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Exhibit 4.02    
  

EXCHANGE AGREEMENT  

    EXCHANGE AGREEMENT ("Agreement") dated as of August 13,
2001 by and between HYBRID NETWORKS, INC., a Delaware corporation (the "Company"), and HALIFAX FUND, L.P., a Cayman Islands limited partnership
(the "Purchaser"). 

W I T N E S S E T H:  

    WHEREAS, pursuant to that certain Securities Purchase Agreement dated as of February 16, 2001 between
the Company and the Purchaser ("Purchase Agreement"), the Company issued and sold to the Purchaser on February 16, 2001 (i) a 6%
Convertible Debenture (the "Debenture") of the Company in the original principal amount of $7.5 million, (ii) a 5-year warrant
(the "Warrant") to purchase an aggregate of up to 833,333 shares (the "Warrant Shares") of the Company's
common stock, $0.001 par value ("Common Stock"), and (iii) an adjustment warrant (the "Adjustment
Warrant") to purchase a number of shares of Common Stock calculated pursuant to a formula set forth therein, for an aggregate purchase price of $7.5 million; 

    WHEREAS, the Company and the Purchaser wish to exchange the Debenture and the Adjustment Warrant for 7,560 shares (the
"Preferred Shares") of the Company's Series K Cumulative Convertible Preferred Stock, par value $.001 per share, which are convertible into
shares ("Common Shares") of Common Stock, in accordance with the terms of that certain Certificate of Designations (the
"Certificate") attached hereto as Annex A, all on the terms and conditions described below; 

    WHEREAS, pursuant to the terms of that certain Registration Rights Agreement dated as of February 16, 2001 between the Company
and the Purchaser (the "Prior Registration Rights Agreement"), the shares of Common Stock issuable upon conversion of the Debenture and exercise of the
Warrant and the Adjustment Warrant were subject to registration rights of the Purchaser; and 

    WHEREAS, the Common Shares and the Warrant Shares (collectively, the "Registrable
Securities") will carry registration rights pursuant to the terms of that certain Registration Rights Agreement to be entered into between the Company and the Purchaser
substantially in the form annexed hereto as Annex B (the "Registration Rights Agreement") and the parties desire to completely terminate the Prior
Registration Rights Agreement; 

    NOW, THEREFORE, in consideration of the foregoing premises and the covenants contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 

ARTICLE I

Exchange of Debenture and Adjustment Warrant for Preferred Shares  

    Section
1.1  Issuance of Preferred Shares.  Upon the following terms and conditions, the Company shall
issue to the Purchaser, and the Purchaser shall acquire from the Company, 7,560 Preferred Shares in exchange for the surrender and cancellation of the Debenture and Adjustment Warrant. 

    Section 1.2  The Exchange.  

    (a) The
exchange of the Debenture and Adjustment Warrant (the "Exchange") shall take place on or about the date hereof
(the "Exchange Date"). On the Exchange Date the parties shall deliver all the items described in Section 4.3 below. In connection therewith,
(1) the Company shall deliver original executed certificates evidencing the Preferred Shares to Kleinberg, Kaplan, Wolff & Cohen, P.C.
("KKWC") on or before the Exchange Date to hold for the Exchange, (2) the Company and the Purchaser shall exchange signature pages to this
Agreement and the Registration Rights Agreement by facsimile on the date hereof (with four originals to be forwarded to KKWC by overnight courier), and (3) the stamped copy of the Certificate,
the officer's certificate, the Sprint Consent and the opinion of counsel referenced in Section 4.2 below, respectively, shall be 

 

delivered to KKWC on or before the Exchange Date to hold for the Exchange (which officer's certificate, Sprint Consent and opinion may be by facsimile with originals to follow). 

    (b) On
the Exchange Date, the Purchaser shall receive all the original executed certificates evidencing the Preferred Shares, registered in the name of the Purchaser or
its nominee, and the Purchaser shall surrender to the Company the Debenture and Adjustment Warrant for cancellation (which may be delivered to KKWC on the Exchange Date to be forwarded to the Company
promptly following the Exchange Date). In addition, each party shall deliver all documents, instruments and writings required to be delivered by such party pursuant to this Agreement at or prior to
the Exchange. Additionally, on the Exchange Date the Company shall pay to KKWC its legal fees and disbursements as set forth in Section 3.4. 

    (c) For
clarification purposes, the Warrant shall remain outstanding following the Exchange (as amended pursuant to Section 1.5 below) and carry the registration
rights set forth in the Registration Rights Agreement. 

    Section 1.3  Waivers.  Effective upon, and only upon, the consummation of the Exchange, each party
hereto forever waives any and all defaults of the other party hereto arising, or which may have arisen, under the Purchase Agreement, the Debenture or Prior Registration Rights Agreement, including
without limitation any defaults under Section 2(b) of the Prior Registration Rights Agreement but excluding any misrepresentations under Article II of the Purchase Agreement (which
misrepresentations are not waived and shall continue to constitute a default), with the effect that any such default did not occur. Without limiting the foregoing, the $150,000 payment received by the
Purchaser from the Company on or about June 29, 2001 in satisfaction of the liquidated damages payment due under the Prior Registration Rights Agreement, which shall be waived pursuant to the
preceding sentence, shall be deemed applied against interest which was previously due under the Debenture and thus is factored into the exchange rate hereunder. 

    Section 1.4  Rule 144.  The Company and the Purchaser hereby agree that for purposes of
determining the holding period under Rule 144 promulgated under the Securities Act (as defined herein) for the Preferred Shares and Common Shares, the holding period for the Preferred Shares
and Common Shares shall be deemed to have commenced as of February 16, 2001, the date that the Debenture was issued, and the Company shall not take any position inconsistent with such holding
period. For as long as any Preferred Shares or Common Shares remain outstanding, the Company covenants to comply with the information requirements set forth in Rule 144(c) of the Securities Act
on a timely basis and to take such other steps as may be required, including without limitation instructions to its transfer agents, to enable the Purchaser or holder of Common Shares or Preferred
Shares to effect resales of such securities under such Rule 144. 

    Section 1.5  Warrant Amendment.  

    (a)  Amendments.  The Warrant is hereby amended as follows: 

     (i) The
following language shall be added to the end of clause (1) of Section 4(f)(ii) of the Warrant: "and the Common Stock shall be listed,
quoted and traded, and not subject to any suspension of trading, on
the NASDAQ National Market System, the American Stock Exchange, the New York Stock Exchange or the NASDAQ Small Cap Market, and no such market or exchange shall have notified the Company (in writing
or orally) that the Company or its Common Stock is subject to delisting or suspension which notice is still in effect or which facts precipitating such potential delisting or suspension still exist;"
and 

    (ii) The
following new clause (5) shall be added after clause (4) in Section 4(f)(ii) of the Warrant: "and (5) There shall no longer
be outstanding any Preferred Shares (as defined in that certain Exchange Agreement between the Company and the initial Holder hereof dated on or about August 3, 2001)." 

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    (b)  Replacement Warrant; Tacking.  The Company agrees that, promptly following the Exchange Date, the
Company shall issue and deliver to the Purchaser a replacement Warrant in exchange for the currently outstanding Warrant, which replacement Warrant shall be identical to the Warrant in all respects
except for the amendments set forth in Section 1.5(a) above, at which time the Purchaser shall promptly return the currently outstanding Warrant to the Company for cancellation. The Company and
the Purchaser hereby agree that for purposes of determining the holding period under Rule 144 of the Securities Act for the Warrant Shares in the event of a cashless exercise of the Warrant,
the holding period for the Warrant Shares shall be deemed to have commenced as of February 16, 2001, the date that the Warrant was originally issued, and the Company shall not take any position
inconsistent with such holding period. 

    Section 1.6  Termination of Prior Registration Rights Agreement.  Effective upon, and only upon,
the consummation of the Exchange, each of the parties hereto agrees that (a) the Prior Registration Rights Agreement will be terminated in its entirety and that all of the terms and provisions
thereof will no longer be in effect, (b) each of the parties will release the other parties hereto from all obligations arising out of the Prior Registration Rights Agreement and neither party
shall have any further rights arising out of the Prior Registration Rights Agreement, and (c) there will be no amounts due and owing under the Prior Registration Rights Agreement. 

ARTICLE II

Representations and Warranties  

    Section 2.1  Representations and Warranties of the Company.  The Company hereby makes the
following representations and warranties to the Purchaser as of the date hereof and the Exchange Date except as may be set forth in a Schedule attached hereto bearing the subsection number of the
subsection
modified by such Schedule (it being agreed that the disclosure set forth in any Schedule shall only apply to the specified subsection of this Section 2.1 referred to in the caption of such
Schedule): 

    (a)  Organization and Qualification; Material Adverse Effect.  The Company is a corporation duly
incorporated and existing in good standing under the laws of the State of Delaware and has the requisite corporate power to own its properties and to carry on its business as now being conducted. The
Company does not have any direct or indirect subsidiaries (defined as any entity of which the Company owns, directly or indirectly, 50% or more of the equity or voting power). Except where
specifically indicated to the contrary, all references in this Agreement to subsidiaries shall be deemed to refer to all direct and indirect subsidiaries of the Company. Except where specifically
indicated to the contrary, all references in this Article II to the Company shall be deemed to refer to the Company and its consolidated subsidiaries. Each of the Company and its subsidiaries
is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which the nature of the business conducted or property owned by it makes such qualification
necessary other than those in which the failure so to qualify would not have a Material Adverse Effect. "Material Adverse Effect" means any adverse
effect on the business, operations, prospects, properties or condition (financial or otherwise) of the entity with respect to which such term is used and which is (either alone or together with all
other adverse effects) material to such entity and other entities controlling or controlled by such entity taken as a whole, and any material adverse effect on the transactions contemplated under this
Agreement, the Registration Rights Agreement or any other agreement or document contemplated hereby or thereby. 

