Document:

Exhibit 10.08

 

VALERO ENERGY CORPORATION

 

NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN

 

Adopted April 23, 1997,

as amended and restated through

December 31, 2004

 

 

	
  NON-EMPLOYEE
  DIRECTOR STOCK OPTION PLAN

  
	
   

  
	
  TABLE OF CONTENTS

  
	
   

  	
   

  	
   

  
	
  1.

  	
  Purpose and Effective Date

  	
   

  
	
   

  	
   

  	
   

  
	
  2.

  	
  Administration

  	
   

  
	
   

  	
   

  	
   

  
	
  3.

  	
  Option Shares

  	
   

  
	
   

  	
   

  	
   

  
	
  4.

  	
  Grant
  of Options

  	
   

  
	
   

  	
   

  	
   

  
	
  5.

  	
  Certain
  Options Granted Under Prior VEC Non-Employee Director Stock Option Plan

  	
   

  
	
   

  	
   

  	
   

  
	
  6.

  	
  Eligibility

  	
   

  
	
   

  	
   

  	
   

  
	
  7.

  	
  Option Price

  	
   

  
	
   

  	
   

  	
   

  
	
  8.

  	
  Duration
  of Options

  	
   

  
	
   

  	
   

  	
   

  
	
  9.

  	
  Amount
  Exercisable

  	
   

  
	
   

  	
   

  	
   

  
	
  10.

  	
  Exercise
  of Options

  	
   

  
	
   

  	
   

  	
   

  
	
  11.

  	
  Transferability of
  Options

  	
   

  
	
   

  	
   

  	
   

  
	
  12.

  	
  Forfeitures

  	
   

  
	
   

  	
   

  	
   

  
	
  13.

  	
  Requirements of
  Laws and Regulations

  	
   

  
	
   

  	
   

  	
   

  
	
  14.

  	
  No Rights as Stockholder

  	
   

  
	
   

  	
   

  	
   

  
	
  15.

  	
  No Obligation to
  Retain Optionee

  	
   

  
	
   

  	
   

  	
   

  
	
  16.

  	
  Changes in
  the Company’s Capital Structure

  	
   

  
	
   

  	
   

  	
   

  
	
  17.

  	
  Amendment or
  Termination of Plan

  	
   

  
	
   

  	
   

  	
   

  
	
  18.

  	
  Written
  Agreement

  	
   

  

 

i

 

NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN

 

1.             Purpose and Effective Date.  The
Non-Employee Director Stock Option Plan (the “Plan”) of Valero Energy
Corporation (formerly known as “Valero Refining and Marketing Company”), a
Delaware corporation (the “Company”), is for the benefit of members of the
board of directors of the Company who, at the time of their service, are not
employees of the Company or any of its subsidiaries (“Non-Employee Directors”),
but are persons who have made or are expected to make a significant
contribution to the continued growth of the Company by providing them with an
additional incentive through an increase in their proprietary interest in the
success of the Company, thereby encouraging them to continue in their present
capacity.  The Effective Date of the Plan
(“Effective Date”) is July 31, 1997. 
No Options shall be granted pursuant to the Plan after April 23,
2007.

 

2.             Administration.  (a)  Except as otherwise set forth herein, the
Plan shall be administered by the Compensation Committee (“Committee”) as
appointed and constituted from time to time by the Board of Directors of the
Company.  If the Committee is not
composed solely of two or more “Non-Employee Directors” (as defined in
Rule 16b-3 under the Exchange Act) of the Company, then such additional or
different persons shall be appointed by the Board of Directors to act for
purposes of administering this Plan so that the committee administering this
Plan shall be composed solely of two or more “Non-Employee Directors.”

 

(b)           In connection with its
administration of this Plan, the Committee is empowered to:

 

(i)            Make
rules and regulations for the administration of the Plan which are not
inconsistent with the terms and provisions of this Plan;

 

(ii)           Construe
all terms, provisions, conditions and limitations of the Plan in good faith,
and adopt amendments to the Plan;

 

(iii)          Make
equitable adjustments for any mistakes or errors in the administration of this
Plan or deemed to be necessary as the result of any unusual situation or any
ambiguity in the Plan;

 

(iv)          Select,
employ and compensate, from time to time, consultants, accountants, attorneys
and other agents and employees as the Committee may deem necessary or advisable
for the proper and efficient administration of the Plan.

 

(c)           The foregoing list of
express powers granted to the Committee upon the adoption of this Plan is not
necessarily intended to be either complete or exclusive, and the Committee
shall, in addition to the specific powers granted by this Plan, have such
powers not inconsistent with the Plan or Rule 16b-3, whether or not expressly
authorized herein, which it may deem necessary, desirable, advisable, proper,
convenient or appropriate for the supervision and administration of this
Plan.  Except as otherwise specifically
provided herein , the decisions and judgment of the Committee on any question
or claim arising hereunder shall be final, binding and conclusive upon the
Participants and all persons claiming by, through or under a Participant.

