Document:

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                                                                     EXHIBIT 4.1

                              COBALT NETWORKS, INC.

                 AMENDED AND RESTATED 1997 EMPLOYEE STOCK PLAN
                   (with amendments through November 2, 1999)

        1. Purposes of the Plan. The purposes of this Employee Stock Plan are:

                -       to attract and retain the best available personnel for
                        positions of substantial responsibility,

                -       to provide additional incentive to Employees, Directors
                        and Consultants, and

                -       to promote the success of the Company's business.

        Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant. Stock Purchase Rights may also be granted under the Plan.

        2. Definitions. As used herein, the following definitions shall apply:

                (a) "Administrator" means the Board or any of its Committees as
shall be administering the Plan, in accordance with Section 4 of the Plan.

                (b) "Applicable Laws" means the requirements relating to the
administration of stock option plans under U. S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options or Stock Purchase Rights are,
or will be, granted under the Plan.

                (c) "Board" means the Board of Directors of the Company.

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

                (e) "Committee" means a committee of Directors appointed by the
Board in accordance with Section 4 of the Plan.

                (f) "Common Stock" means the common stock of the Company.

                (g) "Company" means Cobalt Networks, Inc., a California
corporation.

                (h) "Consultant" means any person, including an advisor, engaged
by the Company or a Parent or Subsidiary to render services to such entity.

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                (i) "Director" means a member of the Board.

                (j) "Disability" means total and permanent disability as defined
in Section 22(e)(3) of the Code.

                (k) "Employee" means any person, including Officers and
Directors, employed by the Company or any Parent or Subsidiary of the Company. A
Service Provider shall not cease to be an Employee in the case of (i) any leave
of absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such leave may exceed ninety days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment upon expiration of a leave of absence approved by the
Company is not so guaranteed, on the 181st day of such leave any Incentive Stock
Option held by the Optionee shall cease to be treated as an Incentive Stock
Option and shall be treated for tax purposes as a Nonstatutory Stock Option.
Neither service as a Director nor payment of a director's fee by the Company
shall be sufficient to constitute "employment" by the Company.

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

                (m) "Fair Market Value" means, as of any date, the value of
Common Stock determined as follows:

                        (i) If the Common Stock is listed on any established
stock exchange or a national market system, including without limitation the
Nasdaq National Market or The Nasdaq Small Cap Market of The Nasdaq Stock
Market, its Fair Market Value shall be the closing sales price for such stock
(or the closing bid, if no sales were reported) as quoted on such exchange or
system for the last market trading day prior to the time of determination, as
reported in The Wall Street Journal or such other source as the Administrator
deems reliable;

                        (ii) If the Common Stock is regularly quoted by a
recognized securities dealer but selling prices are not reported, the Fair
Market Value of a Share of Common Stock shall be the mean between the high bid
and low asked prices for the Common Stock on the last market trading day prior
to the day of determination, as reported in The Wall Street Journal or such
other source as the Administrator deems reliable; or

                        (iii) In the absence of an established market for the
Common Stock, the Fair Market Value shall be determined in good faith by the
Administrator.

                (n) "Incentive Stock Option" means an Option intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code and
the regulations promulgated thereunder.

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                (o) "Nonstatutory Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.

                (p) "Notice of Grant" means a written or electronic notice
evidencing certain terms and conditions of an individual Option or Stock
Purchase Right grant. The Notice of Grant is part of the Option Agreement.

                (q) "Officer" means a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.

                (r) "Option" means a stock option granted pursuant to the Plan.

                (s) "Option Agreement" means an agreement between the Company
and an Optionee evidencing the terms and conditions of an individual Option
grant. The Option Agreement is subject to the terms and conditions of the Plan.

                (t) "Option Exchange Program" means a program whereby
outstanding Options are surrendered in exchange for Options with a lower
exercise price.

                (u) "Optioned Stock" means the Common Stock subject to an Option
or Stock Purchase Right.

                (v) "Optionee" means the holder of an outstanding Option or
Stock Purchase Right granted under the Plan.

                (w) "Parent" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.

                (x) "Plan" means this Employee Stock Plan.

                (y) "Restricted Stock" means shares of Common Stock acquired
pursuant to a grant of Stock Purchase Rights under Section 11 of the Plan.