    (b)  Authorization; Enforcement.  (i) The Company has all requisite corporate power and authority
to enter into and perform its obligations under this Agreement, the Certificate, the Warrant and the Registration Rights Agreement (the "Transaction
Documents") and to issue the Preferred Shares, the Warrant and the Registrable Securities (collectively, the "Securities") in 

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accordance with the terms hereof and thereof and in accordance with the Purchase Agreement, (ii) the execution and delivery of the Transaction Documents by the Company and the consummation by
it of the transactions contemplated hereby and thereby, including the issuance of the Registrable Securities and the prior issuance of the Warrant under the Purchase Agreement, have been duly
authorized by all necessary corporate action, and no further consent or authorization of the Company or its Board of Directors (or any committee or subcommittee thereof) or stockholders is required,
(iii) the Transaction Documents have been duly executed and delivered by the Company and (iv) the Transaction Documents constitute valid and binding obligations of the Company
enforceable against the Company in accordance with their terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar
laws relating to, or affecting generally the enforcement of creditors' rights and remedies or by other equitable principles of general application. 

    (c)  Capitalization.  The authorized capital stock of the Company consists of 100,000,000 shares of
Common Stock and 5,000,000 shares of preferred stock, of which there are 22,379,780 shares of Common Stock and no shares of preferred stock issued and outstanding (excluding the Preferred Shares).
Except as set forth in Schedule 2.1(c) hereto, no shares of Common Stock and no shares of
preferred stock were reserved for issuance to persons other than the Purchaser. All of the outstanding shares of the Company's Common Stock and, if issued, preferred stock have been validly issued and
are fully paid and non-assessable. No shares of capital stock are entitled to preemptive rights and, there are no outstanding options or outstanding warrants for shares of Common Stock
(excluding the Warrant and Adjustment Warrant). There are no other scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights exchangeable for
or convertible into, any shares of capital stock of the Company, or contracts, commitments, understandings, or arrangements by which the Company is or may become bound to issue additional shares of
capital stock of the Company or options, warrants, scrip, rights to subscribe to, or commitments to purchase or acquire, any shares, or securities or rights convertible or exchangeable into shares, of
capital stock of the Company. The Company has furnished the Purchaser with a true and correct copy of the Company's Amended and Restated Certificate of Incorporation (the
"Charter"), as in effect on the date hereof, and a true and correct copy of the Company's By-Laws, as in effect on the date hereof (the
"By-Laws"). 

    (d)  Issuance of Registrable Securities.  The Common Shares and Warrant Shares are duly authorized and
reserved for issuance, and, when issued upon conversion and/or exercise of the Preferred Shares or the Warrant, respectively, in accordance therewith, the Registrable Securities will be validly
issued, fully paid and non-assessable, free and clear of any and all liens, claims and encumbrances, and, subject to the registration of such shares in accordance with the applicable
provisions of the Securities Act of 1933, as amended (the "Securities Act" or the "Act") and the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), will be entitled to be quoted and/or listed (as the case may be) on the NASDAQ
National Market System, the American Stock Exchange, the New York Stock Exchange, NASDAQ Small Cap Market or the OTC Bulletin Board (each an "Approved
Market"), and the holders of such Registrable Securities shall be entitled to all rights and preferences then accorded to a holder of Common Stock. The outstanding shares of
freely tradable Common Stock are currently quoted on the NASDAQ National Market System. 

    (e)  No Conflicts.  The execution, delivery and performance of the Transaction Documents by the Company
and the consummation by the Company of the transactions contemplated hereby and thereby and the issuance of the Securities do not and will not (i) result in a violation of the Company's Charter
or By-Laws or (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement, indenture, patent, patent 

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license or instrument to which the Company is a party and the loss of which could reasonably be expected to have a Material Adverse Effect on the Company (collectively,
"Company Agreements"), or (iii) result in a violation of any federal, state, local or foreign law, rule, regulation, order, judgment or decree
(including federal and state securities laws and regulations) applicable to the Company or any of its subsidiaries or by which any property or asset of the Company or any of its subsidiaries is bound
or affected, except (other than in the case of clause (i) above) where such violation would not reasonably be expected to have a Material Adverse Effect. The business of the Company and its
direct and indirect subsidiaries is being conducted in material compliance with (i) its Charter and By-Laws, (ii) all Company Agreements and (iii) all applicable laws,
ordinances or regulations of any governmental entity, except (other than in the case of clause (i) above) where such violation would not reasonably be
expected to have a Material Adverse Effect. Except for filings, consents and approvals required under applicable state and federal securities laws, rules or regulations, or the rules and regulations
of the Approved Markets and covered by the Registration Rights Agreement, the Company is not required under federal, state, local or foreign law, rule or regulation, or under any agreement, to obtain
any consent, authorization or order of, or make any filing or registration with, any court or governmental agency or third party in order for it to execute, deliver or perform any of its obligations
under the Transaction Documents, or to issue and sell the Securities, except for the registration provisions provided in the Registration Rights Agreement, the written consent ("Sprint Consent") of
Sprint to the Transaction Documents and the transactions contemplated thereby, and compliance with the "piggy-back" registration rights provisions of the Company's outstanding registration
rights agreements described in Schedule 2.1(f) hereto (and disclosing the names of the potential selling stockholders and the maximum number of shares that they could require to be registered). 

    (f)  SEC Documents; No Non-Public Information; Financial Statements.  The Common Stock is
registered pursuant to Section 12(g) of the Exchange Act and since June 30, 1999 the Company and its subsidiaries have filed all reports, schedules, forms, statements and other documents
required to be filed by it with the SEC pursuant to the reporting requirements of the Exchange Act, including all such proxy information, solicitation statement and registration statements, and any
amendments thereto required to have been filed as of the Exchange Date (all of the foregoing including filings incorporated by reference therein being referred to herein as the
"SEC Documents"). The Company has not directly or indirectly provided, and will not directly or indirectly provide, to the Purchaser any material
non-public information or any information which, according to applicable law, rule or regulation, should have been disclosed publicly by the Company but which has not been so disclosed. As
of their respective dates, the SEC Documents complied in all material respects with the requirements of the Exchange Act and the Securities Act, as the case may be, and the rules and regulations of
the SEC promulgated thereunder and other federal, state and local laws, rules and regulations applicable to such SEC Documents, and none of the SEC Documents contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not
misleading. No event or circumstance has occurred prior to the date hereof or will have occurred as of or on the Exchange Date which would require the Company to disclose such event or circumstance in
order to make the statements in the SEC Documents not misleading but which has not, or will have not, been so disclosed. 

    (g)  Financial Statements.  The financial statements of the Company and its subsidiaries included in the
SEC Documents comply as to form and substance in all material respects with applicable accounting requirements and the published rules and regulations of the SEC or other applicable rules and
regulations with respect thereto. Such financial statements have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis during the
periods involved (except (i) as may be otherwise indicated in such financial 

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statements or the notes thereto or (ii) in the case of unaudited interim statements, to the extent they may not include footnotes or may be condensed or summary statements) and fairly present
in all material respects the financial position of the Company and its subsidiaries as of the dates thereof and the results of operations and cash flows for the periods then ended (subject, in the
case of unaudited
statements, to normal year-end audit adjustments). The occurrence of any potential event described in Schedule 2.1(g) will not cause a default, breach or violation of any material
agreement of the Company, including, without limitation, any loan agreement or any agreement with a customer or supplier (or constitute an event which with notice or lapse of time or both would become
a default, breach or violation). The Company is not subject to any Bankruptcy Event (as defined below). 

    (h)  Principal Exchange/Market.  The principal market on which the Common Stock is currently quoted is
the NASDAQ National Market System. 

    (i)  No Material Adverse Change.  Except as disclosed in the Pre-Agreement SEC Documents (as
defined below), since December 31, 1999, no Material Adverse Effect has occurred or exists, and no event or circumstance has occurred that with notice or the passage of time or both is
reasonably likely to result in a Material Adverse Effect with respect to the Company or its subsidiaries on a consolidated basis. 

    (j)  No Undisclosed Liabilities.  The Company and its subsidiaries have no liabilities or obligations not
disclosed in the Pre-Agreement SEC Documents (as defined below), other than those liabilities incurred in the ordinary course of the Company's or its subsidiaries' respective businesses
since December 31, 1999, which liabilities, individually or in the aggregate, do not have a Material Adverse Effect on the Company or its direct or indirect subsidiaries. 

    (k)  No Undisclosed Events or Circumstances.  To the best knowledge of the Company, no material event or
circumstance has occurred or exists with respect to the Company or its direct or indirect subsidiaries or their respective businesses, properties, prospects, operations or financial condition, which,
under applicable law, rule or regulation, requires public disclosure or announcement by the Company but which has not been so publicly announced or disclosed. 

    (l)  No General Solicitation.  Neither the Company, nor any of its affiliates, or, to its knowledge, any
person acting on its or their behalf has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D under the Securities Act) in connection with the
offer or sale of the Securities. 

    (m)  No Integrated Offering.  Other than pursuant to the Purchase Agreement, neither the Company, nor any
of its affiliates, nor to its knowledge any person acting on its or their behalf, has directly or indirectly (i) issued any securities of any kind, other than upon the exercise of outstanding
stock options, during the six month period immediately prior to the date hereof, or (ii) made any other offers or sales of any security or solicited any offers to buy any security under
circumstances that would require registration of the Securities. 

    The
issuance of the Securities to the Purchaser will not be integrated with any other issuance of the Company's securities (past, current or future) which requires stockholder
approval under the rules of the NASDAQ National Market System. 

    (n)  Form S-3.  The Company is eligible to file the Registration Statement (as defined
in the Registration Rights Agreement) on Form S-3 under the Act and rules promulgated thereunder, and Form S-3 is permitted to be used for the transactions
contemplated hereby under the Act and rules promulgated thereunder. 

