the Internal Revenue Code of 1986, as amended.

 

E. COMMON STOCK shall mean the Corporation’s common stock.

 

F. CORPORATE TRANSACTION shall mean either of the following stockholder-approved
transactions to which the Corporation is a party:

 

(i) a merger or consolidation in which securities possessing more than fifty
percent (50%) of the total combined voting power of the Corporation’s
outstanding securities are transferred to a person or persons different from the
persons holding those securities immediately prior to such transaction; or

 

(ii) the sale, transfer or other disposition of all or substantially all of the
Corporation’s assets in complete liquidation or dissolution of the Corporation.

 

G. CORPORATION shall mean Polycom, Inc., a Delaware corporation, and any
corporate successor to all or substantially all of the assets or voting stock of
Polycom, Inc. which shall by appropriate action adopt the Plan.

 

H. DISCRETIONARY OPTION GRANT PROGRAM shall mean the discretionary option grant
program in effect under the Plan.

 

I. ELIGIBLE DIRECTOR shall mean a non-employee Board member eligible to
participate in the Automatic Option Grant Program in accordance with the
eligibility provisions of Article One.

 

J. EMPLOYEE shall mean an individual who is in the employ of the Corporation (or
any Parent or Subsidiary), subject to the control and direction of the employer
entity as to both the work to be performed and the manner and method of
performance.

 

K. EXERCISE DATE shall mean the date on which the Corporation shall have
received written notice of the option exercise.

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L. FAIR MARKET VALUE per share of Common Stock on any relevant date shall be
determined in accordance with the following provisions:

 

(i) If the Common Stock is at the time traded on the Nasdaq National Market,
then the Fair Market Value shall be the closing selling price per share of
Common Stock on the date in question, as such price is reported by the National
Association of Securities Dealers on the Nasdaq National Market or any successor
system. If there is no closing selling price for the Common Stock on the date in
question, then the Fair Market Value shall be the closing selling price on the
last preceding date for which such quotation exists.

 

(ii) If the Common Stock is at the time listed on any Stock Exchange, then the
Fair Market Value shall be the closing selling price per share of Common Stock
on the date in question on the Stock Exchange determined by the Plan
Administrator to be the primary market for the Common Stock, as such price is
officially quoted in the composite tape of transactions on such exchange. If
there is no closing selling price for the Common Stock on the date in question,
then the Fair Market Value shall be the closing selling price on the last
preceding date for which such quotation exists.

 

(iii) For purposes of any option grants made on the Underwriting Date, the Fair
Market Value shall be deemed to be equal to the price per share at which the
Common Stock is to be sold in the initial public offering pursuant to the
Underwriting Agreement.

 

(iv) For purposes of any option grants made prior to the Underwriting Date, the
Fair Market Value shall be determined by the Plan Administrator, taking into
account such factors as it deems appropriate.

 

M. HOSTILE TAKE-OVER shall mean a change in ownership of the Corporation
effected through the direct or indirect acquisition by any person or related
group of persons (other than the Corporation or a person that directly or
indirectly controls, is controlled by, or is under common control with, the
Corporation) of beneficial ownership (within the meaning of Rule 13d-3 of the
1934 Act) of securities possessing more than fifty percent (50%) of the total
combined voting power of the Corporation’s outstanding securities pursuant to a
tender or exchange offer made directly to the Corporation’s stockholders which
the Board does not recommend such stockholders to accept.

 

N. INCENTIVE OPTION shall mean an option which satisfies the requirements of
Code Section 422.

 

O. INVOLUNTARY TERMINATION shall mean the termination of the Service of any
individual which occurs by reason of:

 

(i) such individual’s involuntary dismissal or discharge by the Corporation for
reasons other than Misconduct, or

 

(ii) such individual’s voluntary resignation following (A) a change in his or
her position with the Corporation which materially reduces his or her level of
responsibility, (B) a reduction in his or her level of compensation (including
base salary, fringe benefits and participation in corporate-performance based
bonus or incentive programs) by more than fifteen percent (15%) or (C) a
relocation of such individual’s place of employment by more than fifty
(50) miles, provided and only if such change, reduction or relocation is
effected by the Corporation without the individual’s consent.

 

P. MISCONDUCT shall mean the commission of any act of fraud, embezzlement or
dishonesty by the Optionee or Participant, any unauthorized use or disclosure by
such person of confidential information or trade secrets of the Corporation (or
any Parent or Subsidiary), or any other intentional misconduct by such person
adversely affecting the business or affairs of the Corporation (or any Parent or
Subsidiary) in a material manner. The foregoing definition shall not be deemed
to be inclusive of all the acts or omissions which the Corporation (or any
Parent or Subsidiary) may consider as grounds for the dismissal or discharge of
any Optionee, Participant or other person in the Service of the Corporation (or
any Parent or Subsidiary).