                (z) "Restricted Stock Purchase Agreement" means a written
agreement between the Company and the Optionee evidencing the terms and
restrictions applying to stock purchased under a Stock Purchase Right. The
Restricted Stock Purchase Agreement is subject to the terms and conditions of
the Plan and the Notice of Grant.

                (aa) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.

                (bb) "Section 16(b)" means Section 16(b) of the Exchange Act.

                (cc) "Service Provider" means an Employee, Director or
Consultant.

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                (dd) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 13 of the Plan.

                (ee) "Stock Purchase Right" means the right to purchase Common
Stock pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.

                (ff) "Subsidiary" means a "subsidiary corporation", whether now
or hereafter existing, as defined in Section 424(f) of the Code.

        3. Stock Subject to the Plan. Subject to the provisions of Section 13 of
the Plan, the maximum aggregate number of Shares that may be optioned and sold
under the Plan is 6,100,334 Shares, plus an annual increase to be added on the
first day of the Company's fiscal year, beginning with January 1, 2001, equal to
the lesser of (i) 2,500,000 Shares, (ii) 5% of the outstanding shares on such
date or (iii) a lesser amount determined by the Board. The Shares may be
authorized, but unissued, or reacquired Common Stock.

        If an Option or Stock Purchase Right expires or becomes unexercisable
without having been exercised in full, or is surrendered pursuant to an Option
Exchange Program, the unpurchased Shares which were subject thereto shall become
available for future grant or sale under the Plan (unless the Plan has
terminated); provided, however, that Shares that have actually been issued under
the Plan, whether upon exercise of an Option or Right, shall not be returned to
the Plan and shall not become available for future distribution under the Plan,
except that if Shares of Restricted Stock are repurchased by the Company at
their original purchase price, such Shares shall become available for future
grant under the Plan.

        4. Administration of the Plan.

                (a) Procedure.

                        (i) Multiple Administrative Bodies. The Plan may be
administered by different Committees with respect to different groups of Service
Providers.

                        (ii) Section 162(m). To the extent that the
Administrator determines it to be desirable to qualify Options granted hereunder
as "performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.

                        (iii) Rule 16b-3. To the extent desirable to qualify
transactions hereunder as exempt under Rule 16b-3, the transactions contemplated
hereunder shall be structured to satisfy the requirements for exemption under
Rule 16b-3.

                        (iv) Other Administration. Other than as provided above,
the Plan shall be administered by (A) the Board or (B) a Committee, which
committee shall be constituted to satisfy Applicable Laws.

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                (b) Powers of the Administrator. Subject to the provisions of
the Plan, and in the case of a Committee, subject to the specific duties
delegated by the Board to such Committee, the Administrator shall have the
authority, in its discretion:

                        (i) to determine the Fair Market Value;

                        (ii) to select the Service Providers to whom Options and
Stock Purchase Rights may be granted hereunder;

                        (iii) to determine the number of shares of Common Stock
to be covered by each Option and Stock Purchase Right granted hereunder;

                        (iv) to approve forms of agreement for use under the
Plan;

                        (v) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any Option or Stock Purchase Right
granted hereunder. Such terms and conditions include, but are not limited to,
the exercise price, the time or times when Options or Stock Purchase Rights may
be exercised (which may be based on performance criteria), any vesting
acceleration or waiver of forfeiture restrictions, and any restriction or
limitation regarding any Option or Stock Purchase Right or the shares of Common
Stock relating thereto, based in each case on such factors as the Administrator,
in its sole discretion, shall determine;

                        (vi) to reduce the exercise price of any Option or Stock
Purchase Right to the then current Fair Market Value if the Fair Market Value of
the Common Stock covered by such Option or Stock Purchase Right shall have
declined since the date the Option or Stock Purchase Right was granted;

                        (vii) to institute an Option Exchange Program;

                        (viii) to construe and interpret the terms of the Plan
and awards granted pursuant to the Plan;

                        (ix) to prescribe, amend and rescind rules and
regulations relating to the Plan, including rules and regulations relating to
sub-plans established for the purpose of qualifying for preferred tax treatment
under foreign tax laws;

                        (x) to modify or amend each Option or Stock Purchase
Right (subject to Section 15(c) of the Plan), including the discretionary
authority to extend the post-termination exercisability period of Options longer
than is otherwise provided for in the Plan;