    (o)  Intellectual Property.  The Company and its subsidiaries own or possess adequate rights or licenses
to use all trademarks, trade names, service marks, service mark registrations, service 

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names, patents, patent rights, patent applications, copyrights, inventions, licenses, approvals, governmental authorizations, trade secrets and confidential business information, computer software,
and all other proprietary or intellectual property rights, and all goodwill associated with the foregoing (collectively, "Intellectual Property")
necessary or desirable to conduct their respective businesses as now conducted or currently contemplated to be conducted in the future. Except for such expirations and terminations that would not
individually or in the aggregate have a Material Adverse Effect on the Company, none of the Company's Intellectual Property rights have expired or terminated, or are expected to expire or terminate
within three (3) years from the date of this Agreement. Except as would not individually or in the aggregate have a Material Adverse Effect, the Company and its subsidiaries do not have any
knowledge of any infringement, interference or misappropriation by the Company or its subsidiaries of or with Intellectual Property or other similar rights of others, or of any such development of
similar or identical trade secrets or technical information by others, and there is no claim, action or proceeding being made or brought against, or to the Company's knowledge, being threatened
against, the Company or its subsidiaries regarding Intellectual Property or other infringement, interference or misappropriation. The Company and its subsidiaries have taken reasonable security
measures to protect the secrecy, confidentiality and value of all of their Intellectual Property. 

    (p)  Poison Pill Provisions.  Neither the Company nor any of its subsidiaries have a stockholder rights
plan. None of the acquisition of the Securities nor the deemed beneficial ownership of shares of Registrable Securities prior to, or the acquisition of Registrable Securities pursuant to, the
conversion or exercise of the Preferred Shares or the Warrant, respectively, will in any event under any circumstance, but without giving effect to the ownership of any other securities of the
Company, trigger the poison pill provisions of any other or subsequently adopted plan or agreement, or a substantially similar occurrence under any successor or similar plan. 

    (q)  No Litigation.  Except as set forth in the reports or documents filed at least 5 Trading Days prior
to the Exchange Date by the Company pursuant to Section 13(a) or 15(d) of the Exchange Act (the "Pre-Agreement SEC Documents"), no
litigation or claim (including those for unpaid taxes) against the
Company or any of its subsidiaries is pending or, to the Company's knowledge, threatened, and no other event has occurred, which if determined adversely could reasonably be expected to have a Material
Adverse Effect on the Company or could reasonably be expected to materially and adversely affect the transactions contemplated hereby. There is no legal proceeding described in the
Pre-Agreement SEC Documents that could reasonably be expected to have a Material Adverse Effect on the Company. 

    (r)  Brokers.  The Company has taken no action which would give rise to any claim by any person for
brokerage commissions, finder's fees or similar payments by the Company or the Purchaser relating to this Agreement or the transactions contemplated hereby. The Company shall be responsible for any
and all such payments which may arise. 

    (s)  Other Securities.  There are no outstanding securities issued by the Company that are entitled to
registration rights under the Act. There are no outstanding securities issued by the Company that are directly or indirectly convertible into, exercisable into, or exchangeable for, shares of Common
Stock of the Company, or that have anti-dilution or similar rights that would be affected by the issuance of any of the Securities. 

    (t)  Certain Transactions.  Except as disclosed in the Pre-Agreement SEC Documents, none of
the officers, directors, or key employees of the Company is presently a party to any transaction with the Company or any of its subsidiaries (other than for services as employees, officers and
directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the knowledge of the 

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Company, any corporation, partnership, trust or other entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner. 

    (u)  Insurance.  The Company and each of its subsidiaries are insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as reasonably prudent and customary in the businesses in which the Company and its direct and indirect subsidiaries are engaged.
Neither the Company nor any such subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage
from similar insurers as may be necessary to continue its business without a significant increase in cost. 

    (v)  No Reliance on Purchaser.  The Company acknowledges and agrees that the Purchaser is acting solely
in the capacity of an arm's length purchaser with respect to the Transaction Documents and the transactions contemplated hereby and thereby. The Company further acknowledges that the Purchaser is not
acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect
to the Transaction Documents and the performance hereunder and thereunder and the transactions contemplated hereby and thereby. The Company further represents to the Purchaser that the Company's
decision to enter into the Transaction Documents and the performance hereunder and thereunder has been based solely on the independent evaluation by the Company and its representatives. 

    (w)  Foreign Corrupt Practices Act.  Neither the Company, nor any director, officer, agent, employee or
other person acting on behalf of the Company or any subsidiary has, in the course of acting for, or on behalf of, the Company, directly or indirectly used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to political activity; directly or indirectly made any direct or indirect unlawful payment to any foreign or domestic government
or party official or employee from corporate funds; violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended, or any similar treaties of the United
States; or directly or indirectly made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government or party official or employee. 

    (x)  Application of Takeover Protections.  The Company and its board of directors have taken all
necessary action, if any, in order to render inapplicable any anti-takeover provision contained in the Company's Charter or By-Laws or Delaware law which is or could become
applicable to the Purchaser as a result of the transactions contemplated by the Transaction Documents, including, without limitation, the Company's issuance of the Common Stock and the Purchaser's
ownership of Common Stock. 

    (y)  Acknowledgement of Dilution.  The number of shares of Common Stock issuable upon conversion of the
Preferred Shares and exercise of the Warrant may increase substantially in certain circumstances. The Company acknowledges that its obligation to issue shares of Common Stock in accordance with the
Transaction Documents is absolute and unconditional, regardless of the dilution that such issuance may have on other stockholders of the Company. 

    Section 2.2  Representations and Warranties of the Purchaser.  The Purchaser hereby makes the
following representations and warranties to the Company as of the date hereof and the Exchange Date: 

    (a)  Organization.  Such Purchaser is duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization. 

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    (b)  Authorization; Enforcement.  (i) Such Purchaser has the requisite power and authority to
enter into and perform its obligations under the Transaction Documents and to acquire the Securities being issued to it hereunder, (ii) the execution and delivery of the Transaction Documents
by such Purchaser and the consummation by it of the transactions contemplated thereby have been duly authorized by all necessary corporate or partnership action, and (iii) the Transaction
Documents constitute valid and binding obligations of such Purchaser enforceable against such Purchaser in accordance with their terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the enforcement of creditors' rights and remedies or by other equitable principles
of general application. 

    (c)  No Conflicts.  The execution, delivery and performance of the Transaction Documents and the
consummation by such Purchaser of the transactions contemplated thereby do not and will not (i) result in a violation of such Purchaser's organizational documents, or (ii) conflict with
any agreement, indenture or instrument to which such Purchaser is a party, or (iii) result in a material violation of any law, rule, or regulation, or any order, judgment or decree of any court
or governmental agency applicable to such Purchaser. 

    (d)  Securities Purchase Representations.  

    (i)  Access to Other Information.  Such Purchaser acknowledges that the Company has made available to
such Purchaser the opportunity to examine the SEC Documents and such additional documents from the Company and to ask questions of, and receive full answers from, the Company concerning, among other
things, the Company, its financial condition, its management, its prior activities and any other information which such Purchaser considers relevant or appropriate in connection with entering into
this Agreement. 

    (ii)  Risks of Purchase.  Such Purchaser acknowledges that the Securities have not been registered under
the Act. Such Purchaser is capable of assessing the risks of acquiring the Securities and is fully aware of the economic risks thereof. 

    (iii)  Purchase Representation.  Such Purchaser is acquiring the Preferred Shares, and may purchase the
Registrable Securities, for its own account and not with a view to distribution in violation of any securities laws; provided, however, that by making the representations herein, such Purchaser does
not agree to hold the Securities for any minimum or other specific term and reserves the right to dispose of the Securities at any time in accordance with federal and state securities laws applicable
to such disposition. 

    (iv)  Restricted Securities.  Such Purchaser acknowledges and understands that the terms of issuance have
not been reviewed by the SEC or by any state securities authorities and that the Securities have been issued in reliance on the certain exemptions for non-public offerings under the Act,
which exemptions depend upon, among other things, the representations made and information furnished by such Purchaser. 

    (v)  Ability to Bear Economic Risk.  Such Purchaser is an "accredited investor" as defined in
Rule 501 of Regulation D, as amended, under the Act, and that it (i) is able to bear the economic risk of purchasing the Securities, (ii) is able to hold the Securities for
an indefinite period of time, and (iii) can afford a complete loss of its purchase of the Securities. 

    (e)  Brokers.  The Purchaser has taken no action which would give rise to any claim by any person for
brokerage commissions, finder's fees or similar payments by the Company relating to the Transaction Documents or the transactions contemplated thereby. All fees and amounts payable to the brokers
listed in Section 2.1(r) shall be solely the responsibility of the Company. 