 

(d)           Notwithstanding the
foregoing, the Committee shall have no authority to exercise discretion with
respect to the selection of any Non-Employee Director as a Participant in the Plan,
the determination of the number of options (“Options”) that are allocated to
any such Non-Employee Director or the terms or conditions of any such
allocation, and shall have no authority to amend any provision of the Plan
relating to eligibility for participation in the Plan, the amount or timing of
grants under the Plan or the imposition or removal of restrictions on the
vesting of Options.

 

1

 

3.             Option Shares.  The
stock subject to the Options and other provisions of the Plan shall be shares
of the Company’s Common Stock, $0.01 par value (the “Common Stock”).  The total amount of the Common Stock with
respect to which Options may be granted shall not exceed in the aggregate
200,000 shares.  The class and aggregate
number of shares which may be subject to the Options granted under this Plan
shall be subject to adjustment under Section 15.  The shares issued upon the exercise of
Options may be treasury shares or authorized but unissued shares.  If an outstanding Option expires or is
terminated for any reason, the shares of Common Stock allocable to the
unexercised portion of that Option may again be subject to an Option under the
Plan.

 

4.             Grant of Options.

 

(a)           Directors on
the Effective Date of this Plan. 
For so long as this Plan is in effect and shares are available for the
grant of Options hereunder, on the date of the annual meeting of directors each
year beginning in 1998 (the “Annual Meeting”), there shall be granted to each
person who is a Non-Employee Director on both the
Effective Date of this Plan and on the date of such Annual Meeting, an Option
to purchase 1,000 shares of Common Stock at a per share Option Price equal to
the fair market value of a share of the Company’s Common Stock on such date
(such number of shares being subject to the adjustments provided in Section 15
of this Plan).

 

(b)  Directors
Elected after the Effective Date of this Plan.

 

(i) 
For so long as this Plan is in effect and shares are available for the
grant of Options hereunder, each person who shall first become a Non-Employee
Director after the Effective Date of this Plan shall be granted, on the date of
his or her election, an Option to purchase 5,000 shares of Common Stock at a
per share Option Price equal to the Fair Market Value (as defined in
Section 7 below) of a share of Common Stock on such date (such number of
shares being subject to the adjustments provided in Section 15 of this Plan).

 

(ii) 
For so long as this Plan is in effect and shares are available for the
grant of Options hereunder, at the Annual Meeting each year beginning in the
year after the year of his or her first election as a Non-Employee Director,
there shall be granted to each person who shall become a Non-Employee Director
after the Effective Date of this Plan, and is continuing as a Non-Employee
Director on the date of such Annual Meeting, an Option to purchase 2,500 shares
of Common Stock at a per share Option Price equal to the Fair Market Value (as
defined in Section 7 below) of a share of Common Stock on such date (such
number of shares being subject to the adjustments provided in Section 15 of
this Plan).

 

5.             Certain
Options Granted Under Prior VEC Non-Employee Director Stock Option Plan.  Pursuant to the terms of the Plan and
Agreement of Merger dated January 31, 1997, among Valero Energy Corporation
(subsequently renamed “PG&E Gas Transmission, Texas Corporation”)
(hereafter “GTT”), PG&E Corporation and PG&E Acquisition Corporation,
the Employee Benefits Agreement dated as of July 31, 1997 (the “EBA”),
between GTT and the Company, and the GTT Non-Employee Director Stock Option
Plan (the “GTT NEDSOP”), certain stock options previously awarded by GTT under
the GTT NEDSOP will be automatically converted at the Time of Distribution (as
defined in the Agreement and Plan of Distribution dated July 30, 1997, between
GTT and the Company) into Options to purchase shares under this Plan.  Each such GTT option that is outstanding and
unexercised immediately prior to the Time of Distribution and is held by a
person who, immediately before the Time of Distribution, is a Non-Employee
Director, or their respective beneficiaries and dependents, shall be converted
in accordance with the EBA into Options to purchase shares under this Plan.  Each such GTT option eligible to be replaced
by an Option under this Plan shall be replaced with an Option with respect to a
number of shares equal to the number of shares of the common stock, $1.00 par
value per share, of GTT (“GTT Common Stock”) subject to such GTT option
immediately before such replacement, multiplied by the Ratio, rounded up to the

 

2

 

nearest whole share as
necessary, and having a per-share exercise price equal to the per-share
exercise price of such GTT option immediately before such replacement, divided
by the Ratio (rounded down to the nearest whole cent as necessary).  The other terms and conditions of any such
GTT option, including the vesting and termination dates thereof, shall remain
unchanged, except as may be necessary to conform to the provisions of the Plan
or as otherwise may be determined by the Committee.  For purposes of this Plan, “Ratio” shall mean
the amount obtained by dividing the average of the daily high and low trading
prices per share of GTT Common Stock as reported on the New York Stock Exchange
(“NYSE”) Composite Tape (the “NYSE Tape”) on each of the last 15 consecutive
full NYSE trading days (the “Averaging Period”) ending on and including the
trading day preceding the Distribution Date (as defined in the Plan and
Agreement of Distribution, between GTT and the Company) (the “Company Price”)
by the difference between (a) the Company Price and (b) the product of (1) the
Per Share Merger Consideration (as defined in the Plan and Agreement of Merger,
among GTT, PG&E Corporation and PG&E Acquisition Corporation (the “Merger
Agreement”)) and (2) the average of the daily high and low prices per share of
the Acquiror Common Stock (as defined in the Merger Agreement) as reported on
the NYSE Tape during the Averaging Period.

