Document:

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EXHIBIT 4.2

TAQUA SYSTEMS, INC.

1998 STOCK OPTION PLAN

     Section 1. Definitions. As used in this Plan and all options granted
hereunder, the following definitions shall apply:

          Board shall mean the Board of Directors of the Company.

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

          Committee shall mean the Compensation Committee selected by the Board
charged with the administration of the Plan or, in the absence thereof, shall
mean the Board.

          Common Stock shall mean common stock of the Company, par value $0.01 per
share and any stock or securities received in exchange therefor or on account
thereof.

          Company shall mean Taqua Systems, Inc., a Delaware corporation, and any
successor thereto.

          Exchange Act means the Securities Exchange Act of 1934, as amended.

          Fair Market Value shall mean the (i) the last price on any date for a
share of Common Stock as accurately reported by The Wall Street Journal under
the NASDAQ Over-The-Counter Market, national market Issues, quotation system
(or under any successor quotation system), or, if such stock is not traded on
the over-the-counter markets, the closing price for a share of Common Stock as
accurately report by The Wall Street Journal under the quotation system which
reports such closing price or, if The Wall Street Journal does not report such
prize, such price as reported by a newspaper or trade journal selected by the
Committee, or, if no such price is available on such date, (ii) such price as
so reported or so quoted in advance with the immediately preceding clause (i)
for the immediately preceding business day or, if no newspaper or trade journal
reports such price or if no such price quotation is available, (iii) the price
which the Committee in acting in good faith determines through any reasonable
valuation method that a share of Common Stock might change hands between a
willing buyer and a willing seller, neither being under any compulsion to buy
or to sell and both having reasonable knowledge of the relevant facts.

          ISO shall mean an Option granted under the Plan which meets the
requirements of an incentive stock option under Section 422 of the Code and
which is designated as an ISO by the Committee.

          NQSO shall mean an Option granted under the Plan which does not meet the
requirements of an incentive stock option under Section 422 of the Code, and
which is designated as a NQSO by the committee.

 

 

          Option shall mean a right to purchase Common Stock granted pursuant to the
Plan.

          Option Agreement means the written agreement entered into pursuant to this
Plan through which an Option is granted to a Participant.

          Optionee shall mean a Participant granted an Option under this Plan.

          Option Price shall mean the purchase price to be paid by an Optionee for
each share of Common Stock purchased under an Option, determined in accordance
with Section 7 of this Plan.

          Parent shall mean a parent corporation as defined in Section 424(e) and
(g) of the Code.

          Participant shall mean a M1 time salaried employee of the Company or any
Subsidiary, a director of the Company or any Subsidiary (irrespective of
whether he also is an employee of the Company or any Subsidiary) or any
consultant or independent contractor of the Company or Subsidiary, who, in the
judgment of the Committee, in its sole discretion, is instrumental to the
success of the Company or a Subsidiary.

          Plan shall mean the 1998 Stock Option Plan of the Company, as amended.

          Public Company. The Company shall be deemed to be a Public Company if (i)
the Company has a class of securities registered pursuant to Section 12 of the
Exchange Act and has been subject to the reporting requirements of Section 13
of Act for a period of at least 90 days immediately preceding the event giving
rise to the necessity of determining if the Company is a Pubic Company, or (ii)
the Company has a class of securities registered pursuant to the Securities Act
of 1933 and has been subject to the reporting requirements of Section 15(d) of
the Exchange Act for a period of at least 90 days immediately preceding the
event giving rise to the necessity of determining if the Company is a Public
Company.

          Qualified IPO shall mean the Sale of Common Stock for the account of the
Company in a bona fide firm commitment underwriting pursuant to a registration
statement on Form S-1 (or a successor form) under the Securities Act of 1933,
as amended, resulting in (i) aggregate cash proceeds to the Company (net of
underwriters’ commissions, discounts and fees) of not less than Twenty Million
Dollars ($20,000,000) and (ii) a pre-money valuation of the Company of not less
than Fifty Million Dollars ($50,000,000).

          Rule 16b-3 shall mean the Securities Exchange Commission Regulation §
240.16b-3 under the Exchange Act, or any successor regulation.

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          Stockholder shall mean the holders of outstanding shares of the Company’s
capital stock.

          Subsidiary shall mean a subsidiary corporation defined in Section 424(f)
and (g) of the Code.

          Substantial Stockholder means any person who owns, within the meaning of
Section 422 and Section 424 of the Code, more than ten percent (10%) of the
total combined voting power of all equity securities of the Company or of its
Parent or any Subsidiary.

          Willful Misconduct shall mean intentional conduct in the course of a
Participant’s employment or service as a director which in the sole
determination of the Committee is materially detrimental to the interests of
the Company and shall include, but not be limited to, wrongful appropriation of
funds or the commission of any crime.

     Section 2. Purpose of the Plan. The purpose of this Plan is to provide a
means whereby the Company may, through the grant of Options to employees,
officers, directors, consultants and independent contractors of the Company and
of any Subsidiary, attract and retain Participants, encourage ownership in the
Company by Participants, and provide an incentive for such Participants to
exert their best efforts on behalf of the Company and any Subsidiary.