9

 
ARTICLE III

Covenants  

    Section 3.1  Registration and Listing; Effective Registration.  Until the earlier of
(i) five (5) years from the Exchange Date and (ii) the date on which the Purchaser neither holds any Registrable Securities nor has the right to acquire any Registrable
Securities, the Company will cause the Common Stock to continue at all times to be registered under Section 12(b) or Section 12(g) of the Exchange Act, will comply in all respects with
its reporting and filing obligations under the Exchange Act, and will not take any action or file any document (whether or not permitted by the Exchange Act or the rules thereunder) to terminate or
suspend such reporting and filing obligations. Until the earlier of (i) five (5) years from the Exchange Date and (ii) the date on which the Purchaser neither holds any
Registrable Securities nor has the right to acquire any Registrable Securities, the Company shall continue the listing and/or quoting of the Registrable Securities on the NASDAQ National Market System
or one of the other Approved Markets and comply in all respects with the Company's reporting, filing and other obligations under the bylaws or rules of the Approved Market on which the Registrable
Securities are listed and/or quoted, as the case may be. The Company shall cause the Registrable Securities to be quoted on the NASDAQ National Market System or one of the other Approved Markets no
later than the registration of the Registrable Securities under the Act, and at all times shall continue such listing(s) and/or quoting on one of the Approved Markets. As used herein and in the other
Transaction
Documents, the term "Effective Registration" shall mean: (i) the Company has complied with its material obligations under all the Transaction
Documents in all material respects and has not made any material misrepresentations under any of the Transaction Documents or under any other agreements between the Company and the Purchaser, except
for those breaches or defaults which are capable of being cured and have been so cured within a reasonable time following notice of such breach or default (not to exceed 5 business days);
(ii) the resale of all Registrable Securities (as defined in the Registration Rights Agreement) is covered by an effective registration statement in accordance with the terms of the
Registration Rights Agreement and such registration statement is not subject to any suspension or stop orders; (iii) the resale of such Registrable Securities may be effected pursuant to a
current and deliverable prospectus that is not subject to any blackout or similar circumstance (including a prospectus supplement filed with the SEC in accordance with the terms of the Warrant
following any Issuer Notice (as defined therein)); (iv) such Registrable Securities are listed, or approved for listing prior to issuance, on an Approved Market and are not subject to any
trading suspension (nor shall trading generally have been suspended on such exchange or market), and the Company shall not have been notified of any pending or threatened proceeding or other action to
delist or suspend the Common Stock on the Approved Market on which the Common Stock is then traded or listed; (v) the requisite number of shares of Common Stock shall have been duly authorized
and reserved for issuance as required by the terms of the Transaction Documents; (vi) no Interfering Event (as described in the Registration Rights Agreement) then exists; and (vii) none
of the Company or any direct or indirect subsidiary of the Company is subject to any Bankruptcy Event. For purposes hereof, "Bankruptcy Event" means any
of the following events: (a) the Company or any subsidiary commences a case or other proceeding under any bankruptcy, reorganization, arrangement, adjustment of debt, relief of debtors,
dissolution, insolvency or liquidation or similar law of any jurisdiction relating to the Company or any subsidiary thereof; (b) there is commenced against the Company or any subsidiary any
such case or proceeding that is not dismissed within 60 days after commencement; (c) the Company or any subsidiary is adjudicated insolvent or bankrupt or any order of relief or other
order approving any such case or proceeding is entered; (d) the Company or any subsidiary suffers any appointment of any custodian or the like for it or any substantial part of its property
that is not discharged or stayed within 60 days; (e) the Company or any subsidiary makes a general assignment for the benefit of creditors; (f) the Company or any subsidiary fails
to pay, or states that it is unable to pay or is unable to pay, its debts generally as they become due; (g) the Company or any subsidiary calls a meeting of its creditors with a view to
arranging a 

10

 

composition, adjustment or restructuring of its debts; or (h) the Company or any subsidiary, by any act or failure to act, expressly indicates its consent to, approval of or acquiescence in any
of the foregoing or takes any corporate or other action for the purpose of effecting any of the foregoing. 

    Section 3.2  Warrant on Exercise.  Upon any partial exercise by the Purchaser (or then holder) of
the Warrant, the Company shall issue and deliver to such Purchaser (or holder) within five Trading Days of the date on which the Warrant is exercised, a new Warrant or Warrants representing the
adjusted number of shares of Common Stock issuable upon exercise of the Warrant. 

    Section 3.3  Replacement Certificates.  The certificate(s) or instrument(s) representing the
Securities held by the Purchaser (or then holder) may be exchanged by such Purchaser (or such holder) at any time and from time to time for certificates or instruments with different denominations
representing an equal
aggregate number of Securities as requested by such Purchaser (or such holder) upon surrendering the same. The Company will deliver such substitute certificates or instruments within 3 Trading Days.
No service charge will be made for such registration or transfer or exchange. 

    Section 3.4  Expenses.  The Company shall pay to KKWC in immediately available funds, at the
Exchange and promptly upon receipt of any further invoices relating to the same, all reasonable legal fees and expenses incurred by the Purchaser in connection with the transactions contemplated by
this Agreement, the Registration Rights Agreement and the Certificate, provided that any such amounts in excess of $30,000 shall be paid by Purchaser. At the Exchange, the Company shall pay the amount
due for such fees and expenses (which may include fees and expenses estimated to be incurred for the completion of the transaction, including post-closing matters), provided that any such
amounts in excess of $30,000 shall be paid by Purchaser. In the event any amount paid by or on behalf of the Company is ultimately less than actual fees and expenses, the Company shall (subject to the
$30,000 cap) promptly pay such deficiency to KKWC upon receipt of an invoice therefor. In lieu thereof, the Purchaser may pay such amounts due to KKWC, and the Company shall promptly reimburse the
Purchaser for such amounts. 

    Section 3.5  Securities Compliance.  The Company shall notify the SEC, the NASDAQ Stock Market and
the NASD, in accordance with their requirements, of the transactions contemplated by Transaction Documents, and shall take all other necessary action and proceedings as may be required and permitted
by applicable law, rule and regulation, for the legal and valid issuance of the Securities. Without limiting the foregoing, the Company shall, within two days following the Exchange Date file a
Form 8-K with the SEC and/or issue a press release describing in detail the transactions contemplated in the Transaction Documents. Within one (1) Trading Day following any
delivery of an Issuer Notice (as defined in and pursuant to the Warrant), the Company shall file with the SEC a prospectus supplement to the prospectus included in the Registration Statement (as
defined in the Registration Rights Agreement) as required by the terms of the Warrant and Registration Rights Agreement. Such Form 8-K and any other Form 8-K
and/or press release, and/or prospectus supplement, or other publicity concerning the Transaction Documents, shall contain such information as is reasonably requested by the Purchaser and be approved
by the Purchaser in writing prior to issuance. No Form 8-K and/or press release shall name the Purchaser except as shall be required by law or consented to in writing by the
Purchaser, which consent will not be unreasonably withheld. If the Company fails to so file a Form 8-K, press release or prospectus supplement as required herein within the
requisite time period, the Purchaser at any time may issue a press release covering the transactions contemplated by the Transaction Documents or such Issuer Notice, as the case may be (provided that
the Company shall not be relieved of its obligations to so file a prospectus supplement). 

    Section 3.6  Dividends or Distributions; Purchases of Equity Securities.  For so long as any
Preferred Shares remain outstanding, the Company agrees that it shall not (a) declare or pay any dividends or make any distributions to any holder or holders of Common Stock (other than
dividends payable in Common Stock) in their capacity as stockholders, or (b) purchase, redeem or otherwise 

11

 

acquire for value, directly or indirectly, any shares of Common Stock or other equity security of the Company, other than the debentures currently outstanding issued to London Pacific. 

    Section 3.7  Notices.  The Company agrees to provide all holders of the Preferred Shares and the
Warrant with copies of all notices and information, including without limitation notices and proxy statements in connection with any meetings, that are provided to the holders of shares of Common
Stock, contemporaneously with the delivery of such notices or information to such Common Stock holders. 

    Section 3.8  Use of Proceeds.  The Company agrees that the proceeds received by the Company from
the sale of the Debenture and Warrant under the Purchase Agreement and the sale of the shares of Common Stock issuable upon exercise of the Warrant shall be used only for legally permitted general
corporate purposes and shall not be used to repay or prepay any indebtedness of the Company except for trade payables incurred in the ordinary course of business. 

    Section 3.9  Notification of Additional Financings; Adjustments.  The Company agrees that until
the first anniversary of the Exchange Date, the Purchaser shall have a right of first offer with respect to all non-public capital raising transactions as set forth in this
Section 3.9. The Company shall give advance written notice to the Purchaser of its intention to complete any such financing so that the Purchaser may, to the extent it in its sole discretion
determines to do so, propose to provide such financing, in which case the Purchaser must propose such financing within three Trading Days following such notice by the Company. After any such proposal
by the Purchaser is made, the Company shall negotiate in good faith with such Purchaser in order to attempt to agree on a financing transaction; provided, however, that if no such agreement in
principle is reached within three Trading Days following the proposal, the Company shall not be precluded from seeking such financing from any other sources or from accepting such financing from any
other sources. This right of first offer shall continue even if the Purchaser elects not to participate in one or more such financings. Notwithstanding anything herein to the contrary, this right of
first offer shall not apply to issuances of the Company's securities pursuant to (i) the Company's current or future employee, director or bona fide consultant options plans and/or compensation
arrangements, (ii) strategic corporate alliances not undertaken principally for financing purposes, and (iii) revolving or term loans provided to the Company by federal or state
chartered banks or thrifts. 

    Section 3.10  Reservation of Stock Issuable Upon Exercise of the Warrant.  The Company shall at
all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of Preferred Shares and exercise of the Warrant, such
number of its shares of Common Stock as shall from time to time be sufficient to effect the full conversion of all Preferred Shares and the full exercise of the Warrant, and if at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to effect the full conversion of all Preferred Shares and the full exercise of the Warrant, the Company will take such
corporate action as may be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes, including without limitation
engaging in best efforts to obtain the requisite shareholder approval. Without in any way limiting the foregoing, the Company agrees to reserve and at all times keep available solely for purposes of
the conversion of Preferred Shares and exercise of the Warrant such number of authorized but unissued shares of Common Stock that is at least equal to 200% of the aggregate shares issuable upon full
conversion of the Preferred Shares plus 100% of the number of shares of Common Stock issuable upon exercise of the Warrant in full, which
numbers shall be appropriately adjusted for any stock split, reverse split, stock dividend or reclassification of the Common Stock. If the Company falls below the reserves specified in the immediately
preceding sentence and does not cure such non-compliance within 30 days of its start, then the Purchaser will be entitled to the compensatory payments specified in
Section 2(b)(i) of the Registration Rights Agreement. If at any time the number of authorized but unissued shares of Common Stock is not sufficient to effect the full conversion of the
Preferred Shares 

12

 

and the full exercise of the Warrant, the Purchaser shall be entitled to, inter alia, the premium price redemption rights provided in the Registration
Rights Agreement. All calculations pursuant to this paragraph shall be performed without regard to any restrictions or limitations on beneficial ownership of Common Stock contained in the Preferred
Shares or the Warrant. 

    Section 3.11  Best Efforts.  The parties shall use their best efforts to satisfy timely each of
the conditions described in Article 4 of this Agreement. 

    Section 3.12  Limitations on Transfers.  The Company shall not contribute or transfer its assets
to any of its subsidiaries, other than a subsidiary that has delivered its guarantee to the Purchaser in form and substance satisfactory to the Purchaser. 