 

6.             Eligibility.  The individuals who shall be eligible to
participate in the Plan shall be those individuals who are members of the Board
of Directors of the Company who, at the time of a grant hereunder, are not
employees of the Company or an Affiliate (as defined in Section 11 below).  An employee-director who retires from
employment with the Company or an Affiliate shall be (without further action by
the Committee) eligible to participate in the Plan and shall be entitled to
receive the Option grants described in Section 4(b) immediately upon
commencement of his or her service as a Non-Employee Director.

 

7.             Option Price.  The price at which a share subject to an
Option may be purchased pursuant to an Option granted under this Plan (the “Option
Price”) shall be its Fair Market Value on the date the Option is granted.  The “Fair Market Value” of a share of Common
Stock shall be the average of the “high” and “low” sales prices of a share of
Common Stock on that date as reported by the principal national securities
exchange on which the Common Stock is listed if the Common Stock is listed on a
national securities exchange, or the average of the bid and asked price of a
share of Common Stock on that date as reported in the NASDAQ listing if the
Common Stock is not listed on a national securities exchange.  If no closing price or quotes are reported on
that date or if, in the discretion of the Committee, another means of
determining the Fair Market Value of a share of stock on that date is necessary
or advisable, the Committee may provide for another means for determining the
Fair Market Value.

 

8.             Duration of Options.  No Option shall be exercisable after the
expiration of 10 years from the date the Option is granted.

 

9.             Amount Exercisable.

 

9A.   All initial Options granted
pursuant to Sections 4(a)(i) and 4(b)(i) shall vest and become exercisable as
follows:

 

(a)           On the first
anniversary of the date the Option was granted (the “Date of Grant”), the
Option may be exercised with respect to up to one-third of the shares subject
to the Option;

 

(b)           After each succeeding
anniversary of the Date of Grant, the Option may be exercised with respect to
up to an additional one-third of the shares subject to the Option, so that
after the expiration of the third anniversary of the Date of Grant the Option
shall be exercisable in full.

 

3

 

9B.   Each subsequent Option
granted pursuant to Section 4(b)(ii) may be exercised, so long as it is valid and
outstanding, from time to time in part or as a whole, after the expiration of
six months following the date of grant.

 

9C.   Notwithstanding the
preceding provisions of this Section 9, if a Non-Employee Director shall
be retired in good standing from the Board of Directors for reason of age or
disability under the then established rules of the Company, all Options not
already vested shall become fully vested and immediately exercisable by the
retiring Non-Employee Director.

 

9D.   (a)  In the event of any Change of Control, each
Option granted under this Plan, not theretofore forfeited or terminated and
held as of the date of a Change of Control shall upon occurrence of the Change
of Control immediately become vested or exercisable with respect to all of the
shares granted thereunder and will remain exercisable for the remainder of the
original term of the Option.

 

(b)           A “Change of
Control” shall be deemed to occur when:

 

(i)            the
stockholders of the Company approve any agreement or transaction pursuant to
which:  (A) the Company will merge
or consolidate with any other entity (other than a wholly owned subsidiary of
the Company) and will not be the surviving entity (or in which the Company
survives only as the subsidiary of another entity); (B) the Company will sell
all or substantially all of its assets to any other entity (other than a wholly
owned subsidiary of the Company); or (C) the Company will be liquidated or
dissolved; or

 

(ii)           any
“person” or “group” (as these terms are used in Section 13(d) and 14(d) of the
Exchange Act) other than the Company, any subsidiary of the Company, any
employee benefit plan of the Company or its subsidiaries, or any entity holding
Common Stock for or pursuant to the terms of such employee benefit plans, is or
becomes an “Acquiring Person” as defined in the Rights Agreement dated
June 18, 1997 (“Rights Agreement”) between the Company and Harris Trust
and Savings Bank (or any successor Rights Agreement) (or, if no Rights
Agreement is then in effect, such person or group acquires or holds such number
of shares as, under the terms and conditions of the most recent such Rights
Agreement to be in force and effect, would have caused such person or group to
be an “Acquiring Person” thereunder); or

 

(iii)          any
“person” or “group” shall commence a tender offer or exchange offer for 30% or
more of the shares of Common Stock then outstanding, or for any number or
amount of shares which, if the tender or exchange offer were to be fully
subscribed and all shares for which the tender or exchange offer is made were
to be purchased or exchanged pursuant to the offer, would result in the
acquiring person or group directly or indirectly beneficially owning 50% or
more of the shares of Common Stock then outstanding; or

 

(iv)          individuals
who, as of any date, constitute the Board (the “Incumbent Board”) thereafter
cease for any reason to constitute at least a majority of the Board; provided,
however, that any individual becoming a director whose election, or nomination
for election by the Company’s stockholders, was approved by a vote of at least
a majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a person or group other than
the Board; or

 

(v)           the
occurrence of the Distribution Date (as defined in the Rights Agreement); or

 

4

 

(vi)          any
other event determined by the Board or the Committee to constitute a “Change of
Control” hereunder.