     Section 3. Shares Available under the Plan. Options may be granted under
the Plan with respect to 1,041,667 shares of Common Stock of the Company and
all such shares shall be, and upon adoption of this Plan by the Board, are
hereby, reserved for Options granted under the Plan subject to adjustment as
provided in Section 16 hereof. The shares issued upon the exercise of Options
granted under the Plan maybe authorized and issued shares or shares held by the
Company in its treasury. If any option granted under the Plan shall terminate,
expire or be cancelled as to any shares (not including the surrender of an
Option under Section 12), new Options may thereafter be granted covering such
shares.

     Section 4. Eligibility. The persons eligible to participate in the Plan
as recipients of Options shall include only Participants.

     Section 5. Administration. The Plan shall be administered by the Committee. The Committee shall
have full and final authority in its discretion, but subject to the express
provisions of the Plan, to determine from time to time to whom Options shall be
granted and the number of shares to be covered by each proposed Option; to
determine the purchase price of the shares covered by each Option and the time
or times at which options shall be granted; to interpret the Plan; to make,
amend and rescind rules and regulations relating to the individuals in the
eligible group to the Plan; to determine the terms and provisions of the
instruments by which Options shall be evidenced; to take any action which may
be taken only

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by a disinterested administrator under Rule 16b-3; and to make
all other determinations necessary or advisable for the administration of the
Plan.

     Section 6. Granting of options. From time to time the Committee shall
select those Participants to whom Options shall be granted and shall determine
the number of shares to be covered by each Option. In making any determination
as to individuals to whom Options shall be granted and as to the number of
shares to be covered by such Options, the Committee shall take into account the
duties of the respective individuals, their present and potential contributions
to the success of the Company or its subsidiary, and such other factors as the
Committee shall deem relevant in accomplishing the purposes of the Plan. Each
grant of an Option shall be evidenced by an Option Agreement executed by the
optionee and the Company and such other instruments in such form as the
Committee shall from time to time approve, which instruments shall (a) comply
with and include expressly or by reference the terms and conditions set forth
in the Plan; (b) shall specify whether the Option is an ISO or NQSO; and (c)
may include such other provisions not inconsistent with provisions of the Plan
as the Committee shall deem advisable, including vesting provisions. The terms
and conditions of Options granted to each Optionee need not contain similar
provisions. The recommendation or selection of an individual as a participant
in any grant of Options hereunder shall not be deemed to entitle the individual
to such Option prior to the time when it shall be granted by the Committee; and
the granting of any Option shall not be deemed either to entitle such
individual to, or to disqualify such individual from, any participation in any
other grant of Options under the Plan.

     Section 7. Option Price. The Option Price per share of Common Stock to be
acquired thereunder shall be determined by the Committee at the time the Option
is granted, and shall not be less than the greater of the following: (a) the
Fair Market Value of the Common Stock for which the Option is being granted,
upon the date of the grant of the Option; and (b) with respect to an ISO
granted to a Substantial Stockholder, 110 % of the Fair Market Value of the
Common Stock for which the Option is being granted, upon the date of the grant
of the ISO.

     Section 8. Option Period. Each Option Agreement shall specify the period for which the Option
thereunder is granted and shall provide that the Option shall expire at the end
of such period; provided that (a) the Option Agreement shall provide that the
exercise of an Option shall not be permitted more than ten (10) years after the
date on which the Option is granted; and (b) in the case of a Substantial
Stockholder, the exercise of an ISO shall not be permitted more than five (5)
years after the date on which the Option is granted.

     Section 9. Exercise and Payment.

          (a) Exercise of an Option shall be made by the giving of written notice to
the Company by the Optionee. Such written notice shall be deemed sufficient
for this purpose only if delivered to the Company at its principal office by
personal delivery or by registered or certified mail, and only if such written
notice identifies the Option being exercised, states the

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number of shares of
Common Stock with respect to which the Option is being exercised and further
states the date, no more than thirty (30) days after the date of such notice,
on which the payment for such Common Stock shall be made. The payment for
shares of Common Stock acquired pursuant to the exercise of an Option shall be
made at the principal office of the Company. Upon the exercise of an Option,
in compliance with the provisions of this section, and upon the receipt by the
Company or its transfer agent of the payment for the stock so acquired, the
Company shall deliver or cause to be delivered to the Optionee so exercising
the Option a certificate or certificates for the number of shares of Common
Stock with respect to which the Option is so exercised and payments is so made.
The shares of stock shall be registered in the name of the exercising Optionee
or in such name jointly with the Optionee as the Optionee may direct in the
written notice of exercise referred to in this section, provided that in no
event shall any shares of Common Stock of the Company be issued pursuant to the
exercise of an Option until full payment therefor (including payment of any
taxes required to be withheld by the Company) shall have been made as provided
in Section 9(b) hereof, and not until the shares have been issued shall the
exercising Optionee have any of the rights of a shareholder. All shares
purchased upon the exercise of the Option as provided herein shall be fully
paid and non-assessable.

          (b) The purchase Price of the shares as to which an Option maybe exercised
shall be payable in United States dollars in cash or by check to the Company.
The Optionee also shall pay in such medium to the Company an amount determined
by the Company for any applicable withholding taxes resulting from the exercise
of an Option. In the sole discretion of the Committee, an Optionee may make
such payments, in whole or in part, by exchange of shares of Common Stock of
the Company having an aggregate Fair Market Value, as of the date of payment,
equal to the aggregate exercise price for the Option exercised and the amount
of any applicable withholding taxes. The Committee may for any reason decline
to accept payment of the purchase price and/or withholding taxes by exchange
of shares of Common
Stock of the Company, or may impose such limitations or restrictions on such
payment as the Committee, in its sole discretion, deems advisable.