                        (xi) to allow Optionees to satisfy withholding tax
obligations by electing to have the Company withhold from the Shares to be
issued upon exercise of an Option or Stock Purchase Right that number of Shares
having a Fair Market Value equal to

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the amount required to be withheld. The Fair Market Value of the Shares to be
withheld shall be determined on the date that the amount of tax to be withheld
is to be determined. All elections by an Optionee to have Shares withheld for
this purpose shall be made in such form and under such conditions as the
Administrator may deem necessary or advisable;

                        (xii) to authorize any person to execute on behalf of
the Company any instrument required to effect the grant of an Option or Stock
Purchase Right previously granted by the Administrator;

                        (xiii) to make all other determinations deemed necessary
or advisable for administering the Plan.

                (c) Effect of Administrator's Decision. The Administrator's
decisions, determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options or Stock Purchase Rights.

        5. Eligibility. Nonstatutory Stock Options and Stock Purchase Rights may
be granted to Service Providers. Incentive Stock Options may be granted only to
Employees.

        6. Limitations.

                (a) Each Option shall be designated in the Option Agreement as
either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be deter
mined as of the time the Option with respect to such Shares is granted.

                (b) Neither the Plan nor any Option or Stock Purchase Right
shall confer upon an Optionee any right with respect to continuing the
Optionee's relationship as a Service Provider with the Company, nor shall they
interfere in any way with the Optionee's right or the Company's right to
terminate such relationship at any time, with or without cause.

                (c) The following limitations shall apply to grants of Options:

                        (i) No Service Provider shall be granted, in any fiscal
year of the Company, Options to purchase more than 500,000 Shares.

                        (ii) In connection with his or her initial service, a
Service Provider may be granted Options to purchase up to an additional 500,000
Shares, which shall not count against the limit set forth in (i) above.

                        (iii) The foregoing limitations shall be adjusted
proportionately in

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connection with any change in the Company's capitalization as described in
Section 13.

                        (iv) If an Option is cancelled in the same fiscal year
of the Company in which it was granted (other than in connection with a
transaction described in Section 13), the cancelled Option will be counted
against the limits set forth in subsections (i) and (ii) above. For this
purpose, if the exercise price of an Option is reduced, the transaction will be
treated as a cancellation of the Option and the grant of a new Option.

        7. Term of Plan. Subject to Section 19 of the Plan, the Plan shall
become effective upon its adoption by the Board. It shall continue in effect for
a term of ten (10) years unless terminated earlier under Section 15 of the Plan.

        8. Term of Option. The term of each Option shall be stated in the Option
Agreement. In the case of an Incentive Stock Option, the term shall be ten (10)
years from the date of grant or such shorter term as may be provided in the
Option Agreement. Moreover, in the case of an Incentive Stock Option granted to
an Optionee who, at the time the Incentive Stock Option is granted, owns stock
representing more than ten percent (10%) of the total combined voting power of
all classes of stock of the Company or any Parent or Subsidiary, the term of the
Incentive Stock Option shall be five (5) years from the date of grant or such
shorter term as may be provided in the Option Agreement.

        9. Option Exercise Price and Consideration.

                (a) Exercise Price. The per share exercise price for the Shares
to be issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:

                        (i) In the case of an Incentive Stock Option

                                (A) granted to an Employee who, at the time the
Incentive Stock Option is granted, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any Parent
or Subsidiary, the per Share exercise price shall be no less than 110% of the
Fair Market Value per Share on the date of grant.

                                (B) granted to any Employee other than an
Employee described in paragraph (A) immediately above, the per Share exercise
price shall be no less than 100% of the Fair Market Value per Share on the date
of grant.

                        (ii) In the case of a Nonstatutory Stock Option, the per
Share exercise price shall be determined by the Administrator. In the case of a
Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.

                        (iii) Notwithstanding the foregoing, Options may be
granted with a

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the purchaser to the Company. The repurchase option shall lapse at a rate
determined by the Administrator.

                (c) Other Provisions. The Restricted Stock Purchase Agreement
shall contain such other terms, provisions and conditions not inconsistent with
the Plan as may be determined by the Administrator in its sole discretion.