 

10.           Exercise of Options.

 

(a)           Unless otherwise
prescribed by the Committee, Options may be exercised only by written notice of
exercise (the “Exercise Notice”), in the form prescribed by the Committee,
delivered to the Company to the Stock Option Plan administrator, and signed by
the Participant or other person acting on behalf of the Participant.  The date on which the Exercise Notice is
delivered to the Company shall be the “Notice Date.”  The Exercise Notice shall specify a date (the
“Settlement Date”), not less than five business days nor more than ten business
days following the Notice Date, upon which the shares or other rights shall be
issued or transferred to the Participant (or other person entitled to exercise
the Option) and the Option’s exercise price shall be paid to the Company.

 

(b)           Unless otherwise
prescribed by the Committee, on the Settlement Date, the person exercising an
Option shall tender to the Company full payment for the shares or other rights
with respect to which the Award is exercised, together with an additional
amount, in cash, certified check, cashier’s check or bank draft approved by the
Company, equal to the amount of any taxes required to be collected or withheld
by the Company in connection with the exercise of the Option (the “Tax Payment”).

 

(c)           Subject to any rules
and limitations as the Committee may adopt, a person exercising an Option may
make the Tax Payment in whole or in part by electing, at or before this time of
exercise of the Option, either (i) to have the Company withhold from the number
of shares otherwise deliverable a number of shares whose value equals the Tax
Payment, or (ii) to deliver certificates for other shares owned by the person
exercising the Option, endorsed in blank with appropriate signature guarantee,
having a value equal to the amount otherwise to be collected or withheld.  If the Committee shall fail to disapprove the
election prior to the Settlement Date, the election will be deemed approved.

 

(d)           Subject to any rules
and limitations as the Committee may adopt or as may be set forth in any
written stock option agreement signed by the Company, a person exercising an
Option for the receipt of shares may pay for the shares with other shares of
Company Common Stock legally and beneficially owned by that person at the time
of the exercise of the Options.

 

(e)           Any calculation with
respect to a participant’s income, required tax withholding or other matters
required to be made by the Company upon the exercise of an Option shall be made
using the Fair Market Value of the shares of Common Stock on the Notice Date,
whether or not the Exercise Notice is delivered to the Company before or after
the close of trading on that date, unless otherwise specified by the Committee.  Notwithstanding the foregoing, for Option
exercises using the Company’s “same-day-sale for cash
method” or “broker sale for stock
method,” a Participant’s taxable gain and related tax withholding on
the exercise will be calculated using the actual market price at which Shares
were sold in the transaction.

 

11.           Transferability of Options.  Without prior written approval from the
Committee, Options shall not be transferable by the optionee except by will or
under the laws of descent and distribution, and shall be exercisable, during the
optionee’s lifetime, only by the optionee.

 

5

 

12.           Forfeitures.  Notwithstanding any other provision of this
Plan, if the Committee finds by a majority vote, that the optionee, before or
after termination of his capacity as a Non-Employee Director of the Company or
any subsidiary corporation, limited partnership or other entity controlling, or
controlled by, or under common control with the Company (an “Affiliate”),
committed fraud, embezzlement, theft, commission of felony, or proven
dishonesty in the course of his relationship to the Company and/or its
Affiliates which conduct damaged the Company or its Affiliates, or disclosed
trade secrets of the Company or its Affiliates, then any outstanding Options which
have not been exercised by optionee shall be forfeited.  The decision of the Committee will be final.

 

13.           Requirements
of Laws and Regulations.  The Company shall not be
required to sell or issue any shares under any Option if issuing the shares
shall constitute a violation by the optionee or the Company of any provisions
of any law or regulation of any governmental authority.  Notwithstanding anything to the contrary
contained in this Plan or any agreement entered into hereunder, any Option
Agreement or other agreement entered into under this Plan and any grant made
under this Plan shall be conditional and shall be entered into or granted, as
the case may be, subject to acceptance of the option shares for listing on the
NYSE.  Each Option granted under this
Plan shall be subject to the requirements that, if at any time the Company or
the Committee shall determine that the listing, registration or qualification
of the shares upon any securities exchange or under any state or federal law of
the United states or of any other country or governmental subdivision, or the
consent or approval of any governmental regulatory body, or investment or other
representations, are necessary or desirable in connection with the issue or
purchase of shares subject to an Option, that Option shall not be exercised in
whole or in part unless the listing, registration, qualification, consent,
approval or representations shall have been effected or obtained free of any
conditions not acceptable to the Company. 
Any determination in this connection by the Committee shall be
final.  If the shares issuable on
exercise of an Option are not registered under the Securities Act of 1933, the
Company may imprint on the certificate for those shares the following legend or
any other legend which counsel for the Company considers necessary or advisable
to comply with the Securities Act of 1933 or other applicable state or federal
securities laws or regulations:

 

“The shares of stock represented by this certificate have not been
registered under the Securities Act of 1933 or under the securities laws of any
state and may not be sold or transferred except upon registration or upon
receipt by the Company of an opinion of counsel satisfactory to the Company, in
form and substance satisfactory to the Company, that registration is not
required for a sale or transfer.”

