Document:

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                   FIRST AMENDMENT TO RESTRUCTURING AGREEMENT

                          effective as of May 22, 2002

                                  by and among

                            HY I INVESTMENTS, L.L.C.,

                     THOSE INVESTMENT FUNDS THAT ARE MANAGED
                      BY BENNETT MANAGEMENT CORPORATION AND
            ITS AFFILIATED ENTITIES AND THAT ARE HOLDERS OF OLD NOTES

                                       and

                                 PENTACON, INC.

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         This FIRST AMENDMENT TO RESTRUCTURING AGREEMENT effective as of May 22,
2002 ("this AGREEMENT") is made and entered into by and among HY I INVESTMENTS,
L.L.C., THOSE INVESTMENT FUNDS MANAGED BY BENNETT MANAGEMENT CORPORATION AND ITS
AFFILIATED ENTITIES AND THAT HOLD OLD NOTES (together, the "HOLDERS") and
PENTACON, INC., a Delaware corporation (the "COMPANY"). Capitalized terms not
otherwise defined herein shall have the meaning ascribed to them in the
Restructuring Agreement.

         WHEREAS, the Holders and the Company executed that certain
Restructuring Agreement dated as of April 30, 2002 (the "Restructuring
Agreement") which provided for, among other things, an offer to acquire Old
Notes in exchange for new notes and preferred stock (the "Offer").

         WHEREAS, under the Restructuring Agreement, the Offer was to be
implemented pursuant to an exchange offer or pursuant to a pre-negotiated plan
of reorganization in a case filed under chapter 11 of Title 11 of the United
States Code (the "Bankruptcy Code").

         WHEREAS, pursuant to section 1.02 of the Restructuring Agreement, the
Company and the Holders have the right to consent to or vote for a Superior
Offer.

         WHEREAS, the Board of Directors of the Company and the Holders have
consulted with each other in good faith and have determined that an offer
received by the Company for the purchase of substantially all of its assets of
the Company and its subsidiaries by Anixter International, Inc. (the
"Purchaser") pursuant to a chapter 11 plan is a Superior Offer (the "Purchase
Offer").

         WHEREAS, the Company and Holders desire to amend the Restructuring
Agreement to provide for certain representations, warranties and agreements in
connection with consummating the Purchase Offer pursuant to a chapter 11 plan
and also to prescribe various conditions to the consummation of such
transactions.

         NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth in this Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree to amend the Restructuring Agreement as follows:

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                                    ARTICLE I

                                 THE AMENDMENTS

         The Restructuring Agreement is hereby amended as follows (unless
specified otherwise, "Section" and "Article" references used herein refer to
those provisions of the Restructuring Agreement):

SECTION 1.1  Section 1.01 (and all subparts thereof) of the Restructuring
Agreement is hereby amended and restated to read in its entirety as follows:

         Section 1.01  The Plan. Subject to the other terms hereof and
provided that this Agreement shall not have been terminated in accordance
with Section 6.01 and after consultation with the Holders, the Company has
determined to consummate the Purchase Offer by means of a pre-negotiated
chapter 11 plan of reorganization filed under Chapter 11 of the Bankruptcy
Code which incorporates the terms and conditions of the Term Sheet for Joint
Plan of Reorganization attached hereto as Exhibit A (the "Term Sheet"). The
Company, as promptly as practicable after the execution hereof, shall
commence a chapter 11 bankruptcy case and seek confirmation of the Plan by
the Bankruptcy Court. The Company shall consult with the Holders concerning
any amendments or modifications to the Plan and any related disclosure
statement before filing or serving any such amendments in the bankruptcy case.