    Section 3.13  Form D; Blue Sky Laws.  The Company agrees to file a Form D
with respect to the Securities, as required under Regulation D of the Act and to provide a copy thereof to the Purchaser promptly after such filing. The Company shall, on or before the Exchange
Date, take such action as the Company shall have reasonably determined is necessary to qualify the applicable Securities for sale to the Purchaser at the Exchange pursuant to this Agreement under
applicable securities or "blue sky" laws of the states of the United States (or to obtain an exemption from such qualification), and shall provide evidence of any such action so taken to the Purchaser
on or prior to the Exchange Date. 

    Section 3.14  NASDAQ Rule.  Notwithstanding anything contained herein, the Preferred Shares and
Warrant shall not be convertible and exercisable to the extent that in excess of 4,372,600 shares of Common Stock (19.9% of the Common Stock issued and outstanding on the date of the Purchase
Agreement, which number shall be subject to readjustment for any stock split, stock dividend or reclassification of the Common Stock) (the "20% Cap")
would be issued thereon, unless the Company receives stockholder approval for such issuance. The Purchaser shall have the right to receive cash payments from the Company for all shares of Common Stock
that this Section 3.14 renders the Company incapable of issuing to such Purchaser ("Deficiency Shares") at a price equal to (a) for the
Preferred Shares, the Liquidation Value (as defined in the Certificate) of the Preferred Shares which would otherwise be converted into Deficiency Shares and (b) for the Warrants, the value
determined by the Black-Scholes pricing model for such portion of the Warrants which would otherwise be exercisable for Deficiency Shares. If applicable, the restrictions and redemption obligations
set forth in this Section 3.14 shall cease to apply if (1) the Company obtains written shareholder approval to issue Common Shares in excess of the 20% Cap pursuant to the rules and
regulations of the Approved
Market on which the Common Stock is traded, or (2) the Company provides the Purchaser with irrevocable written notice, based upon the written advice of its counsel, that any such issuance of
Common Shares is not subject to the 20% Cap pursuant to the rules and regulations of such Approved Market. The Company will use its best efforts promptly to obtain either the shareholder approval or
the irrevocable notice described in the preceding sentence and to provide the Purchaser with a copy of same. Without limiting the foregoing, in the event at any time the number of Registrable
Securities then issued or issuable upon full conversion and exercise of the Preferred Shares and Warrant is 85% of the 20% Cap (assuming full conversion and exercise without regard to any beneficial
ownership limitations set forth therein), then the Company shall within 60 days hold a stockholders meeting and shall solicit the aforementioned shareholder approval by soliciting proxies in
favor of issuing Common Shares in excess of the 20% Cap and will use its best efforts to have all affiliates of the Company which own or control shares of Common Stock to vote their shares in favor of
such resolution. 

    Section 3.15  Transactions With Affiliates.  The Company agrees that any transaction or
arrangement between it or any of its subsidiaries and any affiliate or employee of the Company shall be effected on an arms' length basis in accordance with customary commercial practice and, except
with respect to grants of options and stock to service providers, including employees and directors, shall be approved by a majority of the Company's outside directors. 

13

 

    Section 3.16  Press Release.  The Purchaser shall have the opportunity to review any press release
in connection with the transactions contemplated hereby prior to its issuance. 

    Section 3.17  Reporting Lack of Effective Registration.  The Company shall promptly notify the
Purchaser in writing if there shall ever be a lack of Effective Registration, as well as when Effective Registration is re-established. 

    Section 3.18  Rule 144.  With a view to making available to the Purchaser the benefits of
Rule 144 promulgated under the Securities Act or any other similar rule or regulation of the SEC that may at any time permit the Purchaser to sell securities of the Company to the public
without registration ("Rule 144"), the Company agrees, until such time as all of the Securities may be freely sold to the public under
Rule 144(k) (or any successor thereto), to: 

    (a) make
and keep public information available, as those terms are understood and defined in Rule 144; 

    (b) file
with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act so long as the Company
remains subject to such requirements (it being understood that nothing herein shall limit any of the Company's other
obligations under this Agreement and the filing of such reports and other documents is required for the applicable provisions of Rule 144); and 

    (c) furnish
to the Purchaser so long as such Purchaser owns Registrable Securities, promptly upon request, (i) a written statement by the Company that it has
complied with the reporting requirements of Rule 144, the Act and the Exchange Act, (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and
documents so filed by the Company, and (iii) such other information as may be reasonably requested to permit the Purchaser to sell such securities pursuant to Rule 144 without
registration. 

    Section 3.19  Subordination.  So long as any Preferred Shares remain outstanding, the Company
shall not, and shall cause each of its subsidiaries not to, without the prior written consent of the Purchaser which may be withheld for any reason in the Purchaser's sole discretion,
(1) permit, create, incur, assume, guarantee or otherwise become directly or indirectly liable for, any additional indebtedness, or (2) issue any shares of preferred stock or other
capital stock which is senior to or pari passu with the Preferred Shares, other than (a) the convertible debentures issued to London Pacific for
up to $5.5 million in aggregate principal amount outstanding, (b) indebtedness under commercial bank lines of credit, and (c) indebtedness outstanding under senior debt
(collectively, "Senior Debt") issued by the Company which (1) is not directly or indirectly convertible into, exercisable for or exchangeable
into any capital stock or other equity of the Company and (2) does not directly or indirectly provide for or contemplate the issuance of capital stock or equity of the Company or any securities
convertible into, exercisable for or exchangeable into such capital stock or equity. So long as any Preferred Shares remain outstanding, the Company shall not, and shall cause each of its subsidiaries
not to, repay any indebtedness of the Company except for trade payables incurred in the ordinary course of business. 

    Section 3.20  Reporting Events Described in Schedule 2.1(f) of the Purchase Agreement.  The
Company represents and warrants that any discounts, expenses or liabilities which may have needed to have been recorded as and to the extent described in Schedule 2.1(f) of the Purchase
Agreement have been so recorded on or prior to the end of the Company's first fiscal quarter for 2001, and any deferral of revenues as and to the extent described in Schedule 2.1(f) of the
Purchase Agreement were only deferred until a date which was on or prior to March 31, 2001. 

14

 
ARTICLE IV

Conditions to Exchange  

    Section 4.1  Conditions Precedent to the Obligation of the Company to Issue Preferred Shares.  The
obligation hereunder of the Company to issue the Preferred Shares to the Purchaser at the Exchange is subject to the satisfaction at or before the Exchange of each of the applicable conditions set
forth below. These conditions are for the Company's sole benefit and may be waived by the Company at any time in its sole discretion. 

    (a)  Accuracy of the Purchaser's Representations and Warranties.  The representations and warranties of
the Purchaser will be true and correct as of the date when made and as of the Exchange Date. 

    (b)  Performance by the Purchaser.  The Purchaser shall have performed all agreements and satisfied all
conditions required to be performed or satisfied by the Purchaser at or prior to the Exchange, including surrender of the Debenture and Adjustment Warrant. 

    (c)  No Injunction.  No statute, rule, regulation, executive order, decree, ruling or injunction shall
have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction which prohibits the consummation of any of the transactions contemplated by the
Transaction Documents. 

    Section 4.2  Conditions Precedent to the Obligation of the Purchaser to Exchange.  The obligation
hereunder of the Purchaser to acquire and exchange for the Preferred Shares at the Exchange is subject to the satisfaction, at or before the Exchange, of each of the applicable conditions set forth
below. These conditions are for the Purchaser's benefit and may be waived by the Purchaser at any time in its sole discretion. 

    (a)  Accuracy of the Company's Representations and Warranties.  The representations and warranties of the
Company shall be true and correct as of the date when made and as of the Exchange Date as though made at that time (except for representations and warranties expressly as of an earlier date, which
shall be true and correct in all material respects as of such date). 

    (b)  Performance by the Company.  The Company shall have performed all agreements and satisfied all
conditions required to be performed or satisfied by the Company at or prior to the Exchange, including, without limitation, delivery of the Preferred Shares and stock certificates therefore. 

    (c)  Trading and/or Quotation.  Trading in and/or quotation of the Company's Common Stock shall not have
been suspended by the SEC and trading in securities generally as reported by the NASDAQ National Market System (or other Approved Market) shall not have been suspended or limited, and the Common Stock
shall be listed on an Approved Market. 

    (d)  No Injunction.  No statute, rule, regulation, executive order, decree, ruling or injunction shall
have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction which prohibits the consummation of any of the transactions contemplated by
Transaction Documents. The NASD shall not have objected or indicated that it may object to the consummation of any of the transactions contemplated by this Agreement. The Company shall have delivered
a copy of the Sprint Consent to the Purchaser. 

    (e)  Opinion of Counsel.  The Purchaser shall have received an opinion of counsel to the Company in the
applicable form attached hereto as Exhibit 4.2(e) and such other opinions, certificates and documents as the Purchaser or its counsel shall
reasonably require incident to the closing. 

    (f)  Registration Rights Agreement.  The Company and the Purchaser shall have executed and delivered the
Registration Rights Agreement in the form and substance of Annex B attached hereto. 

15

  

    (g)  Officer's Certificate.  The Company shall have delivered to the Purchaser a certificate in form and
substance satisfactory to the Purchaser and the Purchaser's counsel, executed by an officer of the Company, certifying as to satisfaction of applicable closing conditions, incumbency of signing
officers, and the true, correct and complete nature of the Certificate of Incorporation, By-laws, good standing and authorizing resolutions of the Company. 

    (h)  Miscellaneous.  The Company shall have delivered to the Purchaser such other documents relating to
the transactions contemplated by this Agreement as the Purchaser or its counsel may reasonable request. 

    Section 4.3  Exchange Date Deliveries.  

    (a) On
the Exchange Date, the Company shall deliver to the Purchaser: 

     (i) Stock
certificates evidencing the Preferred Shares; 

    (ii) A
copy of the Certificate filed with Secretary of State of the State of Delaware and stamped by such Secretary of State; 

    (iii) The
certificate referred to in Section 4.2(g) above; 

    (iv) The
executed Registration Rights Agreement; 

    (v) The
opinion of counsel referred to in Section 4.2(e) above; and 

    (vi) A
copy of the duly executed Sprint Consent. 