 

The Company will endeavor to register any securities covered by this
Plan under the Securities Act of 1933 (as now in effect or as later amended)
and, if any shares are registered, the Company may remove any legend on
certificates representing those shares. 
The Company shall not be obligated to take any other affirmative action
in order to cause the exercise of an Option or the issuance of shares under the
Option to comply with any law or regulation or any governmental authority.

 

14.           No Rights as Stockholder.  No optionee shall have rights as a
stockholder with respect to shares covered by his Option until the date a stock
certificate is issued for the shares. 
Except as provided in Section 15, no adjustment for dividends, or
other matters shall be made if the record date is prior to the date the
certificate is issued.

 

15.           No
Obligation to Retain Optionee. 
The granting of any Option shall not impose upon the Company or any of
its subsidiaries any obligation to retain or continue to retain any optionee in
his capacity as a Non-Employee Director. 
The right of the Company, the directors or the stockholders of the
Company or of any subsidiary of the Company to terminate any optionee shall not
be diminished or affected by reason of the fact that one or more Options have
been or will be granted to him.

 

6

 

16.           Changes in
the Company’s Capital Structure. 
The existence of outstanding Options shall not affect in any way the
right or power of the Company or its stockholders to make or authorize any or
all adjustments, recapitalization, reorganization or other changes in the
Company’s capital structure or its business, or any merger or consolidation of
the Company, or any issue of bonds, debentures, preferred or prior preference
stock ahead of or affecting the Common Stock or the rights of the Common Stock,
or the dissolution or liquidation of the Company, or any sale or transfer of
all or any part of its assets or business, or any other corporate act or
proceeding, whether of a similar character or otherwise.

 

If all or any portion of an Option is exercised subsequent to any stock
dividend, rights distribution, split-up, recapitalization, exchange of shares,
merger, spin-off, reorganization or liquidation (“Reorganization Event”), as a
result of which securities of any class or rights shall be issued in respect of
outstanding shares of Common Stock or shares of Common Stock shall be changed
into the same or a different number of shares of the same or another class of
other securities, the person so exercising such Option shall receive, for the
aggregate price payable upon the exercise of such Option, (i) the
aggregate number and class of shares, rights or other securities for which a
recognized market exists, and (ii) a cash amount equal to the fair market
value on such date, as reasonably determined by the Committee, of any other
property (other than regular cash dividend payments) and of any shares, rights
or other securities for which no recognized market exists, which, if shares of
Common Stock (as authorized at the date of the granting of such Option) had
been purchased at the date of granting of the Option for the same aggregate
price (on the basis of the price per share provided in the Option) and had not
been disposed of, such person or persons would be holding at the time of such
exercise as a result of such purchase and any such Reorganization Event;
provided, however, that no fractional share of Common Stock, fractional right
or other fractional security shall be issued upon any such exercise, and the
aggregate price paid shall be appropriately reduced to reflect any fractional
share of Common Stock, fractional right or other fractional security not
issued; and provided further, however, that if the exercise of any Option
subsequent to any Reorganization Event would, pursuant to this Section 15,
require the delivery of shares, rights or other securities which the Company is
not then authorized to issue or which in the sole judgment of the Committee
cannot be issued without undue effort or expense, the person exercising such
Option shall receive, in lieu of such shares, rights or other securities, a
cash payment equal to the fair market value on the Exercise Date, as reasonably
determined by the Committee, of such shares, rights or other securities.  For purposes of applying the provisions of
this Plan, the Preference Share Purchase Rights distributed to stockholders of
record of the Company pursuant to the Rights Agreement, or any successor
rights, shall be deemed not to have been distributed until the Distribution
Date (as defined in the Rights Agreement or any successor agreement).

 

In the event of any change in the number of shares of Common Stock
outstanding resulting from a Reorganization Event, the aggregate number and
class of shares of Common Stock remaining available to be optioned under this
Plan shall be that number and class which a person, to whom an Option had been
granted for all of the available shares of Common Stock under this Plan on the
date preceding such change as provided in Section 3 would be entitled to
receive upon exercise of such Option following such change.  Upon the occurrence of any Reorganization
Event, the Committee shall be entitled (but shall not be required) to determine
that new Option Agreements (or amendments to the existing Option Agreements)
shall be entered into with Participants reflecting such stock dividend or other
event.

 

Except as expressly provided before in this Plan, the issue by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, for cash or property, or for labor or services either
upon direct sale or upon the exercise of rights or warrants to subscribe for
shares, or upon conversion of shares or obligations of the Company convertible
into shares or other securities, shall not affect, and no adjustment by reason
of it shall be made with respect to, the number or price of shares of Common
Stock then subject to outstanding Options.