SECTION 1.2  Section 1.02 (a) of the Restructuring Agreement is amended and
restated to read in its entirety as follows:

         Section 1.02  Holder Actions. (a) subject to the terms and
conditions of this Agreement, each Holder hereby severally:

         (i)      approves and consents to the Term Sheet, including without
                  limitation, the classification and treatment of claims and
                  equity interests described in the Term Sheet;

         (ii)     agrees to vote or cause to be voted all of its Old Notes in
                  favor of a plan of reorganization implementing the Term Sheet
                  and otherwise in form and substance reasonably satisfactory to
                  the Holders (the "Plan") and in connection therewith to
                  execute a ballot or ballots voting to accept the Plan;

         (iii)    agrees to vote against any competing plan that may interfere
                  with or be inconsistent with the Plan and in connection
                  therewith to execute a ballot or ballots voting to reject such
                  competing plan;

         (iv)     agrees not to and will cause its respective officers,
                  directors, employees and professionals or other agents not to,
                  directly or indirectly, take any action to encourage any
                  competing plan that may interfere with or be inconsistent with
                  the Plan, except that nothing herein shall preclude the
                  Holders from soliciting, initiating, or seeking out a Superior
                  Offer; and

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         (v)      agrees to support confirmation of the Plan;

provided, however, that at any time, the Company or the Holders receive a bona
fide offer for the purchase of all or substantially all the assets of the
Company or for the merger or consolidation of the Company with or into any other
company (collectively "Alternative Offer"), which the Board of Directors and the
Holders, in good faith after consultation with each other, determine to be a
superior offer to the Purchase Offer or Plan (a "Superior Offer") then the
Holder shall have the right prior to the confirmation date of the Plan, to
rescind its approval and consent to the Plan and to vote for and consent to such
Superior Offer. Each of the Company and the Holders agree to inform the other
upon its receipt of any proposal, expression of interest or request for
information from any person relating to an Alternative Offer and to deliver to
the other any and all written materials received by such person in connection
therewith. In addition, nothing contained herein shall be deemed to restrict the
sale or transfer by any Holder of any of its Old Notes; provided that the
purchaser thereof shall be bound by the terms of this Agreement, including this
Section 1.02.

SECTION 1.3  Sections 1.03 (a) and (b) of the Restructuring Agreement are
hereby deleted in their entirety.

SECTION 1.4  Section 1.04 of the Restructuring Agreement is amended and
restated to read in its entirety as follows:

         Section 1.04  Conditions to Holders' Obligations. The obligation of
each Holder to undertake the Holder actions required by Section 1.02 is
subject to fulfillment of each of the following conditions (all or any of
which may be waived in whole or in part by such Holder in its sole
discretion):

         (a)      the Plan implementing the Term Sheet and the related
                  disclosure statement shall reflect in all respects the Term
                  Sheet and shall otherwise be in form and substance reasonably
                  satisfactory to the Holders;

         (b)      all debtor-in-possession financing arrangements and related
                  orders shall be in form and substance reasonably satisfactory
                  to the Holders;

         (c)      any amendments or modifications to the Term Sheet or the Plan
                  shall be in form and substance reasonably satisfactory to the
                  Holders;

         (d)      the representations and warranties made by the Company in this
                  Agreement, the Plan and the asset purchase agreement relating
                  to the Purchase Offer (the "Asset Purchase Agreement") shall
                  be true and correct in all material respects on and as of the
                  Confirmation Date as though such representations or warranties
                  were made on and as of such date;

         (e)      the Asset Purchase Agreement shall not have been amended or
                  terminated for any reason; and

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         (f)      not more than 120 days shall have elapsed from the filing of
                  the Chapter 11 case relating to the Plan without the entry of
                  the confirmation order relating thereto.

SECTION 1.5  Article II of the Restructuring Agreement shall be amended to
delete all references to the "Consummation Date" and the "Offer." Section
2.04(b) shall be amended to delete clauses (i) and (ii). Section 2.06(a)
shall be amended to delete any reference to "Offer Documents."

SECTION 1.6  Article III of the Restructuring Agreement shall be amended to
delete all references to "Consummation Date," "Offer" and "Offer Documents."
A new section 3.06 shall be added to Article III as follows:

         Section 3.06  Adequate Disclosure. The information reviewed by and
supplied to Holder with respect to the transaction contemplated under the
Purchase Offer and the Plan has been in all respect sufficient and adequate
to enable Holders to make an informed judgment concerning their support and
approval of the Purchase Offer and the Plan. Holders have been extensively
and adequately involved in the review and negotiation of the Purchase Offer
and the treatment of claims and interests in the Plan. Notwithstanding the
foregoing, this representation shall not constitute a waiver of, nor limit in
any way the Holders' right to require the fulfillment of the conditions
specified in Section 1.04.