    (b) On
the Exchange Date, the Purchaser shall deliver to the Company (or to KKWC for delivery to the Company): 

     (i) The
Debenture and the Adjustment Warrant; and 

    (ii) The
executed Registration Rights Agreement. 

ARTICLE V

Legend and Stock  

    The certificates representing the Preferred Shares issued hereunder and the Warrant shall be stamped or otherwise imprinted with a legend substantially in the
following form: 

    THESE
SECURITIES HAVE NOT BEEN REGISTERED FOR OFFER OR SALE UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR SALE EXCEPT PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAW OR AN APPLICABLE EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS. 

    Each
certificate representing the shares of Common Stock issued upon conversion or exercise of Preferred Shares or the Warrant, prior to such shares being registered under the Act for
resale or available for resale under Rule 144(k) under the Act, shall be stamped or otherwise imprinted with a legend in substantially the above form. 

    The
Company agrees to reissue shares of Common Stock issued upon conversion or exercise of Preferred Shares or the Warrant without the legend set forth above at such time as
(i) the holder thereof is permitted to dispose of such shares issuable upon conversion of the Preferred Shares or exercise of the Warrant pursuant to Rule 144(k) under the Act or has
disposed of such securities pursuant to Rule 144 under the Act, or (ii) such shares are sold to a purchaser or purchasers who (in the opinion of counsel to the seller or such
purchaser(s), in form and substance reasonably satisfactory to the Company and its counsel) are able to dispose of such shares publicly without registration under the Act, or (iii) such
securities have been registered under the Act. 

16

 

    Prior to the Registration Statement (as defined in the Registration Rights Agreement) being declared effective, any shares of Common Stock issued upon conversion or exercise of
Preferred Shares or Warrant shall bear a legend in the same form as the legend indicated above; provided that such legend shall be removed from such shares and the Company shall issue new certificates
without such legend if (i) the holder has sold or disposed of such shares pursuant to Rule 144 under the Act, or the holder is permitted to dispose of such shares pursuant to
Rule 144(k) under the Act, (ii) such shares are registered for resale under the Act, or (iii) such shares are sold to a purchaser or purchasers who (in the opinion of counsel to
the seller or such purchaser(s), in form and substance reasonably satisfactory to the Company and it counsel) are able to dispose of such shares publicly without registration under the Act. Upon such
Registration Statement becoming effective, the Company agrees to promptly, but no later than three (3) business days after the Purchaser's written request therefor (and surrender of legended
stock certificates), issue new certificates representing such shares without such legend. Any shares issued after the Registration Statement has become effective shall be free and clear of any
legends, transfer restrictions and stop orders. The Purchaser agrees to sell the Common Stock issued upon conversion of Preferred Shares or exercise of the Warrant in accordance with the applicable
prospectus delivery requirements or in accordance with an exemption from the registration requirements of the Act (including without limitation Rule 144). The Purchaser acknowledges, and will
cause any transferee of such Common Stock to whom such Common Stock was transferred other than as registered shares under the Registration Statement or pursuant to Rule 144 to acknowledge, that
the Common Stock issued on conversion and exercise of the Preferred Shares and the Warrant has been issued pursuant to the exemption from registration provided by Regulation D under the Act and
that the availability of such exemption is dependent upon the Purchaser's not disposing of such shares in an unregistered distribution in violation of securities laws, and Purchaser agrees, and will
cause any such transferee to agree, not to dispose of any such Common Stock in an unregistered distribution in violation of securities laws. 

    Nothing
herein shall limit the right of any holder to pledge these securities pursuant to a bona fide margin account or lending arrangement entered into in compliance with law,
including applicable securities laws. 

ARTICLE VI

Indemnification  

    In consideration of the Purchaser's execution and delivery of this Agreement and the Registration Rights Agreement and in addition to all of the Company's
other obligations under the Transaction Documents, the Company shall defend, protect, indemnify and hold harmless the Purchaser and all of its partners, officers, directors, employees, members and
direct or indirect investors and any of the foregoing persons' agents or other representatives (including, without limitation, those retained in connection with the transactions contemplated by this
Agreement) (collectively, the "Indemnitees") from and against any and all actions, causes of action, suits, claims, losses, costs, penalties, fees,
liabilities and damages, and expenses in connection therewith (irrespective of whether any such Indemnitee is a party to the action for which indemnification hereunder is sought), and including
reasonable attorneys' fees and disbursements (the "Indemnified Liabilities"), incurred by any Indemnitee as a result of, or arising out of, or relating
to (a) any misrepresentation or breach of any representation or warranty made by the Company in the Transaction Documents or any other certificate or document contemplated hereby or thereby,
(b) any breach of any covenant, agreement or obligation of the Company contained in the Transaction Documents or any other certificate or document contemplated hereby or thereby, (c) any
cause of action, suit or claim brought or made
against such Indemnitee by a third party and arising out of or resulting from (i) the execution, delivery, performance, breach by the Company or enforcement of the Transaction Documents or any
other certificate, instrument or document contemplated hereby or thereby, (ii) any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of the
issuance of the 

17

 

Securities or (iii) the status of the Purchaser or holder of the Securities or Warrant as a stockholder of the Company, and (d) the enforcement of this Section. 

ARTICLE VII

Governing Law; Miscellaneous. 

    Section 7.1  Governing Law.  THIS AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS TO BE EXECUTED AND PERFORMED EXCLUSIVELY IN NEW YORK. EACH PARTY HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE STATE
AND FEDERAL COURTS SITTING IN THE CITY OF NEW YORK, BOROUGH OF MANHATTAN, OR SAN JOSE, CALIFORNIA, FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR WITH ANY TRANSACTION
CONTEMPLATED HEREBY OR DISCUSSED HEREIN, AND HEREBY IRREVOCABLY WAIVES, AND AGREES NOT TO ASSERT IN ANY SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF
ANY SUCH COURT, THAT SUCH SUIT, ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM OR THAT THE VENUE OF SUCH SUIT, ACTION OR PROCEEDING IS IMPROPER. EACH PARTY HEREBY IRREVOCABLY WAIVES PERSONAL
SERVICE OF PROCESS AND CONSENTS TO PROCESS BEING SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING BY MAILING A COPY THEREOF TO SUCH PARTY AT THE ADDRESS FOR SUCH NOTICES TO IT UNDER THIS AGREEMENT AND
AGREES THAT SUCH SERVICE SHALL CONSTITUTE GOOD AND SUFFICIENT SERVICE OF PROCESS AND NOTICE THEREOF. NOTHING CONTAINED HEREIN SHALL BE DEEMED TO LIMIT IN ANY WAY ANY RIGHT TO SERVE PROCESS IN ANY
MANNER PERMITTED BY LAW. EACH PARTY HEREBY WAIVES ALL RIGHTS TO TRIAL BY JURY. 

    Section 7.2  Counterparts.  This Agreement may be executed in two or more identical counterparts,
all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party; provided that a facsimile
signature shall be considered due execution and shall be binding upon the signatory thereto with the same force and effect as if the signature were an original, not a facsimile signature. 

    Section 7.3  Headings.  The headings of this Agreement are for convenience of reference and shall
not form part of, or affect the interpretation of, this Agreement. 

    Section 7.4  Severability.  If any provision of this Agreement shall be invalid or unenforceable
in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability of
any provision of this Agreement in any other jurisdiction. 

    Section 7.5  Entire Agreement; Amendments; Waivers.  

    (a) This
Agreement supersedes all other prior oral or written agreements between the Purchaser, the Company, their affiliates and persons acting on their behalf with
respect to the matters discussed herein, and this Agreement and the instruments referenced herein (including the other Transaction Documents and the Purchase Agreement and Prior Registration Rights
Agreement) contain the entire understanding of the parties with respect to the matters covered herein and therein. No provision of this Agreement may be amended other than by an instrument in writing
signed by the Company and the Purchaser, and no provision hereof may be waived other than by an instrument in writing signed by the party against whom enforcement is sought. 

    (b) The
Purchaser may at any time elect, by notice to the Company, to waive (whether permanently or temporarily, and subject to such conditions, if any, as the
Purchaser may specify in 

18

 

such notice) any of its respective rights (but not obligations) under any of the Transaction Documents to acquire shares of Common Stock from the Company, in which event such waiver shall be binding
against the Purchaser in accordance with its terms. 

    Section 7.6  Notices.  Any notices, consents, waivers or other communications required or
permitted to be given under the terms of this Agreement must be in writing, must be delivered by (i) courier, mail or hand delivery or (ii) facsimile, and will be deemed to have been
delivered upon receipt. The addresses and facsimile numbers for such communications shall be: 

    If
to the Company: 

	 	 	Hybrid Networks, Inc.

6409 Guadalupe Mines Road

San Jose, California 95120
	 	 	Telephone:	 	408-323-6500
	 	 	Facsimile:	 	408-323-6470
	 	 	Attention:	 	President and CEO

    with
a copy to: 

	 	 	Fenwick and West LLP

2 Palo Alto Square

Palo Alto, California 94306
	 	 	Telephone:	 	650-494-0600
	 	 	Facsimile:	 	650-494-1417
	 	 	Attention:	 	Dan Winnike, Esq.

    If
to the Purchaser: 

	 	 	Halifax Fund, L.P.

c/o The Palladin Group, L.P.

195 Maplewood Avenue

Maplewood, New Jersey 07040
	 	 	Attention:	 	Maurice Hryshko
	 	 	Telephone:	 	(973) 313-6470
	 	 	Fax:	 	(973) 313-6495

    with
a copy to: 

	 	 	Kleinberg, Kaplan, Wolff & Cohen, P.C.

551 Fifth Avenue

New York, New York 10176
	 	 	Telephone:	 	212-986-6000
	 	 	Facsimile:	 	212-986-8866
	 	 	Attention:	 	Peter J. Weisman, Esq.