 

7

 

17.           Amendment or Termination
of Plan.  The Board of
Directors may modify, revise or terminate this Plan at any time.  However, without the further approval of the
holders of at least a majority of the outstanding shares of voting stock, or if
the provisions of the corporate charter, by-laws or applicable state law
prescribe a greater degree of stockholder approval for this action, without the
degree of stockholder approval thus required, the Board of Directors may not
(a) change the aggregate number of shares which may be issued under
Options pursuant to the provisions of this Plan; (b) reduce the Option
Price permitted for options; (c) change the class of persons eligible to
receive options; (d) extend the term during which an Option may be
exercised or the termination date of the Plan; or (e) materially increase
any other benefits accruing to the Non-Employee Directors under the Plan or
materially modify the requirements as to eligibility for participation in the
Plan unless the Board of Directors shall have obtained an opinion of legal
counsel to the effect that stockholder approval of the amendment is not
required by law or the applicable rules and regulations of, or any agreement
with, any national security exchange on which the Common Stock is listed or if
the Common Stock is not listed, the rules and regulations of, or any agreement
with, the National Association of Securities Dealers, Inc., or in order to make
available to the optionee with respect to any Option granted under the Plan,
the benefits of Rule 16b-3 under the Securities Exchange Act of 1934 or
any similar or successor rule.  In
addition, the terms of the Plan relating to the number of shares that may be
subject to an Option, the times at which Options are to be granted, and the
means by which the Option Price for the Options granted is to be determined
shall not be amended more than once every six months, other than to comport
with the changes in the Internal Revenue Code of 1986, the Employee Retirement
Income Security Act or the rules under either of those laws.  All Options granted under this Plan shall be
subject to the terms and provisions of this Plan and any amendment,
modification or revision of this Plan shall be deemed to amend, modify or
revise all Options outstanding under this Plan at the time of the amendment,
modification or revision.

 

18.           Written Agreement.  Each Option granted under this Plan shall be
embodied in a written option agreement, which shall be subject to the terms and
conditions prescribed above, and shall be signed by the optionee and by the
appropriate officer of the Company for and in the name and on behalf of the
Company.  Each option agreement shall
contain any other provisions that the Committee in its discretion shall deem
advisable if they do not conflict with the terms of this Plan.

 

8EXHIBIT 4.1

 

LOCK-UP AGREEMENT

 

WJ
Communications, Inc.

401 River Oaks
Parkway

San Jose, CA
95134

 

Re:          Agreement
and Plan of Merger dated as of January 19, 2005 (as amended, supplemented
or otherwise modified from time to time, the “Agreement”), between WJ
Communications, Inc. (the “Company”), WJ Newco, LLC (“WJ LLC”), Telenexus, Inc.
(“Telenexus”) and Wilfred K. Lau, Richard J. Swanson, Kurt Christensen and
David Fried (“Shareholders” and together with the Company, WJ LLC and
Telenexus, the “Parties”)

 

Ladies and
Gentlemen:

 

1.             In
order to induce the Company to consummate the transactions provided for in the
Agreement, each of the undersigned agrees that it will not, without the Company’s
prior written consent, directly or indirectly, offer, offer to sell, sell,
loan, pledge, grant any rights, contract to sell or grant any option to
purchase or otherwise dispose or transfer (collectively, “Dispose,” or a “Disposition”)
any shares of Company common stock (“Common Stock”) issued or distributed to
the undersigned pursuant to the Agreement except as set forth on Schedule A
with respect to the issuance of Common Stock to the Shareholders at Closing or
deposited into escrow as part of the Escrow Amount, as defined in the Agreement
(the “Closing Consideration Shares”), and Schedule B with respect
to the issuance of Common Stock to the Shareholders as part of the Earnout
Payment, as defined in the Agreement (the “Earnout Payment Shares”).  The Closing Consideration Shares and Earnout
Payment Shares are hereinafter collectively referred to as the “Shares.”

 

2.             The foregoing
restrictions are also expressly intended to preclude the undersigned from
engaging in any hedging or other transaction which is designed to or is
reasonably expected to lead to or result in a Disposition of Shares during the
lock-up periods reflected on the Schedules attached hereto even if such
securities would be Disposed of by someone other than the undersigned.  Such prohibited hedging or other transactions
include without limitation any short sale (whether or not against the box) or
any purchase, sale or grant of any right (including

 

 

without
limitation any put or call option) with respect to any securities that include,
relate to or derive any significant part of their value from the Shares.

 

3.             Each of the
undersigned hereby agrees and consents to the entry of stock transfer
instructions with the Company’s transfer agent against the transfer of the
Shares except those transferred in compliance with this agreement and the
placement of the following legends on the Shares:

 

“THE SECURITIES REPRESENTED HEREBY HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE “ACT”) AND MAY ONLY BE
SOLD OR OTHERWISE TRANSFERRED IF THE HOLDER HEREOF COMPLIES WITH THE ACT AND
APPLICABLE SECURITIES LAWS.

 

TRANSFER OF THE SHARES REPRESENTED BY THIS
CERTIFICATE IS RESTRICTED BY A LOCKUP AGREEMENT.”

 

4.             Each of the
undersigned confirms that they understand that the Parties will rely upon the
representations set forth in this agreement in proceeding with the consummation
of the transactions provided for in the Agreement.  This agreement shall be binding on each of
the undersigned and their respective successors, heirs, personal
representatives and assigns.