SECTION 1.7  Article IV of the Restructuring Agreement is hereby amended to
delete all references to "Consummation Date."

SECTION 1.8  Article V of the Restructuring Agreement is hereby amended to
delete Sections 5.01 and 5.02 in their entirety. Section 5.03 is amended to
delete any reference to "Offer."

SECTION 1.9  Section 6.01 of the Restructuring Agreement is amended and
restated to read in its entirety as follows:

         6.01  Termination. In addition to the other terms and provisions of
this Agreement, this Agreement may be terminated, and the transactions
contemplated hereby may be abandoned:

         (a)      By mutual written agreement of the parties hereto;

         (b)      By either the Company or the Holders upon notification to the
                  non-terminating party by the terminating party:

                  (i)      if the Bankruptcy Court enters an order denying
                           confirmation of the Plan and such order shall have
                           become final and non-appealable;

                  (ii)     upon the election by the Board of Directors and the
                           Holders to pursue or accept an Alternative Offer; or

                  (iii)    in the event the terminating party elects to support
                           an Alternative Offer which it believes is a Superior
                           Offer which is not supported by the non-terminating
                           party.

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         (c)      By the Holders upon notification to the Company prior to the
                  Confirmation Date:

                  (i)      if there has been a breach of any of the
                           representations, warranties, covenants or agreements
                           on the part of the Company set forth in this
                           Agreement;

                  (ii)     if any condition set forth in Section 1.04 of this
                           Agreement is not satisfied as of the date required
                           thereunder, or the Holders reasonably determine that
                           it is not possible for such condition to be satisfied
                           on or prior to such date; or

                  (iii)    if, at any time prior to the Confirmation Date, the
                           Company's senior bank creditors (x) cease to agree to
                           forbear from, or require the payment of any fee in
                           excess of their customary and usual fee for such a
                           forbearance or the modification of any material term
                           of the facility in any way adverse to the Company, in
                           either case, as a condition to their agreeing to
                           continue to forbear from, (1) accelerating the
                           indebtedness owing to them by the Company and/or (2)
                           exercising any of their remedies in respect thereof
                           or (y) take any of the actions described in clauses
                           (1) or (2) immediately above.

SECTION 1.10  Article VII of the Restructuring Agreement is amended to delete
all references to "Offer," and "Consummation Date." Section 7.01 is amended
to delete the reference to Section 5.01.

SECTION 1.11  All Schedules to the Restructuring Agreement are deleted and
the Term Sheet is substituted therefore as Exhibit A to the Restructuring
Agreement.

SECTION 1.12  Capitalized terms used herein and not otherwise defined shall
have the meaning ascribed to such terms in the Restructuring Agreement.

SECTION 1.13  Except as expressly amended by this Agreement, the
Restructuring Agreement is hereby ratified and confirmed in all respects.

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         IN WITNESS WHEREOF, each party hereto has caused this Agreement to be
signed by its officer thereunto duly authorized as of the date first above
written.

                                            HY I INVESTMENTS, L.L.C.

Dated:  ________________                    By:_________________________
                                                 Name:
                                                 Title:

                                            THOSE INVESTMENTS FUNDS THAT ARE
                                            MANAGED BY BENNETT MANAGEMENT
                                            CORPORATION AND ITS AFFILIATED
                                            ENTITIES AND THAT ARE HOLDERS OF
                                            OLD NOTES

                                            By:  BENNETT MANAGEMENT CORPORATION

Dated:  ________________                    By:_________________________
                                                 Name:
                                                 Title:

                                            PENTACON, INC.