                (d) Rights as a Shareholder. Once the Stock Purchase Right is
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 13
of the Plan.

        12. Non-Transferability of Options and Stock Purchase Rights. Unless
determined otherwise by the Administrator, an Option or Stock Purchase Right may
not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any
manner other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee. If the
Administrator makes an Option or Stock Purchase Right transferable, such Option
or Stock Purchase Right shall contain such additional terms and conditions as
the Administrator deems appropriate.

        13. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
Asset Sale.

                (a) Changes in Capitalization. Subject to any required action by
the shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option and Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option or Stock
Purchase Right.

                (b) Dissolution or Liquidation. In the event of the proposed
dissolution or

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liquidation of the Company, the Administrator shall notify each Optionee as soon
as practicable prior to the effective date of such proposed transaction. The
Administrator in its discretion may provide for an Optionee to have the right to
exercise his or her Option until ten (10) days prior to such transaction as to
all of the Optioned Stock covered thereby, including Shares as to which the
Option would not otherwise be exercisable. In addition, the Administrator may
provide that any Company repurchase option applicable to any Shares purchased
upon exercise of an Option or Stock Purchase Right shall lapse as to all such
Shares, provided the proposed dissolution or liquidation takes place at the time
and in the manner contemplated. To the extent it has not been previously
exercised, an Option or Stock Purchase Right will terminate immediately prior to
the consummation of such proposed action.

                (c) Merger or Asset Sale. In the event of a merger of the
Company with or into another corporation, or the sale of substantially all of
the assets of the Company, each outstanding Option and Stock Purchase Right
shall be assumed or an equivalent option or right substituted by the successor
corporation or a Parent or Subsidiary of the successor corporation. In the event
that the successor corporation refuses to assume or substitute for the Option or
Stock Purchase Right, the Optionee shall fully vest in and have the right to
exercise the Option or Stock Purchase Right as to all of the Optioned Stock,
including Shares as to which it would not otherwise be vested or exercisable. If
an Option or Stock Purchase Right becomes fully vested and exercisable in lieu
of assumption or substitution in the event of a merger or sale of assets, the
Administrator shall notify the Optionee in writing or electronically that the
Option or Stock Purchase Right shall be fully vested and exercisable for a
period of fifteen (15) days from the date of such notice, and the Option or
Stock Purchase Right shall terminate upon the expiration of such period. For the
purposes of this paragraph, the Option or Stock Purchase Right shall be
considered assumed if, following the merger or sale of assets, the option or
right confers the right to purchase or receive, for each Share of Optioned Stock
subject to the Option or Stock Purchase Right immediately prior to the merger or
sale of assets, the consideration (whether stock, cash, or other securities or
property) received in the merger or sale of assets by holders of Common Stock
for each Share held on the effective date of the transaction (and if holders
were offered a choice of consideration, the type of consideration chosen by the
holders of a majority of the outstanding Shares); provided, however, that if
such consideration received in the merger or sale of assets is not solely common
stock of the successor corporation or its Parent, the Administrator may, with
the consent of the successor corporation, provide for the consideration to be
received upon the exercise of the Option or Stock Purchase Right, for each Share
of Optioned Stock subject to the Option or Stock Purchase Right, to be solely
common stock of the successor corporation or its Parent equal in fair market
value to the per share consideration received by holders of Common Stock in the
merger or sale of assets.

        14. Date of Grant. The date of grant of an Option or Stock Purchase
Right shall be, for all purposes, the date on which the Administrator makes the
determination granting such Option or Stock Purchase Right, or such other later
date as is determined by the Administrator. Notice of the determination shall be
provided to each Optionee within a

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reasonable time after the date of such grant.

        15. Amendment and Termination of the Plan.

                (a) Amendment and Termination. The Board may at any time amend,
alter, suspend or terminate the Plan.

                (b) Shareholder Approval. The Company shall obtain shareholder
approval of any Plan amendment to the extent necessary and desirable to comply
with Applicable Laws.

                (c) Effect of Amendment or Termination. No amendment,
alteration, suspension or termination of the Plan shall impair the rights of any
Optionee, unless mutually agreed otherwise between the Optionee and the
Administrator, which agreement must be in writing and signed by the Optionee and
the Company. Termination of the Plan shall not affect the Administrator's
ability to exercise the powers granted to it hereunder with respect to Options
granted under the Plan prior to the date of such termination.