    Each
party shall provide five (5) days prior written notice to the other party of any change in address, telephone number or facsimile number. Written confirmation of receipt
(A) given by the recipient of such notice, consent, waiver or other communication, (B) mechanically or electronically generated by the sender's facsimile machine containing the time,
date and recipient facsimile number or (C) provided by a nationally recognized overnight delivery service, shall be rebuttable evidence of personal service, receipt by facsimile or receipt from
a nationally recognized overnight delivery service in accordance with clause (i), (ii) or (iii) above, respectively. 

    Section 7.7  Successors and Assigns.  Except as otherwise provided herein, this Agreement shall be
binding upon and inure to the benefit of the parties and their respective successors and assigns. The Purchaser may assign some or all of its rights hereunder without the consent of the Company in
connection with any sale or transfer of all or any portion of the Securities held by the Purchaser. The 

19

 

Company shall not assign this Agreement or any rights or obligations hereunder without the prior written consent of the Purchaser, including by merger or consolidation. 

    Section 7.8  No Third Party Beneficiaries.  This Agreement is intended for the benefit of the
parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other person. 

    Section 7.9  Survival.  The representations, warranties and agreements of the Company and the
Purchaser contained in the Agreement shall survive the Exchange. 

    Section 7.10  Further Assurances.  Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to
carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby. 

    Section 7.11  Remedies.  The Purchaser and each permitted assignee shall have all rights and
remedies set forth in this Agreement, the Certificate, the Warrant and the Registration Rights Agreement and all rights and remedies which such holders have been granted at any time under any other
agreement or contract and all of the rights which such holders have under any law. Any person having any rights under any provision of this Agreement shall be entitled to enforce such rights
specifically (without posting a bond or other security), to recover damages by reason of any breach of any provision of this Agreement and to exercise all other rights granted by law. The Purchaser
and each permitted assignee without prejudice may withdraw, revoke or suspend its pursuit of any remedy at any time prior to its complete recovery as a result of such remedy. 

    Section 7.12  Days.  Unless the context refers to "business days" or "Trading Days," all
references herein to "days" shall mean calendar days. "Trading Day" shall mean (x) if the Common Stock is listed on the New York Stock Exchange
or the American Stock Exchange, a day on which there is trading on such stock exchange, or (y) if the Common Stock is not listed on either of such stock exchange but sale prices of the Common
Stock are reported on an automated quotation system, a day on which trading is reported on the principal automated quotation system on which sales of the Common Stock are reported, or (z) if
the foregoing provisions are inapplicable, a day on which quotations are reported by National Quotation Bureau Incorporated. 

    Section 7.13  Rescission and Withdrawal Right.  Notwithstanding anything to the contrary contained
in (and without limiting any similar provisions of) the Transaction Documents, wherever the Purchaser exercise a right, election, demand or option under a Transaction Document and the Company does not
timely perform its related obligations within the periods therein provided, then the Purchaser may rescind or withdraw, in its sole discretion from time to time upon written notice to the Company, any
such notice, demand or election in whole or in part without prejudice to its future actions and rights. 

    Section 7.14  Obligations Absolute.  The Company's obligations under the Transaction Documents are
unconditional and absolute and not subject to any right of set off, counterclaim, delay or reduction. 

    Section 7.15  Publicity.  The Company agrees that it will not disclose, and will not include in
any public announcement, the name of the Purchaser without the express written agreement of the Purchaser, which consent will not be unreasonably withheld, unless and until such disclosure is required
by law or applicable regulation, and then only to the extent of such requirement. The Company agrees that it will deliver a copy of any public announcement regarding the matters covered by this
Agreement or any agreement and document executed herewith to the Purchaser and any public announcement including
the name of the Purchaser to the Purchaser, reasonably in advance of the release of such announcements. 

20

 

    Section 7.16  Like Treatment of Purchaser and Holders.  Neither the Company nor any of its
affiliates shall, directly or indirectly, pay or cause to be paid any consideration (immediate or contingent), whether by way of interest, fee, payment for the redemption, conversion of Preferred
Shares or exercise of the Securities, or otherwise, to any holder of Securities, for or as an inducement to, or in connection with the solicitation of, any consent, waiver or amendment of any terms or
provisions of the Transaction Documents, unless such consideration is required to be paid to all holders of Securities bound by such consent, waiver or amendment. The Company shall not, directly or
indirectly, redeem any Securities unless such offer of redemption is made pro rata to all holders of Securities, as the case may be, on identical terms. 

    Section 7.17  Actions of Holders.  Notwithstanding anything herein to the contrary, the actions
and obligations of the holders of Securities under the Transaction Documents shall at all times be considered several and not joint, and the holders of
Securities are not, under any circumstances, agreeing to act jointly with respect to the Securities or any of their actions or obligations under the Transaction Documents. 

* * * * *  

[Signature Page Follows]  

21

 

    IN WITNESS WHEREOF, the parties hereto have caused this Exchange Agreement to be duly executed as of the date and year first above
written. 

	 	 	COMPANY:
	

 	
 	
HYBRID NETWORKS, INC.
	

 	
 	

By:	
 	

/s/ Michael D. Greenbaum
 Name: Michael D. Greenbaum

Title: President and Chief Executive Officer
	

 	
 	

PURCHASER:
	

 	
 	
HALIFAX FUND, L.P.
	

 	
 	

By:	
 	

/s/ Maurice Hryshko
 Name: Maurice Hryshko

Title: Counsel

The Palladin Group L.P.

Investment Adviser

Signature page to Exchange Agreement  

22

 

	List of Schedules	 	 
	

Schedule 2.1(c)	
 	

Reservation of Common Shares and Preemptive Rights
	

Schedule 2.1(c)(i)	
 	

Convertible Securities
	

Schedule 2.1(e)	
 	

Outstanding Securities; Nasdaq Approval; 6% Convertible Debenture
	

Schedule 2.1(m)	
 	

No Integrated Offering
	

Schedule 2.1(o)	
 	

Intellectual Property
	

Schedule 2.1(s)(i)	
 	

Outstanding securities entitled to registration rights
	

Schedule 2.1(s)(ii)	
 	

Outstanding securities affected by the issuance of Securities
	

Schedule 2.1(t)	
 	

Certain Transactions
	
List of Exhibits	
 	

 
	

Exhibit 4.2(e)	
 	

Opinion of Counsel
	
Annexes	
 	

 
	

Annex A	
 	

Certificate of Designations
	

Annex B	
 	

Registration Rights Agreement

23

QuickLinks

Exhibit 4.02<Page>
                                    ANNEX A
                      2000 STOCK PURCHASE AND OPTION PLAN
                              FOR KEY EMPLOYEES OF
                           AMPHENOL AND SUBSIDIARIES

1.  PURPOSE OF PLAN

    The 2000 Stock Purchase and Option Plan for Key Employees of Amphenol and
Subsidiaries (the "Plan") is designed:

    (a) to promote the long-term financial interests and growth of Amphenol
Corporation (the "Corporation") and its subsidiaries by attracting and retaining
management personnel with the training, experience and ability to enable them to
make a substantial contribution to the success of the Corporation's business;

    (b) to motivate management personnel by means of growth-related incentives
to achieve long-range goals; and

    (c) to further the alignment of interests of participants with those of the
stockholders of the Corporation through opportunities for increased stock, or
stock-based, ownership in the Corporation.

2.  DEFINITIONS

    As used in the Plan, the following words shall have the following meanings:

    (a) "Board of Directors" means the Board of Directors of the Corporation.

    (b) "Code" means the Internal Revenue Code of 1986, as amended.

    (c) "Committee" means the Compensation Committee of the Board of Directors.

    (d) "Common Stock" or "Share" means Series A Common Stock of the Corporation
which may be authorized but unissued, or issued and reacquired.

    (e) "Employee" means a person, including an officer, in the regular
full-time employment of the Corporation or one of its Subsidiaries who, in the
opinion of the Committee, is, or is expected to be, primarily responsible for
the management, growth or protection of some part or all of the business of the
Corporation.

    (f) "Exchange Act" means the Securities Exchange Act of 1934, as amended.

    (g) "Fair Market Value" means such value of a Share as reported for stock
exchange transactions and/or determined in accordance with any applicable
resolutions or regulations of the Committee in effect at the relevant time.

    (h) "Grant" means an award made to a Participant pursuant to the Plan and
described in Paragraph 5, including an award of a Non-Qualified Stock Option or
Purchase Stock.

    (i) "Grant Agreement" means an agreement between the Company and a
Participant that sets forth the terms, conditions and limitations applicable to
a Grant.

    (j) "Management Stockholders' Agreement" means an agreement between the
Corporation and a Participant that sets forth the terms and conditions and
limitations applicable to any Shares purchased pursuant to this Plan.

    (k) "Option" means an option to purchase shares of the Common Stock which
will not be an "incentive stock option" (within the meaning of Section 422 of
the Code).

    (l) "Participant" means an Employee, or other person having a unique
relationship with the Corporation or one of its Subsidiaries, to whom one or
more Grants have been made and such Grants

                                      A-1
<Page>
have not all been forfeited or terminated under the Plan; provided, however,
that a non-employee director of the Corporation or one of its Subsidiaries may
not be a Participant.

    (m) "Subsidiary" shall mean any corporation in an unbroken chain of
corporations beginning with the Corporation if each of the corporations, or
group of commonly controlled corporations, other than the last corporation in
the unbroken chain then owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in such
chain.

3.  ADMINISTRATION OF PLAN

    (a) The Plan shall be administered by the Committee. None of the members of
the Committee shall be eligible to be selected for Grants under the Plan, or
have been so eligible for selection within one year prior thereto; provided,
however, that the members of the Committee shall qualify to administer the Plan
for purposes of Rule 16b-3 (and any other applicable rule) promulgated under
Section 16(b) of the Exchange Act to the extent that the Corporation is subject
to such rule. The Committee may adopt its own rules of procedure, and action of
a majority of the members of the Committee taken at a meeting, or action taken
without a meeting by unanimous written consent, shall constitute action by the
Committee. The Committee shall have the power and authority to administer,
construe and interpret the Plan, to make rules for carrying it out and to make
changes in such rules. Any such interpretations, rules and administration shall
be consistent with the basic purposes of the Plan.