     Section 10. Exercise in Event of Termination of Employment.

          (a) If an Optionee’s employment or service as a non-employee director with
the Company or a Subsidiary shall terminate for any reason other than
disability (as specified in Section 10(d)), death, or Willful Misconduct, such
Optionee may exercise his or her Option, to the extent that such Optionee may
be entitled to do so, at the date of the termination of his or her employment
or service as non-employee director, at any time, or from time to time before
the earlier to occur of the expiration date specified in the Option Agreement
or one (1) month after termination of such employment. Whether authorized
leave of absence for military or governmental service shall constitute
termination of employment or service for purposes of the Plan shall be
determined by the Committee.

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          (b) In the event an Optionee’s employment or service as a nonemployee
director with the Company or a Subsidiary is terminated by reason of Willful
Misconduct or otherwise for cause, all Options granted to such optionee, which
are not vested, shall terminate as of the date of termination of employment or
service.

          (c) If an optionee shall die (i) while an employee or a non-employee
director of the Company or a Subsidiary, or (ii) within one (1) month after
termination (other than by reason of Willful Misconduct) of his or her
employment or service as a non-employee or director of the Company or a
Subsidiary, the Option may be exercised, to the extent that such Optionee shall
have been entitled to do so at the date of the such Optionee’s termination of
employment or service, by the person or persons to whom such Optionee’s rights
under the Option pass by will or applicable law, or, if no such person has such
right, by such Optionee’s executors or administrators, at any time, or   from
time to time, within one (1) year after the date of such Optionee’s death, but
in no event later than the expiration date specified in the Option Agreement or
one (1) year after such Optionee’s death, whichever is earlier.

          (d) If an Optionee’s employment or service as a non-employee director with
the Company or a Subsidiary is terminated because such Optionee is disabled
(within the meaning of Section 22(e)(3) of the Code), such Optionee may
exercise his or her Option in the manner provided in Section 10(a); provided
that the one (1) month period specified in Section 10(a) shall be one (1) year.

     Section 11. Repurchase of Option.

          (a) Except to the extent otherwise provided in any stockholders agreement
to which an Optionee is or may become a party, if an Optionee’s employment or
service as a non-employee director with the Company or a Subsidiary shall
terminate for any reason, and the Company is not a Public Company, the Company
shall have the option to purchase from the Optionee or the Optionee’s
successors (i) all Options granted pursuant to the Plan, to the extent the
Optionee or the Optionee’s successors are entitled to exercise such Options, and
(ii) all stock in the Company held by the Optionee or the Optionee’s successors
pursuant to the exercise of an Option granted under the Plan or any stock or
securities received in exchange therefor or on account thereof. The price for
which the Company shall have an option to acquire such Options or stock shall
be: (i) with respect to the Options, the difference between Fair Market Value of
the stock to such Options and the Option Price, or (ii) with respect to the
stock or securities, the Fair Market Value of the stock or securities. If the
Company elects to exercise its right to acquire any Option issued under the
Plan, the exercise of such right shall preclude the exercise by the Optionee or
the Optionee’s successors of such Option.

          (b) Except to the extent otherwise provided in any stockholders agreement
to which Optionee is or may become a party, if the Company is not a Public
Company and the Optionee or any other person desires to make a disposition or
all or any potion of the Common Stock acquired pursuant to the exercise of an
Option granted under this Plan (or any

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stock or securities received in exchange
therefor or on account hereof) to any person other than the Company, and had
not receive the prior written consent of the Company, he or she shall first
notify the Company and offer to sell his or her Common Stock to the Company at
Fair Market Value on the date of notification. The offer to sell shall be in
writing and shall be delivered by certified mail, return-receipt requested, and
shall include the time of the proposed disposition and the number of shares to
be transferred. The Company shall have the option to acquire such Common Stock
for their Fair Market Value for a period of 90 days following the date of
notification. Likewise, upon the death of the Optionee, or any other person
holding Common Stock acquired pursuant to the exercise of an Option granted
pursuant to this Plan, the Company shall have the option to acquire such stock
or securities for their Fair Market Value for a period of 90 days following the
date it is notified of such holder’s death.

          (c) In the event the Company elects to exercise any option reserved to the
Company in the preceding two sections, it shall do so by giving notice within
the time prescribed above, by certified mail, return-receipt requested, to the
Optionee or the Optionee’s successor at the address set forth in the Stock
Option agreement entered into pursuant to this Plan or as previously designated
by the Optionee or the Optionee’s successor in written notice to the Company.
In the event, the Company does not exercise its option, the holder of such
Common Stock shall be free to make the disposition of such Common Stock to the
extent he or she has so notified the Company, and only to the person named in
the notice, for a period of 90 days after the expiration of the Company’s
option, provided that the holder shall not make a disposition at a price or on
terms more favorable than those stated in the notice to the
Company without affording the Company a further option of 30 days within
which to acquire such stock or securities at Fair Market Value.

          (d) In the event, the Optionee or any person desires to make a pledge or
hypothecation of all or of any part of his or her Common Stock in the Company
acquired pursuant to the exercise of an Option granted pursuant to this Plan as
security for a loan, or performance of any obligation, he or she shall notify
the Company in writing of the intention to do so. Such pledge or hypothecation
or any transfer pursuant thereto shall be effective only if both of the
following conditions occur: (i) the pledgee agrees to be bound by the terms of
the Stock Option Agreement entered into pursuant to this Plan and agrees to
notify the Company in writing within ten (10) days after any default of the
pledgor with respect to the obligation; and (ii) the pledgor and pledgee agree
in writing that any default with respect to the obligation shall be treated as
a disposition by the pledgor of all of the Common Stock pledged, and the
Company shall have the option to purchase such Common Stock as provided for
above at its Fair Market Value.