 

5.             The
Parties hereto acknowledge and agree that nothing contained herein shall be
construed (a) to preclude or restrict the Disposition of any shares of Company
Common Stock acquired by the undersigned outside of the transactions
contemplated by the Agreement or (b) to preclude or restrict the undersigned from
making a Qualifying Disposition (as defined in the Agreement), as long as the
transferor has received the written agreement of the proposed transferee
(satisfactory in form and substance to the Company) that such transferee will
be bound by, and the shares of Company Common Stock proposed to be transferred
will be subject to, the transfer restrictions of this Lock-Up Agreement.

 

6.             Notwithstanding
any other provision contained herein, the Parties agree that upon a Change in
Control (as hereinafter defined), each of the restrictions, limitations and
covenants against Disposition contained in this Lock-Up Agreement shall lapse
and be without further force or effect with respect to any of the undersigned
provided, if (but only if) the undersigned is also an employee of the Company,
that the undersigned is terminated without Cause or terminates with Good Reason
(each as defined in the respective employment agreement of the undersigned)
within three (3) months following such Change in Control; provided, further, if the members of
senior management of the Company are requested by the acquirors in a Change in
Control to execute a lock-up agreement as part of the transactions leading up
to the Change in Control and such members of senior management actually do execute
such a lock-up agreement, then the undersigned agree to similarly execute that
form of lock-up agreement whereupon this Lock-Up Agreement shall
terminate.  As used herein, “Change in
Control” shall mean the happening of any of the following events:

 

(i)            Any
“Person” or “Group” (as such terms are defined in Section 13(d) of the
Securities Exchange Act of 1934 (the “Exchange Act”) and the rules and
regulations

 

 

promulgated thereunder), other than the
Company or a person that directly or indirectly controls, is controlled by, or
is under common control with, the Company, becomes the “Beneficial Owner”
(within the meaning of Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company, or of any entity resulting from a
merger or consolidation involving the Company, representing more than fifty
percent (50%) of the combined voting power of the then outstanding securities
of the Company or such entity.

 

(ii)           The
consummation of (x) a merger, consolidation or reorganization to which the
Company is a party, whether or not the Company is the Person surviving or
resulting therefrom, or (y) a sale, assignment, lease, conveyance or other
disposition of all or substantially all of the assets of the Company, in one
transaction or a series of related transactions, to any Person other than the
Company, where any such transaction or series of related transactions as is
referred to in clause (x) or clause (y) above in this subparagraph (ii) (singly
or collectively, a “Transaction”) does not otherwise result in a “Change in
Control” pursuant to subparagraph (i) of this definition of “Change in Control”;
provided, however, that no such Transaction shall constitute a “Change in
Control” under this subparagraph (ii) if the Persons who were the stockholders
of the Company immediately before the consummation of such Transaction are the
Beneficial Owners, immediately following the consummation of such Transaction,
of fifty percent (50%) or more of the combined voting power of the then
outstanding voting securities of the Person surviving or resulting from any
merger, consolidation or reorganization referred to in clause (x) above in this
subparagraph (ii) or the Person to whom the assets of the Company are sold,
assigned, leased, conveyed or disposed of in any transaction or series of
related transactions referred in clause (y) above in this subparagraph (ii), in
substantially the same proportions in which such Beneficial Owners held voting
stock in the Company immediately before such Transaction.

 

	
   

  	
  Very truly
  yours,

  
	
   

  	
   

  
	
  Date: January 28,
  2005

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Wilfred K.
  Lau

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Richard J.
  Swanson

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Kurt
  Christensen

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  David Fried

  	
   

  

 

 

SIGNATURE PAGE TO LOCK-UP AGREEMENT

 

 

Schedule A

 

Closing Consideration Shares

 

The Company will issue to the Shareholders
2,333,333 Closing Consideration Shares on the Closing Date.  Notwithstanding that the Shareholders would
otherwise be eligible to Dispose of the Closing Consideration Shares under Rule
144 after the first anniversary of the Closing Date, no individual Shareholder
shall Dispose of more than that number of Closing Consideration Shares
specified in the table below for Q5 through Q10 in any 90-day period after the
first anniversary of the Closing Date, provided, however, that (a) at any time after
the first anniversary of the Closing Date if the Company’s senior management
staff is permitted to register (other than pursuant to a Form S-8 or any
successor form for employee benefit plans) shares of the Company’s Common Stock
for resale in a public offering filed by the Company, the Shareholders shall be
able to include a proportionate number of the Closing Consideration Shares in
that offering based on the total number of shares the senior management staff
is allowed to register at that time, provided, further that if the Shareholders
are unable to or choose not to register all of their Closing Consideration
Shares at that time, then the restrictions in this agreement shall continue
until they expire or no longer apply on their terms; and (b) these restrictions
shall expire 18 months from the first anniversary of the Closing Date, after
which there shall be no restrictions on the Disposition by the Shareholders of
the Closing Consideration Shares except that the Shareholders (acting
collectively) shall not Dispose of more than 1,055,555 Shares in any 90-day
period thereafter.

 

The following table illustrates the foregoing and assumes that the
periods correspond to fiscal quarters, but the periods below shall be
interpreted as 90-day periods and not fiscal quarters.