 

Q. 1934 ACT shall mean the Securities Exchange Act of 1934, as amended.

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R. NON-STATUTORY OPTION shall mean an option not intended to satisfy the
requirements of Code Section 422.

 

S. OPTIONEE shall mean any person to whom an option is granted under the
Discretionary Option Grant or Automatic Option Grant Program.

 

T. PARENT shall mean any corporation (other than the Corporation) in an unbroken
chain of corporations ending with the Corporation, provided each corporation in
the unbroken chain (other than the Corporation) owns, at the time of the
determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.

 

U. PARTICIPANT shall mean any person who is issued shares of Common Stock under
the Stock Issuance Program.

 

V. PERMANENT DISABILITY OR PERMANENTLY DISABLED shall mean the inability of the
Optionee or the Participant to engage in any substantial gainful activity by
reason of any medically determinable physical or mental impairment expected to
result in death or to be of continuous duration of twelve (12) months or more.
However, solely for the purposes of the Automatic Option Grant Program,
Permanent Disability or Permanently Disabled shall mean the inability of the
non-employee Board member to perform his or her usual duties as a Board member
by reason of any medically determinable physical or mental impairment expected
to result in death or to be of continuous duration of twelve (12) months or
more.

 

W. PLAN shall mean the Corporation’s 1996 Stock Incentive Plan, as set forth in
this document.

 

X. PLAN ADMINISTRATOR shall mean the particular entity, whether the Board, the
Primary Committee or the Secondary Committee, which is authorized to administer
the Discretionary Option Grant and Stock Issuance Programs with respect to one
or more classes of eligible persons, to the extent such entity is carrying out
its administrative functions under those programs with respect to the persons
under its jurisdiction.

 

Y. PLAN EFFECTIVE DATE shall mean March 5, 1996, the date on which the Plan was
adopted by the Board.

 

Z. PREDECESSOR PLAN shall mean the Corporation’s existing 1991 Stock Option
Plan.

 

AA. PRIMARY COMMITTEE shall mean the committee of two (2) or more non-employee
Board members appointed by the Board to administer the Discretionary Option
Grant and Stock Issuance Programs with respect to Section 16 Insiders.

 

AB. SECONDARY COMMITTEE shall mean a committee of at least one (1) Board member
appointed by the Board to administer the Discretionary Option Grant and Stock
Issuance Programs with respect to eligible persons other than Section 16
Insiders.

 

AC. SECTION 12(g) REGISTRATION DATE shall mean the date on which the Common
Stock was first registered under Section 12(g) of the 1934 Act.

 

AD. SECTION 16 INSIDER shall mean an officer or director of the Corporation
subject to the short-swing profit liabilities of Section 16 of the 1934 Act.

 

AE. SERVICE shall mean the provision of services to the Corporation (or any
Parent or Subsidiary) by a person in the capacity of an Employee, a non-employee
member of the board of directors or a consultant or independent advisor, except
to the extent otherwise specifically provided in the documents evidencing the
option grant or stock issuance.

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AF. STOCK EXCHANGE shall mean either the American Stock Exchange or the New York
Stock Exchange.

 

AG. STOCK ISSUANCE AGREEMENT shall mean the agreement entered into by the
Corporation and the Participant at the time of issuance of shares of Common
Stock under the Stock Issuance Program.

 

AH. STOCK ISSUANCE PROGRAM shall mean the stock issuance program in effect under
the Plan.

 

AI. SUBSIDIARY shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations beginning with the Corporation, provided each
corporation (other than the last corporation) in the unbroken chain owns, at the
time of the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.

 

AJ. TAKE-OVER PRICE shall mean the GREATER of (i) the Fair Market Value per
share of Common Stock on the date the option is surrendered to the Corporation
in connection with a Hostile Take-Over or (ii) the highest reported price per
share of Common Stock paid by the tender offeror in effecting such Hostile
Take-Over. However, if the surrendered option is an Incentive Option, the
Take-Over Price shall not exceed the clause (i) price per share.

 

AK. TAXES shall mean the Federal, state and local income and employment tax
liabilities incurred by the holder of Non-Statutory Options or unvested shares
of Common Stock in connection with the exercise of those options or the vesting
of those shares.

 

AL. 10% STOCKHOLDER shall mean the owner of stock (as determined under Code
Section 424(d)) possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Corporation (or any Parent or
Subsidiary).

 

AM. UNDERWRITING AGREEMENT shall mean the agreement between the Corporation and
the underwriter or underwriters managing the initial public offering of the
Common Stock.

 

AN. UNDERWRITING DATE shall mean April 29, 1996, the date on which the
Underwriting Agreement was executed and priced in connection with an initial
public offering of the Common Stock.