        16. Conditions Upon Issuance of Shares.

                (a) Legal Compliance. Shares shall not be issued pursuant to the
exercise of an Option or Stock Purchase Right unless the exercise of such Option
or Stock Purchase Right and the issuance and delivery of such Shares shall
comply with Applicable Laws and shall be further subject to the approval of
counsel for the Company with respect to such compliance.

                (b) Investment Representations. As a condition to the exercise
of an Option or Stock Purchase Right, the Company may require the person
exercising such Option or Stock Purchase Right to represent and warrant at the
time of any such exercise that the Shares are being purchased only for
investment and without any present intention to sell or distribute such Shares
if, in the opinion of counsel for the Company, such a representation is
required.

        17. Inability to Obtain Authority. The inability of the Company to
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.

        18. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.

        19. Shareholder Approval. The Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval shall be obtained in the manner and to the
degree required under Applicable Laws.

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                                                                     EXHIBIT 4.2

                              COBALT NETWORKS, INC.

                            1999 DIRECTOR OPTION PLAN

        1. Purposes of the Plan. The purposes of this 1999 Director Option Plan
are to attract and retain the best available personnel for service as Outside
Directors (as defined herein) of the Company, to provide additional incentive to
the Outside Directors of the Company to serve as Directors, and to encourage
their continued service on the Board.

                All options granted hereunder shall be nonstatutory stock
options.

        2. Definitions. As used herein, the following definitions shall apply:

                (a) "Board" shall mean the Board of Directors of the Company.

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

                (c) "Common Stock" shall mean the common stock of the Company.

                (d) "Company" shall mean Cobalt Networks, Inc.

                (e) "Director" shall mean a member of the Board.

                (f) "Disability" shall mean total and permanent disability as
defined in section 22(e)(3) of the Code.

                (g) "Employee" shall mean any person, including officers and
Directors, employed by the Company or any Parent or Subsidiary of the Company.
The payment of a Director's fee by the Company shall not be sufficient in and of
itself to constitute "employment" by the Company.

                (h) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.

                (i) "Fair Market Value" shall mean, as of any date, the value of
Common Stock determined as follows:

                        (i) If the Common Stock is listed on any established
stock exchange or a national market system, including without limitation the
Nasdaq National Market or The Nasdaq Small Cap Market of The Nasdaq Stock
Market, its Fair Market Value shall be the closing sales price for such stock
(or the closing bid, if no sales were reported) as quoted on such exchange or
system for the last market trading day prior to the time of determination as
reported in The Wall Street Journal or such other source as the Administrator
deems reliable;

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                        (ii) If the Common Stock is regularly quoted by a
recognized securities dealer but selling prices are not reported, the Fair
Market Value of a Share of Common Stock shall be the mean between the high bid
and low asked prices for the Common Stock for the last market trading day prior
to the time of determination, as reported in The Wall Street Journal or such
other source as the Board deems reliable; or

                        (iii) In the absence of an established market for the
Common Stock, the Fair Market Value thereof shall be determined in good faith by
the Board.

                (j) "Inside Director" shall mean a Director who is an Employee.

                (k) "Option" shall mean a stock option granted pursuant to the
Plan.

                (l) "Optioned Stock" shall mean the Common Stock subject to an
Option.

                (m) "Optionee" shall mean a Director who holds an Option.

                (n) "Outside Director" shall mean a Director who is not an
Employee.

                (o) "Parent" shall mean a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.

                (p) "Plan" shall mean this 1999 Director Option Plan.

                (q) "Share" shall mean a share of the Common Stock, as adjusted
in accordance with Section 10 of the Plan.

                (r) "Subsidiary" shall mean a "subsidiary corporation," whether
now or hereafter existing, as defined in Section 424(f) of the Internal Revenue
Code of 1986.

        3. Stock Subject to the Plan. Subject to the provisions of Section 10 of
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 400,000 Shares (the "Pool") (the Shares may be authorized, but
unissued, or reacquired Common Stock), together with an annual increase to the
number of Shares reserved thereunder on the first day of the Company's fiscal
year, beginning with January 1, 2001, equal to the lesser of (i) 100,000 Shares,
(ii) .25% of the outstanding Shares of Common Stock on the last day of each
prior fiscal year or (iii) such amount as determined by the Board.