          (e) Any transferee of the Optionee and any subsequent transferee shall be
subject to the same restrictions on disposition, pledge or hypothecation of
such Common Stock as applied to the Optionee. Any Common Stock issued pursuant
to the exercise of an Option granted under this Plan shall be endorsed with the
following legend:

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	 	 	“NOTICE IS HEREBY GIVEN THAT THE SALE, ASSIGNMENT,
TRANSFER, PLEDGE OR OTHER DISPOSITION OF SECURITIES
REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
RESTRICTIONS CONTAINED IN THE TAQUA SYSTEMS, INC. 1998
STOCK OPTION PLAN, A COPY OF WHICH IS ON FILE WITH THE
OFFICE OF THE SECRETARY IF TAQUA SYSTEMS, INC. AND HAS
BEEN PROVIDED TO THE OPTIONEE.”

     Section 12. Surrender of Options.

          (a) The Committee, acting in its absolute discretion, may incorporate a
provision in an Option Agreement to allow an Optionee to surrender his or her
Option in whole or in part, in lieu of the exercise in whole or in part of that
Option, on any date that:

                    (i) the Fair Market Value of
the Common Stock for which the Option was
granted exceeds the Option Price for such
Common Stock, and

                    (ii) the Option to purchase
such Common Stock is otherwise exercisable.

          (b) The surrender of an Option in whole or in part shall be effected by
the delivery of the Option Agreement to the Committee (or to its delegate)
together with a statement signed by the Optionee which specifies the number of
shares of Common Stock as to which the Optionee surrenders his or her Option
and how he or she desires payment be made for such surrendered Option.

          (c) An Optionee in exchange for his or her surrendered Option, shall
receive a payment in cash or in a Common Stock, or in a combination of cash and
such Common Stock, equal in amount, on the date such surrender is effected, to
the excess of the Fair Market Value of the Common Stock underlying the
surrendered Option on such date over the Option Price for the surrendered
Option, less any applicable withholding taxes resulting from such surrender.
The Committee, acting in its absolute discretion, can approve or disapprove an
Optionee’s request for payment in whole or in part in cash and can make that
payment in cash or in such combination of cash and Common Stock as the
Committee deems appropriate. A request for payment only in Common Stock shall
be approved and made in such stock to the extent payment can be made in whole
shares of Common Stock and (of the committee’s discretion) in cash in lieu of
any fractional share of such stock.

          (d) Any Option Agreement which incorporates a provision to allow an
Optionee to surrender his or her Option in whole or in part also shall
incorporate such additional restrictions on the exercise or surrender of such
Option as the Committee deems

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necessary to satisfy the conditions of Rule 16b-3
(or any successor exemption) to Section 16(b) of the Exchange Act.

     Section 13. Nontransferability. An option shall not be assignable or
transferable by the Optionee except by will or by the laws of descent and
distribution and, during his or her lifetime, the Option shall be exercisable
only by such Optionee.

     Section 14. Securities Requirements.

          (a) The Company may require any Optionee, as a condition of exercising
such Option, to give written assurances in substance and form satisfactory to
the Company to the effect that such Optionee is acquiring the Common Stock
subject to the Option for his or her own account for investment and not with
any present intention or selling or otherwise distributing the same, and to
such other effects as to the Company deems necessary or appropriate in order to
comply with federal and applicable state securities laws.

          (b) Each Option shall be subject to the requirement that if, at any time,
counsel to the Company shall determine that the listing, registration or
qualification of the shares subject to such Option upon any securities exchange
or under any state or federal law, or the consent or approval of any
governmental or regulatory body, or that the disclosure of non-public
information or the satisfaction of any other condition of, or in connection
with, the issuance or purchase of shares thereunder, such Option may not be
exercised, in whole or in part, unless such listing, registration,
qualification, consent or approval, or satisfaction of such condition shall
have been effected or obtained on conditions acceptable to the Committee.
Nothing herein shall be deemed to require the Company to apply for or to obtain
such listing, registration or qualification or to satisfy such condition, Any
such postponement or limitation affecting the right to exercise an Option or
the grant may be granted or exercised or the shares distributed, unless the
Company and the Optionee choose to amend the terms of the Option to provide for
such an extension; and neither the Company, nor any of its directors or
officers shall have any obligation or liability to the Optionee or to a
beneficiary as to any shares to which the Option shall lapse because of such a postponement or limitation.

          (c) In the case of officers and other persons subject to Section 16(b) of
the Exchange Act, the Committee may at any time impose any limitations upon the
exercise of an Option which, in the Committee’s discretion, are necessary or
desirable in order to comply with the Section 16(b) and the rules and
regulations thereunder. If the Company, as part of an offering of securities
or otherwise, finds it desirable because of federal or state regulatory
requirements to reduce the period during which any Options may be exercised,
the Committee may, in its discretion and without the holders’ consent, so
reduce such period on not less than fifteen (15) days’ written notice to the
holders thereof.

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     Section 15. Duration of Plan. No Option shall be granted more than ten (10)
years after the date of the adoption of the Plan by the Board. Nothing
contained herein, however, shall terminate or effect the continued existence of
rights created under Options issued hereunder and outstanding on the expiration
date of the Plan, which by their terms extend beyond such date.