Dated:  ________________                    By:_________________________
                                                 Name:
                                                 Title:

                                       7Exhibit 4.3

POLYCOM, INC. 1996 STOCK
INCENTIVE PLAN

(AS AMENDED THROUGH MAY
21, 2002)

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

ARTICLE
ONE

GENERAL PROVISIONS

I.              PURPOSE
OF THE PLAN

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

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

II.            STRUCTURE
OF THE PLAN

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

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

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

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

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

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

III.           ADMINISTRATION
OF THE PLAN

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

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

 

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

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

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

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

IV.           ELIGIBILITY

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

(i)    Employees,

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

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

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

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

D.    The individuals
eligible to participate in the Automatic Option Grant Program shall be limited
to (i) those individuals serving as non-employee Board members on the
Underwriting Date, (ii) those individuals who first become non-employee Board
members after the Underwriting Date, whether through appointment by the Board
or election by the Corporation’s stockholders, and (iii) those individuals who
continue to serve as non-employee Board members through one or more Annual
Stockholders Meetings held after the Underwriting Date. A non-employee Board
member shall not be eligible to receive an initial option grant under the
Automatic Option Grant Program on the Underwriting 

 

 

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Date if such individual has previously been in the
employ of the Corporation (or any Parent or Subsidiary) or has otherwise
received a prior stock option grant from the Corporation. A non-employee Board
member who first joins the Board after the Underwriting Date shall not be
eligible to receive an initial option grant under the Automatic Option Grant
Program if such individual has previously been in the employ of the Corporation
(or any Parent or Subsidiary). Non-employee Board members who have previously
been in the employ of the Corporation (or any Parent or Subsidiary) or who have
previously received a stock option grant from the Corporation shall, however,
be eligible to receive one or more annual option grants under the Automatic
Option Grant Program over their period of continued Board service.

V.            STOCK
SUBJECT TO THE PLAN

A.    The
stock issuable under the Plan shall be shares of authorized but unissued or
reacquired Common Stock, including shares repurchased by the Corporation on the
open market. The maximum number of shares of Common Stock which may be issued
over the term of the Plan shall not exceed approximately 21,250,000 shares.

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

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

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

ARTICLE TWO

DISCRETIONARY OPTION GRANT PROGRAM

I.              OPTION TERMS

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

 

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A.    EXERCISE
PRICE.

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

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

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

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

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

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

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

C.    EFFECT OF
TERMINATION OF SERVICE.

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

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

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

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

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

 

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

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

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

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

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

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

II.            INCENTIVE OPTIONS

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

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

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

C.    10%
STOCKHOLDER. If any Employee to whom an Incentive Option is granted is a 10%
Stockholder, then the exercise price per share shall not be less than one
hundred ten percent (110%) of the Fair Market Value per 

 

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share of Common Stock on the option grant date, and
the option term shall not exceed five (5) years measured from the option grant
date.

III.           CORPORATE TRANSACTION/CHANGE IN
CONTROL

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

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

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

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

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

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

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

 

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such Involuntary Termination shall immediately
terminate in whole or in part, and the shares subject to those terminated
rights shall accordingly vest.

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

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

IV.           CANCELLATION AND REGRANT OF OPTIONS

The Plan Administrator shall have the authority to
effect, at any time, and from time to time, with the consent of the affected
option holders the cancellation of any or all outstanding options under the
Discretionary Option Grant Program (including outstanding options incorporated
from the Predecessor Plan) and to grant in substitution new options covering
the same or different number of shares of Common Stock but with an exercise
price per share based on the Fair Market Value per share of Common Stock on the
new grant date.  However, any repricing
of stock options, effected either by reducing the exercise price of outstanding
options or canceling outstanding options and granting replacement options with
a lower exercise price, shall require the approval of the holders of a majority
of the Corporation’s voting shares, with the sole exception of that certain
exchange offer to be commenced as soon as is reasonably practicable following
May 17, 2001, pursuant to which holders of options to purchase a maximum of
6,500,000 shares of the Corporation’s Common Stock, shall be offered the
opportunity to elect to cancel such options (the “Cancelled Options”), in
exchange for the grant of replacement options to purchase 0.85 shares of the
Corporation’s Common Stock for each share under the Cancelled Options (the
“Replacement Options”), with such Replacement Options to be granted no less
than six months and one day following the cancellation of the Cancelled
Options, at a price equal to the fair market value of the Corporation’s Common
Stock on such date of grant. Each Replacement Option will have a term equal to
the lesser of (i) the remaining term of the Cancelled Option, or (ii) seven (7)
years. The vesting commencement date and vesting schedule for each Replacement
Option will be the same as for the Cancelled Option which it replaces, subject
to adjustment for any shares previously exercised. Executive Officers and
Directors of the Corporation shall not participate in this exchange offer, and
this exchange offer will be structured so that the Corporation avoids incurring
financial accounting charges.