 

	
   

  	
   

  	
  Period in which Disposition of
  Closing Payment Shares May be Made after the Closing 

  Date and Number of Shares which may be Disposed in such Period

  	
   

  
	
  Name of Seller

  	
   

  	
  Q1-Q4

  	
   

  	
  Q5

  	
   

  	
  Q6

  	
   

  	
  Q7

  	
   

  	
  Q8

  	
   

  	
  Q9

  	
   

  	
  Q10

  	
   

  	
  Q11 and thereafter

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Wilfred K.
  Lau

  	
   

  	
  —

  	
   

  	
  181,722

  	
   

  	
  181,722

  	
   

  	
  181,722

  	
   

  	
  181,722

  	
   

  	
  181,722

  	
   

  	
  181,722

  	
   

  	
  363,443

  	
   

  
	
  Richard J.
  Swanson

  	
   

  	
  —

  	
   

  	
  181,722

  	
   

  	
  181,722

  	
   

  	
  181,722

  	
   

  	
  181,722

  	
   

  	
  181,722

  	
   

  	
  181,722

  	
   

  	
  363,443

  	
   

  
	
  Kurt
  Christensen

  	
   

  	
  —

  	
   

  	
  18,243

  	
   

  	
  18,243

  	
   

  	
  18,243

  	
   

  	
  18,243

  	
   

  	
  18,243

  	
   

  	
  18,243

  	
   

  	
  36,488

  	
   

  
	
  David Fried

  	
   

  	
  —

  	
   

  	
  7,202

  	
   

  	
  7,202

  	
   

  	
  7,202

  	
   

  	
  7,202

  	
   

  	
  7,202

  	
   

  	
  7,202

  	
   

  	
  14,404

  	
   

  

 

 

Schedule B

 

Earnout Payment Shares

 

The Company will issue to the Shareholders Earnout Payment Shares after
the Closing Date to the extent earned by the Shareholders pursuant to the
Agreement and at the time set forth in the Agreement.  Notwithstanding that the Shareholders would
otherwise be eligible to Dispose of the Earnout Payment Shares under Rule 144,
no individual Shareholder shall Dispose of more than one sixth of the Earnout
Payment Shares distributed to him in any 90-day period after such shares are
earned by and issued to the Shareholders, provided, however, that (a) at any
time after the Earnout Payment Shares are earned by and issued to the Shareholders,
if the Company’s senior management staff is permitted to register (other than
pursuant to a Form S-8 or any successor form for employee benefit plans) shares
of the Company’s Common Stock for resale in a public offering filed by the
Company, the Shareholders shall be able to include a proportionate number of
the Earnout Payment Shares in that offering based on the total number of shares
the senior management staff is allowed to register at that time, provided,
further that if the Shareholders are unable to or choose not to register all of
their Earnout Payment Shares at that time, then the restrictions in this
agreement shall continue until they expire or no longer apply on their terms;
and (b) these restrictions shall expire 18 months from the date of the issuance
of the Earnout Payment Shares to the Shareholders, after which there shall be
no restrictions on the Disposition by the Shareholders of the Earnout Payment
Shares except that the Shareholders (acting collectively) shall not Dispose of more
than 1,055,555 Shares in any 90-day period thereafter.

 

The following table illustrates the foregoing and assumes that all of
the Earnout Payment Shares will be earned pursuant to the Agreement. The
following table assumes that the periods correspond to fiscal quarters, but the
periods below shall be interpreted as 90-day periods and not fiscal quarters.

 

	
   

  	
   

  	
  Period in which Disposition of
  Earnout Payment Shares may be made 

  and percentage of Shares which may be Disposed in such Period

  	
   

  
	
  Name of Seller

  	
   

  	
  Q1-Q6

  	
   

  	
  Q7

  	
   

  	
  Q8

  	
   

  	
  Q9

  	
   

  	
  Q10

  	
   

  	
  Q11

  	
   

  	
  Q12

  	
   

  	
  Q13 and

  thereafter

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Wilfred K.
  Lau

  	
   

  	
  —

  	
   

  	
  7.79

  	
  %

  	
  7.79

  	
  %

  	
  7.79

  	
  %

  	
  7.79

  	
  %

  	
  7.79

  	
  %

  	
  7.79

  	
  %

  	
  15.58

  	
  %

  
	
  Richard J.
  Swanson

  	
   

  	
  —

  	
   

  	
  7.79

  	
  %

  	
  7.79

  	
  %

  	
  7.79

  	
  %

  	
  7.79

  	
  %

  	
  7.79

  	
  %

  	
  7.79

  	
  %

  	
  15.58

  	
  %

  
	
  Kurt
  Christensen

  	
   

  	
  —

  	
   

  	
  0.78

  	
  %

  	
  0.78

  	
  %

  	
  0.78

  	
  %

  	
  0.78

  	
  %

  	
  0.78

  	
  %

  	
  0.78

  	
  %

  	
  1.56

  	
  %

  
	
  David Fried

  	
   

  	
  —

  	
   

  	
  0.31

  	
  %

  	
  0.31

  	
  %

  	
  0.31

  	
  %

  	
  0.31

  	
  %

  	
  0.31

  	
  %

  	
  0.31

  	
  %

  	
  0.62

  	
  %

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