     Section 16. Capital Adjustments, Reorganization and Liquidation.

          (a) The number of shares of Common Stock which may be issued under the
Plan, the number of shares reserved as stated in Section 3 hereof, the number
of shares issuable upon exercise of outstanding Options under the Plan (as well
as the Option Price per share under such outstanding Options) and the Option
Price limitations as set forth in Section 7, shall be adjusted, as may be
deemed appropriate by the Committee, to reflect any stock dividend, stock
split, share combination, or similar change in capitalization of the Company.

          (b) The dissolution or liquidation Of the Company or merger or
consolidation in which the Company is not the surviving corporation, shall
cause each outstanding Option to terminate, unless there is an express
assumption of the Option by the surviving corporation. Any outstanding Option
may be exercised up to and including the date immediately preceding such
termination if it has not otherwise expired and if it is then subject to
exercise under the individual option grant. The Committee may, in its
discretion, change the terms of any outstanding Option solely to the extent
necessary to effect a substitution for, or assumption of, the Option in the
event of any merger, consolidation, acquisition of property or stock,
separation, reorganization or liquidation.

          (c) To the extent that the foregoing adjustments relate to stock or
securities of the Company, such adjustments shall be made by the Committee,
whose determination in that respect shall be final, binding and conclusive.

     Section 17. Rights as a Stockholder. An Optionee shall have no rights as
a Stockholder with respect to the shares covered by his or her Option until the
issuance of a stock certificate for such shares. No adjustment shall be made
for dividends or other rights for which the record date is prior to the
issuance of such stock certificate, except as provided in Section 16.

     Section 18. No Obligation to Exercise Option. The granting of an Option
shall impose no obligation upon an Optionee to exercise such Option.

     Section 19. Withholding. The exercise or surrender of any Option granted
hereunder shall constitute an Optionee’s full and complete consent to whatever
action the Committee directs to satisfy federal and state withholding
requirements, if any, including withholding under the Federal Insurance
Contribution Act and requirements for withholding from wages as the Committee
in its discretion deems applicable to such exercise or surrender.

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     Section 20. No Rights to Employment. Nothing hereunder shall be deemed to
give an Optionee the right to be retained in employment by the Company for any
period of time, and no provision hereunder or the granting of Options pursuant
to this Plan shall be deemed to interfere with the right of the Company to
terminate the employment of an optionee at any time without regard to the
effect that such discharge will have on his or her rights, if any, hereunder or
under any Option granted hereunder.

     Section 21. Application of Funds. The proceeds received by the Company from the sale of Common Stock
pursuant to Options granted under the Plan will be used for general corporate
purposes.

     Section 22. Rights to Receive Options. Neither the adoption of the Plan
nor any action of the Committee shall be deemed to give any person any right to
be granted an Option, or any other right hereunder, unless and until the
Committee shall have granted such person an Option, and then his or her rights
shall be only such as are prescribed in the instrument evidencing such Option.

     Section 23. Amendment or Discontinuance of Plan. The Committee may from
time to time, with respect to any Common Stock on which Options have not then
been granted, suspend or discontinue the Plan or amend it in any respect
whatsoever; however, that no amendment shall be made which (a) changes the
class of individuals eligible to receive Options or otherwise materially
modifies (within the meaning of Section 16 of the Exchange Act or Rule 16b-3)
the requirements as to eligibility for participation in the Plan or materially
increases (within the meaning of Section 16 of the Exchange Act or Rule 16b-3)
the benefits accruing to Optionee under the Plan, (b) increases the maximum
number of shares of Common Stock with respect to which Options may be granted
under the Plan, (c) changes the limitations on the Option price, or (d) amends
the provisions of Section 15, without approval of the Stockholders of the
Company, which must comply with all the applicable provisions of the
Certificate of Incorporation and bylaws of the Company and the Delaware General
Corporation Law.

     Section 24. Indemnification of Committee. In addition to such other
rights of indemnification as they may have as members of the Board, each member
of the Committee shall be indemnified by the Company against all costs and
expenses reasonably incurred by such member. in connection with any action,
suit, or proceeding to which such member may be a party by reason of any action
taken or failure to act under or in connection with the Plan, or any Option
granted thereunder, and against all amounts paid by him or her in settlement
thereof (provided such settlement is approved by legal counsel selected by the
Company) or paid by him or her in satisfaction of a judgment in any such
action, suit, or proceeding, except a judgment based upon a finding of bad
faith. Upon the institution of any such action, suit, or proceeding, each
Committee member affected shall notify the Company in writing, giving the
Company an opportunity, at its own expense, to handle and defend the same
before the Committee under-takes to handle it on his or her own behalf.

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     Section 25. Disqualifying Dispositions. If a Optionee disposes of its
Common Stock acquired upon exercise of an ISO within two (2) years from the
date the Option is granted or within one (1) year after the issuance of such
Common Stock to the Optionee, the Optionee shall notify the Company of
such disposition and provide information as to the date of disposition, sale
price, number of shares disposed of and any other information relating thereto
which the Company may reasonably request.

     Section 26. Approval by Shareholders. The Plan shall take effect upon
adoption by the Board and approval by the shareholders of the Company within
twelve (12) months after the Plan is adopted by the Board.

     Section 27. Governing Law. The validity and construction of the Plan and
any agreements thereunder shall be governed by the laws of the State of
Delaware.