    (b) The Committee may delegate to the Chief Executive Officer and to other
senior officers of the Corporation its duties under the Plan subject to such
conditions and limitations as the Committee shall prescribe except that only the
Committee may designate and make Grants to Participants who are subject to
Section 16 of the Exchange Act.

    (c) The Committee may employ attorneys, consultants, accountants,
appraisers, brokers or other persons. The Committee, the Corporation, and the
officers and directors of the Corporation shall be entitled to rely upon the
advice, opinions or valuations of any such persons. All actions taken and all
interpretations and determinations made by the Committee in good faith shall be
final and binding upon all Participants, the Corporation and all other
interested persons. No member of the Committee shall be personally liable for
any action, determination or interpretation made in good faith with respect to
the Plan or Grants, and all members of the Committee shall be fully protected by
the Corporation with respect to any such action, determination or
interpretation.

4.  ELIGIBILITY

    The Committee may from time to time make Grants under the Plan to such
Employees, or other persons having a unique relationship with Corporation or any
of its Subsidiaries, and in such form and having such terms, conditions and
limitations as the Committee may determine. No Grants may be made under this
Plan to non-employee directors of Corporation or any of its Subsidiaries. Grants
may be granted singly, in combination or in tandem. The terms, conditions and
limitations of each Grant under the Plan shall be set forth in an Grant
Agreement, in a form approved by the Committee, consistent, however, with the
terms of the Plan and if applicable the Management Stockholders' Agreement.

5.  GRANTS

    From time to time, the Committee will determine the forms and amounts of
Grants for Participants. Such Grants may take the following forms in the
Committee's sole discretion:

    (a) Non-Qualified Stock Options--These are options to purchase Common Stock
which are not designated by the Committee as incentive stock options. At the
time of the Grant the Committee shall

                                      A-2
<Page>
determine, and shall include in the Grant Agreement or other Plan rules, the
option exercise period, the option price, and such other conditions or
restrictions on the grant or exercise of the option as the Committee deems
appropriate, which may include the requirement that the grant of options is
predicated on the acquisition of Purchase Shares under Paragraph 5(d) by the
Optionee. In addition to other restrictions contained in the Plan, an option
granted under this Paragraph 5(a): (i) may not be exercised more than 10 years
after the date it is granted and (ii) may not have an option exercise price less
than the par value of the Common Stock on the date the option is granted.
Payment of the option price shall be made in cash or in shares of Common Stock,
or a combination thereof, in accordance with the terms of the Plan, the Grant
Agreement and of any applicable guidelines of the Committee in effect at the
time.

    (b) Purchase Stock--Purchase Stock refers to shares of Common Stock offered
to a Participant at such price as determined by the Committee, the acquisition
of which will make him eligible to receive under the Plan, including, but not
limited to, Non-Qualified Stock Options; provided, however, that the price of
such Purchase Shares may not be less than the par value of the Common Stock on
the date such shares of Purchase Stock are offered.

6.  LIMITATIONS AND CONDITIONS

    (a) The number of Shares available for Grants under this Plan shall be
1,800,000 shares of the authorized Common Stock as of the effective date of the
Plan. The number of Shares subject to Options under this Plan to any one
Participant shall not be more than 500,000 Shares. Unless restricted by
applicable law, Shares related to Grants that are forfeited, terminated,
cancelled or expire unexercised, shall immediately become available for Grants.

    (b) No Grants shall be granted under the Plan beyond ten years after the
effective date of the Plan, but the terms of Grants granted on or before the
expiration of the Plan may extend beyond such expiration. At the time a Grant is
granted or amended or the terms or conditions of a Grant are changed, the
Committee may provide for limitations or conditions on such Grant or purchase
consistent with the terms of the Management Stockholders' Agreement.

    (c) Nothing contained herein shall affect the right of the Corporation to
terminate any Participant's employment at any time or for any reason.

    (d) Except as provided in the Management Stockholders' Agreement and other
than as specifically provided with regard to the death of a Participant, no
benefit under the Plan shall be subject in any manner to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance, or charge, and any
attempt to do so shall be void. No such benefit shall, prior to receipt thereof
by the Participant, be in any manner liable for or subject to the debts,
contracts, liabilities, engagements, or torts of the Participant.

    (e) Participants shall not be, and shall not have any of the rights or
privileges of, stockholders of the Corporation in respect of any Shares
purchasable in connection with any Grant unless and until certificates
representing any such Shares have been issued by the Corporation to such
Participants.

    (f) No election as to benefits or exercise of Options or other rights may be
made during a Participant's lifetime by anyone other than the Participant except
by a legal representative appointed for or by the Participant.

    (g) Absent express provisions to the contrary, any Grant under this Plan
shall not be deemed compensation for purposes of computing benefits or
contributions under any retirement plan of the Corporation or its Subsidiaries
and shall not affect any benefits under any other benefit plan of any kind now
or subsequently in effect under which the availability or amount of benefits is
related to level of compensation. This Plan is not a "Retirement Plan" or
"Welfare Plan" under the Employee Retirement Income Security Act of 1974, as
amended.

                                      A-3
<Page>
    (h) Unless the Committee determines otherwise, no benefit or promise under
the Plan shall be secured by any specific assets of the Corporation or any of
its Subsidiaries, nor shall any assets of the Corporation or any of its
Subsidiaries be designated as attributable or allocated to the satisfaction of
the Corporation's obligations under the Plan.

7.  TRANSFERS AND LEAVES OF ABSENCE

    For purposes of the Plan, unless the Committee determines otherwise: (a) a
transfer of a Participant's employment without an intervening period of
separation among the Corporation and any Subsidiary shall not be deemed a
termination of employment, and (b) a Participant who is granted in writing a
leave of absence shall be deemed to have remained in the employ of the
Corporation during such leave of absence.

8.  ADJUSTMENTS

    (a) In the event of any change in the outstanding Common Stock by reason of
a stock split, spin-off, stock dividend, stock combination or reclassification,
recapitalization or merger, change of control, or similar event, the Committee
may adjust appropriately the number of Shares subject to the Plan and available
for or covered by Grants and exercise prices related to outstanding Grants and
make such other revisions to outstanding Grants as it deems are equitably
required.

    (b) In the event that the Participant's right to require the Company to
purchase his or her Shares or Options or the Company's right to require the
Participant to sell his or her Shares or Options, as provided in the Management
Stockholder's Agreement, or the Company's Right of First Refusal as provided in
the Management Stockholder's Agreement, gives rise to adverse accounting
consequences to the Company in respect of the treatment of Options granted
pursuant to the Plan, the Committee may, in its sole discretion, adjust the
timing of the exercisability of such outstanding Options to avoid such adverse
accounting consequences.

9.  MERGER, CONSOLIDATION, EXCHANGE, ACQUISITION, LIQUIDATION OR DISSOLUTION

    In its absolute discretion, and on such terms and conditions as it deems
appropriate, coincident with or after the grant of any Option, the Committee may
provide that such Option cannot be exercised after the merger or consolidation
of the Corporation into another corporation, the exchange of all or
substantially all of the assets of the Corporation for the securities of another
corporation, the acquisition by another corporation of 80% or more of the
Corporation's then outstanding shares of voting stock or the recapitalization,
reclassification, liquidation or dissolution of the Corporation (a
"Transaction"), and if the Committee so provides, it shall, on such terms and
conditions as it deems appropriate, also provide, either by the terms of such
Option or by a resolution adopted prior to the occurrence of such Transaction,
that, for some reasonable period of time prior to such Transaction, such Option
shall be exercisable as to all shares subject thereto, notwithstanding anything
to the contrary herein (but subject to the provisions of Paragraph 6(b)) and
that, upon the occurrence of such event, such Option shall terminate and be of
no further force or effect; provided, however, that the Committee may also
provide, in its absolute discretion, that even if the Option shall remain
exercisable after any such event, from and after such event, any such Option
shall be exercisable only for the kind and amount of securities and/or other
property, or the cash equivalent thereof, receivable as a result of such event
by the holder of a number of shares of stock for which such Option could have
been exercised immediately prior to such event.

10. AMENDMENT AND TERMINATION

    The Committee shall have the authority to make such amendments to any terms
and conditions applicable to outstanding Grants as are consistent with this Plan
provided that, except for adjustments

                                      A-4
<Page>
under Paragraph 8 or 9 hereof, no such action shall modify such Grant in a
manner adverse to the Participant without the Participant's consent except as
such modification is provided for or contemplated in the terms of the Grant.

    The Board of Directors may amend, suspend or terminate the Plan except that
no such action, other than an action under Paragraph 8 or 9 hereof, may be taken
which would, without shareholder approval, increase the aggregate number of
Shares subject to Grants under the Plan, decrease the exercise price of
outstanding Options, change the requirements relating to the Committee or extend
the term of the Plan.

11. FOREIGN OPTIONS AND RIGHTS

    The Committee may make Grants to Employees who are subject to the laws of
nations other than the United States, which Grants may have terms and conditions
that differ from the terms thereof as provided elsewhere in the Plan for the
purpose of complying with foreign laws.

12. WITHHOLDING TAXES

    The Corporation shall have the right to deduct from any cash payment made
under the Plan any federal, state or local income or other taxes required by law
to be withheld with respect to such payment. It shall be a condition to the
obligation of the Corporation to deliver shares upon the exercise of an Option
that the Participant pay to the Corporation such amount as may be requested by
the Corporation for the purpose of satisfying any liability for such withholding
taxes. Any Grant Agreement may provide that the Participant may elect, in
accordance with any conditions set forth in such Grant Agreement, to pay a
portion or all of such withholding taxes in shares of Common Stock.

13. EFFECTIVE DATE AND TERMINATION DATES

    The Plan shall be effective on and as of the date of its approval by the
stockholders of the Corporation and shall terminate ten years later, subject to
earlier termination by the Board of Directors pursuant to Paragraph 10.

                                      A-5

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