                If an Option expires or becomes unexercisable without having
been exercised in full, the unpurchased Shares which were subject thereto shall
become available for future grant or sale under the Plan (unless the Plan has
terminated). Shares that have actually been issued under the Plan shall not be
returned to the Plan and shall not become available for future distribution
under the Plan.

        4. Administration and Grants of Options under the Plan.

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                (a)Procedure for Grants. All grants of Options to Outside
Directors under this Plan shall be automatic and nondiscretionary and shall be
made strictly in accordance with the following provisions:

                        (i) No person shall have any discretion to select which
Outside Directors shall be granted Options or to determine the number of Shares
to be covered by Options.

                        (ii) Each Outside Director shall be automatically
granted an Option to purchase Shares (the "First Option") on the date on which
the later of the following events occurs: (A) the effective date of this Plan,
as determined in accordance with Section 6 hereof; or (B) the date on which such
person first becomes an Outside Director, whether through election by the
shareholders of the Company or appointment by the Board to fill a vacancy;
provided, however, that an Inside Director who ceases to be an Inside Director
but who remains a Director shall not receive a First Option. The First Option
shall be for 50,000 Shares; provided, however, it shall be increased by 5,000
Shares for service as Chairman of the Board of Directors, 5,000 Shares for
service on the Board's Audit Committee and 5,000 Shares for service on the
Board's Compensation Committee.

                        (iii) Each Outside Director shall subsequently be
automatically granted an Option to purchase Shares (a "Subsequent Option") on
the date of the next meeting of the Board following the Annual Meeting of
Shareholders in each year commencing with the 2001 Annual Meeting of
Shareholders provided he or she is then an Outside Director and if as of such
date, he or she shall have served on the Board for at least the preceding six
(6) months. The Subsequent Option Shall be for 10,000 Shares; provided, however,
it shall be increased by 2,500 Shares for service as Chairman of the Board of
Directors, 2,500 Shares for service on the Board's Audit Committee and 2,500
Shares for service on the Board's Compensation Committee.

                        (iv) Notwithstanding the provisions of subsections (ii)
and (iii) hereof, any exercise of an Option granted before the Company has
obtained shareholder approval of the Plan in accordance with Section 16 hereof
shall be conditioned upon obtaining such shareholder approval of the Plan in
accordance with Section 16 hereof.

                        (v) The terms of a First Option granted hereunder shall
be as follows:

                                (A) the term of the First Option shall be ten
(10) years.

                                (B) the First Option shall be exercisable only
while the Outside Director remains a Director of the Company, except as set
forth in Sections 8 and 10 hereof.

                                (C) the exercise price per Share shall be 100%
of the Fair Market Value per Share on the date of grant of the First Option
provided, however, that in the case of a First Option granted on the effective
date of the Company's initial public offering pursuant to a registration
statement filed with the Securities and Exchange Commission, the exercise price
per

                                       -3-
<PAGE>   4

share shall be the initial public offering price per share.

                                (D) subject to Section 10 hereof, the First
Option shall become exercisable as to 1/4 of the Shares subject to the First
Option on the anniversary of the date of grant, and as to 1/48 of the First
Option at the end of each month thereafter, so that the First Option shall be
fully exercisable four years after its date of grant, provided that the Optionee
continues to serve as a Director on such dates.

                        (vi) The terms of a Subsequent Option granted hereunder
shall be as follows:

                                (A) the term of the Subsequent Option shall be
ten (10) years.

                                (B) the Subsequent Option shall be exercisable
only while the Outside Director remains a Director of the Company, except as set
forth in Sections 8 and 10 hereof.

                                (C) the exercise price per Share shall be 100%
of the Fair Market Value per Share on the date of grant of the Subsequent
Option.

                                (D) subject to Section 10 hereof, the Subsequent
Option shall become exercisable cumulatively with respect to 1/48th of the
Subsequent Option at the end of each month after the date of grant, so that the
Subsequent Option shall be fully exercisable four years after its date of grant,
provided that the Optionee continues to serve as a Director on such dates.