Date Plan Adopted by Board:                    01/28/98

Date Plan Approved by Shareholders:       03/11/98

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Exhibit 4.3

TEKELEC

FORM OF NONSTATUTORY STOCK OPTION AGREEMENT

     Tekelec, a California corporation (“Tekelec” or the “Company”), hereby
enters into this Nonstatutory Stock Option Agreement (this “Option Agreement”)
with _______ (the “Optionee”) effective as of April 8, 2004, whereby
the Company grants to the Optionee the right and option to purchase an
aggregate of _______ shares of Common Stock (the “Shares”) of the Company in
accordance with the terms of that certain Employment Agreement dated
______ between Taqua, Inc., a Delaware corporation (“Taqua”) and wholly
owned subsidiary of the Company, and the Optionee (the “Employment Agreement”).
The grant of this Option fully discharges Tekelec’s obligations with respect
to the grant to the Optionee of stock options to purchase Tekelec Common Stock
under Section 3 of the Employment Agreement.

     1. Nature of the Option. This Option is intended to be a nonstatutory
stock option and is not intended to be an incentive stock option within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
“Code”), or to otherwise qualify for any special tax benefits to the Optionee.

     2. Exercise Price. The exercise price is $18.08 per Share, which price is
not less than 100% of the fair market value thereof on the date of the grant.

     3. Method of Payment. The consideration to be paid for the Shares to be
issued upon exercise of this Option shall consist entirely of cash or check
payable to the Company.

     4. Exercise of Option. This Option shall be exercisable during its term
only in accordance with the terms and provisions of this Option Agreement as
follows:

          (a) This Option shall vest and become exercisable cumulatively in 16 equal
quarterly installments of ______ shares each as long as the Optionee
continues to serve as an employee of the Company, with the first of such
installments vesting on September 30, 2004 and one additional installment
vesting on the last day of each calendar quarter thereafter. Each vested
installment of this Option will expire on the four-year anniversary of its
vesting date (e.g., the installment vesting on September 30, 2004 will expire
at the close of business on September 30, 2008). Subject to Sections 6, 7 and
8 hereof, the Optionee may exercise the exercisable portion of this Option in
whole or in part at any time during the term hereof; provided, however, that
the Option may not be exercised for a fraction of a Share. In the event of the
Optionee’s termination of employment with the Company or the Optionee’s
disability or death, the provisions of Sections 6 or 7 below, as applicable,
shall apply to the right of the Optionee to exercise this Option.

          (b) This Option shall be exercisable by written notice which shall state
the election to exercise this Option, the number of Shares in respect to which
this Option is being exercised and such other representations and agreements as
may be required by the Company. Such written notice shall be in the form of
the Notice of Exercise of Nonstatutory Stock Option

1

 

in the form attached hereto, shall be signed by the Optionee and shall be
delivered in person or by certified mail to the Secretary of the Company or
such other person as may be designated by the Company. The written notice
shall be accompanied by payment of the purchase price or shall include a
commitment to deliver the purchase price pursuant to a special sale and
remittance procedure commonly referred to as a “cashless exercise,” in which
case the Optionee shall concurrently provide irrevocable written instructions
to a brokerage firm to effect the immediate sale of a sufficient number of the
Shares purchased upon exercise of the Option to enable such brokerage firm to
remit out of the sales proceeds available upon the settlement date sufficient
funds to the Company to cover the aggregate exercise price payable for the
purchased Shares plus all applicable Federal, state and local income and
employment taxes required to be withheld by the Company by reason of such
exercise and/or sale. As soon as practicable after any proper exercise of this
Option in accordance with the provisions hereof, the Company shall deliver to
the Optionee at the principal executive office of the Company or such other
place as shall be mutually agreed upon between the Company and the Optionee, a
certificate or certificates representing the Shares for which the Option shall
have been exercised. The certificate or certificates for the Shares as to
which this Option is exercised shall be registered in the name of the Optionee.

          (c) No rights of a shareholder shall exist with respect to the Shares
under this Option as a result of the mere grant of this Option or the exercise
of this Option. Such rights shall exist only after issuance of a stock
certificate in accordance with Section 4(b) hereof.

     5. Restrictions on Exercise. This Option may not be exercised if the
issuance of Shares upon the Optionee’s exercise or the method of payment of
consideration for such Shares would constitute a violation of any applicable
Federal or state securities law or other applicable law or regulation. As a
condition to the exercise of this Option, the Company may require the Optionee
to make any representation and warranty to the Company as may be required by
any applicable law or regulation.

     6. Termination of Employment. If the Optionee ceases to serve as an
employee of the Company for any reason other than death or permanent and total
disability (within the meaning of Section 22(e)(3) of the Code) and thereby
terminates his continuous status as an employee of the Company, the Optionee
shall have the right to exercise this Option at any time within three months
after the date of such termination to the extent that the Optionee was entitled
to exercise this Option at the date of such termination. To the extent that
the Optionee was not entitled to exercise this Option at the date of
termination, or to the extent this Option is not exercised within the time
specified herein, this Option shall terminate. Notwithstanding the foregoing,
this Option shall not be exercisable as to any vested installment after the
expiration of the term of such installment set forth in Section 8 hereof.