V.            STOCK APPRECIATION RIGHTS

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

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

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

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

 

-7-

 

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

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

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

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

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

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

ARTICLE
THREE

STOCK ISSUANCE PROGRAM

I.              STOCK ISSUANCE TERMS

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

A.    PURCHASE
PRICE.

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

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

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

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

 

-8-

 

B.    VESTING
PROVISIONS.

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

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

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

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

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

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

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

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

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

II.            CORPORATE
TRANSACTION/CHANGE IN CONTROL

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

B.    The Plan
Administrator shall have the discretionary authority, exercisable either at the
time the unvested shares are issued or any time while the Corporation’s
repurchase/cancellation rights remain outstanding under the Stock Issuance
Program, to provide that those rights shall automatically terminate in whole or
in part, and the shares of 

 

-9-

 

Common Stock subject to those terminated rights shall
immediately vest, in the event the Participant’s Service should subsequently
terminate by reason of an Involuntary Termination within a designated period
(not to exceed twelve (12) months) following the effective date of any
Corporate Transaction in which those repurchase/cancellation rights are
assigned to the successor corporation (or parent thereof).

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

III.           SHARE ESCROW/LEGENDS

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

ARTICLE
FOUR

AUTOMATIC OPTION GRANT PROGRAM

I.              OPTION TERMS

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

(i)    On the date of each Annual Stockholders
Meeting held after October 26, 1999, each non-employee member of the Board
who is to continue to serve on the Board (an “Eligible Director”), whether or
not that Eligible Director is standing for re-election to the Board at that
particular Annual Meeting, shall automatically be granted a Non-Statutory
Option to purchase an amount equal to 30,000 shares of Common Stock.  There shall be no limit on the number of such
option grants any one Eligible Director may receive over his or her period of
Board service, and Eligible Directors who have previously been in the employ of
the Corporation (or any Parent or Subsidiary) or who have otherwise received a
stock option grant from the Corporation shall be eligible to receive such
option grants over their period of continued Board service.  Each individual serving as a non-employee
Board member shall, upon the date such individual joins the Board of Directors,
be automatically granted on such date a non-statutory option to purchase 30,000
shares if joining between January 27, 1999 and May 17, 2001 or 60,000 shares if
joining on or after May 17, 2001 (a “Primary Grant”), provided such individual
(i) had not previously been in the employ of the Corporation (or any parent or
Subsidiary) and (ii) had not otherwise received a prior stock option grant from
the Corporation.

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

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

 

-10-

 

Annual Shareholders Meeting and grants of
Non-Statutory Options to purchase 7,500 shares of Common Stock on the next
three (3) three (3) month anniversaries following each applicable Annual
Shareholders Meeting.  The automatic
annual grant of 30,000 shares of Common Stock is intended to replace these
previous automatic quarterly grants.