                        (vii) In the event that any Option granted under the
Plan would cause the number of Shares subject to outstanding Options plus the
number of Shares previously purchased under Options to exceed the Pool, then the
remaining Shares available for Option grant shall be granted under Options to
the Outside Directors on a pro rata basis. No further grants shall be made until
such time, if any, as additional Shares become available for grant under the
Plan through action of the Board or the shareholders to increase the number of
Shares which may be issued under the Plan or through cancellation or expiration
of Options previously granted hereunder.

                5. Eligibility. Options may be granted only to Outside
Directors. All Options shall be automatically granted in accordance with the
terms set forth in Section 4 hereof.

                        The Plan shall not confer upon any Optionee any right
with respect to continuation of service as a Director or nomination to serve as
a Director, nor shall it interfere in any way with any rights which the Director
or the Company may have to terminate the Director's relationship with the
Company at any time.

        6. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board or its approval by the shareholders of the
Company as described in

                                       -4-
<PAGE>   5

Section 16 of the Plan; provided, however, the Plan shall not become effective
until the effective date of the Company's initial public offering pursuant to a
registration statement filed with the Securities and Exchange Commission. It
shall continue in effect for a term of ten (10) years unless sooner terminated
under Section 11 of the Plan.

        7. Form of Consideration. The consideration to be paid for the Shares to
be issued upon exercise of an Option, including the method of payment, shall
consist of (i) cash, (ii) check, (iii) other shares which (x) in the case of
Shares acquired upon exercise of an option, have been owned by the Optionee for
more than six (6) months on the date of surrender, and (y) have a Fair Market
Value on the date of surrender equal to the aggregate exercise price of the
Shares as to which said Option shall be exercised, (iv) consideration received
by the Company under a cashless exercise program implemented by the Company in
connection with the Plan, or (v) any combination of the foregoing methods of
payment.

        8. Exercise of Option.

                (a) Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable at such times as are set forth in Section
4 hereof; provided, however, that no Options shall be exercisable until
shareholder approval of the Plan in accordance with Section 16 hereof has been
obtained.

                An Option may not be exercised for a fraction of a Share.

                An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may consist of any consideration and method of payment
allowable under Section 7 of the Plan. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the stock certificate evidencing such Shares, no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
A share certificate for the number of Shares so acquired shall be issued to the
Optionee as soon as practicable after exercise of the Option. No adjustment
shall be made for a dividend or other right for which the record date is prior
to the date the stock certificate is issued, except as provided in Section 10 of
the Plan.

                Exercise of an Option in any manner shall result in a decrease
in the number of Shares which thereafter may be available, both for purposes of
the Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.

                (b) Termination of Continuous Status as a Director. Subject to
Section 10 hereof, in the event an Optionee's status as a Director terminates
(other than upon the Optionee's death or Disability), the Optionee may exercise
his or her Option, but only within three (3) months following the date of such
termination, and only to the extent that the Optionee was entitled to exercise
it on the date of such termination (but in no event later than the expiration of
its ten (10)

                                       -5-
<PAGE>   6

year term). To the extent that the Optionee was not entitled to exercise an
Option on the date of such termination, and to the extent that the Optionee does
not exercise such Option (to the extent otherwise so entitled) within the time
specified herein, the Option shall terminate.

                (c) Disability of Optionee. In the event Optionee's status as a
Director terminates as a result of Disability, the Optionee may exercise his or
her Option, but only within twelve (12) months following the date of such
termination, and only to the extent that the Optionee was entitled to exercise
it on the date of such termination (but in no event later than the expiration of
its ten (10) year term). To the extent that the Optionee was not entitled to
exercise an Option on the date of termination, or if he or she does not exercise
such Option (to the extent otherwise so entitled) within the time specified
herein, the Option shall terminate.

                (d) Death of Optionee. In the event of an Optionee's death, the
Optionee's estate or a person who acquired the right to exercise the Option by
bequest or inheritance may exercise the Option, but only within twelve (12)
months following the date of death, and only to the extent that the Optionee was
entitled to exercise it on the date of death (but in no event later than the
expiration of its ten (10) year term). To the extent that the Optionee was not
entitled to exercise an Option on the date of death, and to the extent that the
Optionee's estate or a person who acquired the right to exercise such Option
does not exercise such Option (to the extent otherwise so entitled) within the
time specified herein, the Option shall terminate.