     7. Death or Disability. If the Optionee ceases to serve as an employee of
the Company due to death or permanent and total disability (within the meaning
of Section 22(e)(3) of the Code), this Option may be exercised at any time
within six months after the date of death or termination of employment due to
disability, in the case of death, by the Optionee’s estate or by a person who
acquired the right to exercise this Option by bequest or inheritance, or, in
the

2

 

case of disability, by the Optionee, but in any case only to the extent
the Optionee was entitled to exercise this Option at the date of such
termination. To the extent that the Optionee was not entitled to exercise this
Option at the date of termination, or to the extent this Option is not
exercised within the time specified herein, this Option shall terminate.
Notwithstanding the foregoing, this Option shall not be exercisable as to any
vested installment after the expiration of the term of such installment set
forth in Section 8 hereof.

     8. Term of Option. Notwithstanding any provision to the contrary in this
Option Agreement, each vested installment of this Option may not be exercised
more than four years after the date on which such installment vested and may be
exercised during such four-year period only in accordance with the terms of
this Option Agreement. Notwithstanding any provision herein with respect to
the post-employment exercise of this Option, this Option may not be exercised
as to any vested installment after the expiration of its four-year term.

     9. Reservation of Shares. The Company covenants and agrees that all
Shares will, upon issuance and payment in accordance herewith, be fully paid,
validly issued and nonassessable. The Company further covenants and agrees
that during the term of this Option, the Company will at all times have
authorized and reserved for the purpose of issuance upon exercise of this
Option at least the maximum number of Shares as are issuable upon such
exercise.

     10. Dissolution; Liquidation, Consolidation, Merger or Reclassification.
In the event that while this Option is outstanding, the Company proposes to
dissolve or liquidate or to sell all or substantially all of its assets (other
than in the ordinary course of business), or to merge or consolidate with or
into another corporation as a result of which the Company is not the surviving
and controlling corporation, the Board of Directors shall (i) make provision
for the assumption of this Option by the successor corporation or (ii) declare
that this Option shall terminate as of a date fixed by the Board of Directors
which is at least 30 days after the notice thereof to the Optionee and shall
give the Optionee the right to exercise this Option as to all or any part of
the Shares, including Shares as to which this Option would not otherwise be
exercisable, provided such exercise does not violate Section 8 hereof.

     11. Adjustment of Exercise Price and Number of Shares.

          (a) The number of Shares subject to this Option, as well as the exercise
price per Share hereunder, shall be proportionately adjusted for any increase
or decrease in the number of issued shares of the Company’s Common Stock
resulting from a stock split or combination or the payment of a stock dividend
(but only on the Company’s Common Stock) or any other increase or decrease in
the number of issued shares of the Company’s Common Stock effected without
receipt of consideration by the Company (other than stock awards to employees
or directors of the Company); provided, however, that the conversion of any
convertible securities of the Company shall not be deemed to have been effected
without the receipt of consideration. Such adjustment shall be automatic and
the form of this Agreement need not be changed because of any such adjustment
in the exercise price or in the number of Shares purchasable upon exercise of
all or any portion of this Option. Except as expressly provided herein, no
issue by the

3

 

Company of shares of stock of any class, or securities convertible into
shares of stock of any class, shall affect, and no adjustment by reason thereof
shall be made with respect to, the number or price of Shares subject to this
Option.

          (b) No fractional shares of Common Stock shall be issuable on account of
any action contemplated by Section 10 or Section 11(a) hereof, and the
aggregate number of shares into which Shares then covered by this Option, when
changed as the result of any such action, shall be reduced to the largest
number of whole shares resulting from such action, unless the Company’s Board
of Directors, in its sole discretion, shall determine to issue scrip
certificates in respect to any fractional shares, which scrip certificates
shall be in a form and have such terms and conditions as the Board of Directors
in its discretion shall prescribe.

     12. Withholding upon Exercise of Option. The Company reserves the right
to withhold, in accordance with any applicable laws, from any consideration
payable to the Optionee any taxes required to be withheld by Federal, state or
local law as a result of the grant or exercise of this Option or the sale or
other disposition of the Shares issued upon exercise of this Option. If the
amount of any consideration payable to the Optionee is insufficient to pay such
taxes or if no consideration is payable to the Optionee, upon the request of
the Company, the Optionee shall pay to the Company in cash an amount sufficient
for the Company to satisfy any Federal, state or local tax withholding
requirements it may incur as a result of the grant or exercise of this Option
or the sale or other disposition of the Shares issued upon the exercise of this
Option.

     13. Nontransferability of Option. This Option may not be sold, pledged,
assigned, hypothecated, gifted, transferred or disposed of in any manner either
voluntarily or involuntarily by operation of law, other than by will or by the
laws of descent or distribution or transfer between spouses incident to a
divorce. Subject to the foregoing, the terms of this Option shall be binding
upon the executors, administrators, heirs, successors and assigns of the
Optionee.

     14. No Right of Employment. This Option shall not confer upon the
Optionee any right to continue in the employment of the Company or limit in any
respect the right of the Company to discharge the Optionee at any time, with or
without cause and with or without notice.

     15. Miscellaneous.

          (a) Successors and Assigns. This Option Agreement shall bind and inure
only to the benefit of the parties to this Option Agreement (the “Parties”) and
their respective successors and assigns.

          (b) No Third-Party Beneficiaries. Nothing in this Option Agreement is
intended to confer any rights or remedies on any persons other than the Parties
and their respective successors or assigns. Nothing in this Option Agreement
is intended to relieve or discharge the obligation or liability of third
persons to any Party. No provision of this Option Agreement shall give any
third person any right of subrogation or action over or against any Party.