B.    EXERCISE
PRICE.

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

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

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

D.    EXERCISE
AND VESTING OF OPTIONS.  Automatic
option grants made on the date of each Annual Stockholders Meeting held on or
after May 17, 2001 shall vest and become exercisable in a series of four (4)
successive equal annual installments over the Optionee’s period of continued
service as a Board member, with the first such installment to vest upon the
Optionee’s completion of one (1) year of Board service measured from the option
grant date.  Automatic option grants
made on the date of each Annual Stockholders Meeting held on or after
October 26, 1999 and prior to May 17, 2001 shall vest and become
exercisable on the first anniversary of their grant date, provided the Optionee
remains a Board member on such date. 
Each Interim Option shall vest and become exercisable on the first
anniversary of the 1999 Annual Shareholders Meeting, provided the Optionee
remains a Board member on such date. Each option granted on or after January
26, 1999 and on or before October 26, 1999 shall be fully vested and
immediately exercisable on the option grant date for any or all of the option
shares.  Any shares purchased under an
option granted prior to January 26, 1999 shall be subject to repurchase by the
Corporation, at the exercise price paid per share, upon the Optionee’s
cessation of Board service prior to vesting in those shares.  Each Initial Grant and each Primary Grant
shall vest, and the Corporation’s repurchase right shall lapse, in a series of
four (4) successive equal annual installments over the Optionee’s period of
continued service as a Board member, with the first such installment to vest
upon the Optionee’s completion of one (1) year of Board service measured from the
option grant date. With respect to annual share grants made prior to January
26, 1999, such options shall vest, and the Corporation’s repurchase right shall
lapse, in two (2) successive equal annual installments over the Optionee’s
period of continued service as a Board member, with the first such installment
to vest upon the Optionee’s completion of one (1) year of Board service
measured from the option grant date.

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

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

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

 

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

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

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

A.    In the
event of any Corporate Transaction, the shares of Common  Stock at the time subject to each
outstanding option but not otherwise vested shall automatically vest in full so
that each such option shall, immediately prior to the effective date of the
Corporate Transaction, become fully exercisable for all of the shares of Common
Stock at the time subject to such option and may be exercised for all or any
portion of those shares as fully-vested shares of Common Stock. Immediately
following the consummation of the Corporate Transaction, each automatic option
grant shall terminate and cease to be outstanding, except to the extent assumed
by the successor corporation (or parent thereof).

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

C.    Upon the
occurrence of a Hostile Take-Over, the Optionee shall have a thirty (30)-day
period in which to surrender to the Corporation each automatic option held by
him or her. The Optionee shall in return be entitled to a cash distribution from
the Corporation in an amount equal to the excess of (i) the Take-Over Price of
the shares of Common Stock at the time subject to the surrendered option
(whether or not the Optionee is otherwise at the time vested in those shares)
over (ii) the aggregate exercise price payable for such shares. Such cash
distribution shall be paid within five (5) days following the surrender of the
option to the Corporation.

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

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

III.           REMAINING TERMS

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

 

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ARTICLE
FIVE

MISCELLANEOUS

I.              FINANCING

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

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

II.    TAX
WITHHOLDING

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

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

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

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

III.   EFFECTIVE
DATE AND TERM OF THE PLAN

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

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

 

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

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

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

IV.   AMENDMENT
OF THE PLAN

A.    The Board
shall have complete and exclusive power and authority to amend or modify the
Plan in any or all respects. However, no such amendment or modification shall
adversely affect any rights and obligations with respect to options, stock
appreciation rights or unvested stock issuances at the time outstanding under
the Plan unless the Optionee or the Participant consents to such amendment or
modification. In addition, certain amendments may require stockholder approval
pursuant to applicable laws or regulations. 
Notwithstanding the foregoing, the approval of the holders of not less
than a majority of the outstanding common stock of the Corporation entitled to
vote shall be required to take the following actions:

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

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

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

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

V.            USE OF PROCEEDS

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

 

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VI.           REGULATORY APPROVALS

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

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

VII.          NO EMPLOYMENT/SERVICE RIGHTS

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

 

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APPENDIX

The following
definitions shall be in effect under the Plan:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

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

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

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

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

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

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

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

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

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

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

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

P.             MISCONDUCT
shall mean the commission of any act of fraud, embezzlement or dishonesty by
the Optionee or Participant, any unauthorized use or disclosure by such person
of confidential information or trade secrets of the Corporation (or any Parent
or Subsidiary), or any other intentional misconduct by such person adversely
affecting the business or affairs of the Corporation (or any Parent or
Subsidiary) in a material manner. The foregoing definition shall 

 

-17-

 

not be deemed to be inclusive of all the acts or
omissions which the Corporation (or any Parent or Subsidiary) may consider as
grounds for the dismissal or discharge of any Optionee, Participant or other
person in the Service of the Corporation (or any Parent or Subsidiary).

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

-18-

 

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

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

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

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

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

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

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

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

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

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

 

-19-

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