        9. Non-Transferability of Options. The Option may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.

        10. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
Asset Sale.

                (a) Changes in Capitalization. Subject to any required action by
the shareholders of the Company, the number of Shares covered by each
outstanding Option, the number of Shares which have been authorized for issuance
under the Plan but as to which no Options have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option, as well
as the price per Share covered by each such outstanding Option, and the number
of Shares issuable pursuant to the automatic grant provisions of Section 4
hereof shall be proportionately adjusted for any increase or decrease in the
number of issued Shares resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock, or any other
increase or decrease in the number of issued Shares effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of Shares
subject to an Option.

                (b) Dissolution or Liquidation. In the event of the proposed
dissolution or

                                       -6-
<PAGE>   7

liquidation of the Company, to the extent that an Option has not been previously
exercised, it shall terminate immediately prior to the consummation of such
proposed action.

                (c) Merger or Asset Sale. In the event of a merger of the
Company with or into another corporation or the sale of substantially all of the
assets of the Company, outstanding Options may be assumed or equivalent options
may be substituted by the successor corporation or a Parent or Subsidiary
thereof (the "Successor Corporation"). If an Option is assumed or substituted
for, the Option or equivalent option shall continue to be exercisable as
provided in Section 4 hereof for so long as the Optionee serves as a Director or
a director of the Successor Corporation. Following such assumption or
substitution, if the Optionee's status as a Director or director of the
Successor Corporation, as applicable, is terminated other than upon a voluntary
resignation by the Optionee, the Option or option shall become fully
exercisable, including as to Shares for which it would not otherwise be
exercisable. Thereafter, the Option or option shall remain exercisable in
accordance with Sections 8(b) through (d) above.

                If the Successor Corporation does not assume an outstanding
Option or substitute for it an equivalent option, the Option shall become fully
vested and exercisable, including as to Shares for which it would not otherwise
be exercisable. In such event the Board shall notify the Optionee that the
Option shall be fully exercisable for a period of thirty (30) days from the date
of such notice, and upon the expiration of such period the Option shall
terminate.

                For the purposes of this Section 10(c), an Option shall be
considered assumed if, following the merger or sale of assets, the Option
confers the right to purchase or receive, for each Share of Optioned Stock
subject to the Option immediately prior to the merger or sale of assets, the
consideration (whether stock, cash, or other securities or property) received in
the merger or sale of assets by holders of Common Stock for each Share held on
the effective date of the transaction (and if holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority of
the outstanding Shares). If such consideration received in the merger or sale of
assets is not solely common stock of the successor corporation or its Parent,
the Administrator may, with the consent of the successor corporation, provide
for the consideration to be received upon the exercise of the Option, for each
Share of Optioned Stock subject to the Option, to be solely common stock of the
successor corporation or its Parent equal in fair market value to the per share
consideration received by holders of Common Stock in the merger or sale of
assets.

        11. Amendment and Termination of the Plan.

                (a) Amendment and Termination. The Board may at any time amend,
alter, suspend, or discontinue the Plan, but no amendment, alteration,
suspension, or discontinuation shall be made which would impair the rights of
any Optionee under any grant theretofore made, without his or her consent. In
addition, to the extent necessary and desirable to comply with any applicable
law, regulation or stock exchange rule, the Company shall obtain shareholder
approval of any Plan amendment in such a manner and to such a degree as
required.

                (b) Effect of Amendment or Termination. Any such amendment or
termination of

                                       -7-
<PAGE>   8

the Plan shall not affect Options already granted and such Options shall remain
in full force and effect as if this Plan had not been amended or terminated.

        12. Time of Granting Options. The date of grant of an Option shall, for
all purposes, be the date determined in accordance with Section 4 hereof.

        13. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, state securities laws, and the requirements of any stock exchange
upon which the Shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.

            As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares, if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.

            Inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's counsel to
be necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to issue or sell
such Shares as to which such requisite authority shall not have been obtained.

        14. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.

        15. Option Agreement. Options shall be evidenced by written option
agreements in such form as the Board shall approve.

        16. Shareholder Approval. The Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval shall be obtained in the degree and manner
required under applicable state and federal law and any stock exchange rules.

                                       -8-

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