4

 

          (c) Amendments.

               (i) The Company reserves the right to amend the terms and provisions of
this Option without the Optionee’s consent to comply with any Federal or state
securities law.

               (ii) Except as specifically provided in subsection (i) above, this Option
Agreement shall not be changed or modified, in whole or in part, except by
supplemental agreement signed by the Parties. Either Party may waive
compliance by the other Party with any of the covenants or conditions of this
Option Agreement, but no waiver shall be binding unless executed in writing by
the Party making the waiver. No waiver or any provision of this Option
Agreement shall be deemed, or shall constitute, a waiver of any other
provision, whether or not similar, nor shall any waiver constitute a continuing
waiver. Any consent under this Option Agreement shall be in writing and shall
be effective only to the extent specifically set forth in such writing. For
the protection of the Parties, amendments, waivers and consents that are not in
writing and executed by the Party to be bound may be enforced only if they are
detrimentally relied upon and proved by clear and convincing evidence. Such
evidence shall not include any alleged reliance.

          (d) Notice. Any notice, instruction or communication required or
permitted to be given under this Option Agreement to either Party shall be in
writing and shall be deemed given when actually received or, if earlier, five
days after deposit in the United States mail by certified or express mail,
return receipt requested, first class postage prepaid, addressed to the
principal office of the Company, in the case of the Company, or to the most
recent principal residence address of the Optionee reflected in the Company’s
records, in the case of the Optionee, or to such other address as either Party
may request by written notice.

          (e) Governing Law. To the extent that Federal laws do not otherwise
control, all determinations made or actions taken pursuant hereto shall be
governed by the laws of the State of California, without regard to the conflict
of laws rules thereof.

          (f) Entire Agreement. This Option Agreement constitutes the entire
agreement between the Parties with regard to the subject matter hereof. This
Option Agreement supersedes all previous agreements between the Parties, and
there are now no agreements, representations, or warranties between the
Parties, other than those set forth herein.

     (g) Severability. If any provision of this Option Agreement or the
application of such provision to any person or circumstances is held invalid or
unenforceable, the remainder of this Option Agreement, or the application of
such provision to persons or circumstances other than those as to which it is
held invalid or unenforceable, shall not be affected thereby.

5

 

     IN WITNESS WHEREOF, this Option Agreement has been duly executed on behalf
of the Company by an authorized representative of the Company and by the
Optionee as of the date and year first written above.

	 	 	 	 	 	 	 	 	 	 
	DATE OF GRANT: April 8, 2004

	 	TEKELEC	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 
	

	 	By:	 	 	 	 	 	 	 
	 	 	 	

	

	 	 	 	 	Frederick M. Lax	 	 	 	 
	

	 	 	 	 	President and Chief Executive Officer	 	 	 	 
	 
	 	 	 	

	

	 	 	 	 	Employee name	 	 	 	 

6

 

THIS OPTION AND THE SECURITIES WHICH MAY BE PURCHASED UPON EXECUTION OF THIS
OPTION HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE, AND HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE, TRANSFER OR
DISTRIBUTION THEREOF. NO SUCH SALE, TRANSFER OR DISTRIBUTION MAY BE EFFECTED
WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATING THERETO OR AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.

 

 

TEKELEC

NOTICE OF EXERCISE OF NONSTATUTORY STOCK OPTION

     I, Employee name (“Optionee”), hereby agree, represent and warrant to
Tekelec (the “Company”) as follows:

	1.	 	I was granted a Nonstatutory Stock Option (the “Option”) on
April 8, 2004.
	 
	2.	 	Pursuant to the Option, I was granted the right to purchase
____________________ shares of the Company’s Common Stock (the “Optioned
Shares”).
	 
	3.	 	I am eligible to exercise the Option.
	 
	4.	 	I hereby elect to exercise the Option to purchase ____________ of such
Optioned Shares (the “Shares”) at U.S.$18.08 per share, for an
aggregate purchase price of U.S.$__________.
	 
	5.	 	Payment of Purchase Price (please check applicable box):

	o	 	This Notice of Exercise is accompanied by a check
representing payment in full of the purchase price for the
Shares plus all applicable withholding taxes.
	 
	 	 	OR
	 
	o	 	This exercise is a “cashless exercise” effected through my
broker. Payment in full for the Shares (including all
applicable withholding taxes) in the form of a check will be
transmitted by my broker to the Company.

	6.	 	In connection with my exercise of the Option, I have received
a copy of any Prospectus of the Company’s relating to the shares of
the Company’s Common Stock issuable under the Option.

	 	 	 	 	 	 	 	 	 	 	 
	Dated:

	 	, 200
	 	 
	 	 
	 	OPTIONEE
	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	 	Signature:	 	
	Social Security Number	 	 	 	 	 	 
	 	 	 	 	Employee Name

	

	 	 	 	 	 	Address:	 	 
	

	 	 	 	 	 	 	 	 
	

	 	 	 	 	 	 	 	 

	 	 	 	 	 	 	 	 	 	 
	Received on behalf of Tekelec on

	 	 	, 200
	 	 	.	 	 	 

	 	 	 	 	 
	 

	 	Signature:
	 	 
	 

	 	 
	 	 

 

 

SCHEDULE OF OPTIONEES

Joseph Bennett

Gary Brown

Todd Daniels

Pablo Gargiulo

Thomas Hartnett

David Long

Donald Pratt, Jr.

Hermon Pon

Charles Vogt

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