-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Db4EK6TY7axoimn53XogpfhDuUTp+ecZOVSkOcUi7foard91LokqX+WAQlj03tpF 8v8P9/my94noAkEI2nkDHg== 0000910680-05-000756.txt : 20051206 0000910680-05-000756.hdr.sgml : 20051206 20051206162749 ACCESSION NUMBER: 0000910680-05-000756 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20051201 ITEM INFORMATION: Entry into a Material Definitive Agreement ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20051206 DATE AS OF CHANGE: 20051206 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TII NETWORK TECHNOLOGIES, INC. CENTRAL INDEX KEY: 0000277928 STANDARD INDUSTRIAL CLASSIFICATION: SWITCHGEAR & SWITCHBOARD APPARATUS [3613] IRS NUMBER: 660328885 STATE OF INCORPORATION: DE FISCAL YEAR END: 0624 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-08048 FILM NUMBER: 051247364 BUSINESS ADDRESS: STREET 1: 1385 AKRON ST CITY: COPIAGUE STATE: NY ZIP: 11726 BUSINESS PHONE: 631-789-5000 MAIL ADDRESS: STREET 1: 1385 AKRON STREET CITY: COPIAGUE STATE: NY ZIP: 11726 FORMER COMPANY: FORMER CONFORMED NAME: TII NETWORK TECHNOLOGIES INC DATE OF NAME CHANGE: 20020514 FORMER COMPANY: FORMER CONFORMED NAME: TII INDUSTRIES INC DATE OF NAME CHANGE: 19920703 8-K 1 f8k120105.txt CURRENT REPORT SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------- FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): December 1, 2005 TII NETWORK TECHNOLOGIES, INC. ------------------------------------------------- (Exact Name of Registrant as Specified in Charter) DELAWARE ------------------------ (State of Incorporation) 1-8048 66-0328885 --------------------- --------------------------------- (Commission File No.) (IRS Employer Identification No.) 1385 Akron Street, Copiague, New York 11726 ------------------------------------------- (Address of Principal Executive Offices) (Zip Code) (631) 789-5000 ---------------------------------------------------- (Registrant's telephone number, including area code) Not Applicable ------------------------------------------------------------- (Former Name or Former Address, if Changed Since Last Report) Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions: [_] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) [_] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) [_] Pre-commencement communication pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) [_] Pre-commencement communication pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) ITEM 1.01 ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT The following discussions are qualified in their entirety by reference to the exhibits to this Report: 1. 2005 Employee Stock Purchase Plan On December 1, 2005, the Company's Stockholders approved the Company's 2005 Employee Stock Purchase Plan (the "Stock Purchase Plan"). The Stock Purchase Plan is intended to qualify as an "employee stock purchase plan" under Section 423 of the Internal Revenue Code of 1986, as amended (the "Code"), and to provide eligible employees of the Company with an opportunity to invest in the Company through purchases of the Company's Common Stock at a discount through payroll deductions. The following summary of the Stock Purchase Plan is qualified in its entirety by reference to the complete text thereof which is set forth in Exhibit 99.1 to this Report. Eligibility. All employees of the Company and its designated subsidiaries (including officers) who have been continuously employed by the Company for at least 90 days and whose customary employment is for more than five months in any calendar year and more than 20 hours per week are eligible to participate in the Stock Purchase Plan. Non-employee directors and 5% shareholders (determined under applicable provisions of the Code) of the Company are not eligible. As of December 1, 2005, approximately 88 employees of the Company were eligible to participate in the Stock Purchase Plan. Administration. The Stock Purchase Plan will be administered by the Board of Directors or the Compensation Committee or other committee designated by the Board, which will have the authority to administer the plan and to resolve all questions relating to the administration of the Stock Purchase Plan. Stock Subject to Stock Purchase Plan. An aggregate of 200,000 shares of Common Stock of the Company are reserved for issuance under the Stock Purchase Plan and available for purchase, subject to adjustment in the event of a stock split, stock dividend or other similar change in the Company's Common Stock or capital structure. Purchase Periods. The Stock Purchase Plan designates purchase periods and exercise dates. Purchase periods are generally successive periods of six months that begin on each January 1 and July 1. However, in order to effectuate procedural requirements, the first purchase period may not begin until sometime during the first quarter of fiscal 2006 and end on June 30, 2006. Thereafter, purchase periods will begin on each July 1 and January 1. Purchase Price. On the first day of each purchase period, a participating employee is granted a purchase right, which is a form of option, to be automatically exercised on the last day of the purchase period (the "exercise date"). During a purchase period, deductions are to be made from the pay of participants in accordance with their authorizations and credited to their accounts under the Stock Purchase Plan. However, a participant may withdraw all, but not less than all, of the payroll 2 deductions credited to his or her account and not yet used to exercise his or her option at any time by giving notice to the Company. When the purchase right is exercised, the participant's withheld salary (unless previously withdrawn) is used to purchase shares of the Company's Common Stock. The price per share at which shares may be purchased under the Stock Purchase Plan during any purchase period is the lesser of: (a) 85% of the fair market value of the Company's Common Stock on the date of the grant of the option (i.e., the first day of the purchase period), or (b) 85% of the fair market value of the Company's Common Stock on the exercise date (i.e., the last day of the purchase period). Payment of Purchase Price; Payroll Deductions. Payroll deductions, which are made on an after-tax basis, may range from 1% to 10% (in whole percentage increments) of a participant's regular base pay. However, a participant may not in any calendar year, make purchases to exceed the lesser of 10% of his or her base compensation or $10,000 of Common Stock at their Fair Market Value (determined at the first day of the purchase period). Participants may not make direct cash payments to their accounts. The maximum number of shares of Common Stock that any employee may purchase under the Stock Purchase Plan during any semi-annual purchase period is 2,500 shares. 2. Arrangement to Permit Directors to Accept Shares of Common Stock of the Company in Lieu of Annual Directors' Fees As reported in the Company's Current Report on Form 8-K dated (date of earliest event reported) October 14, 2005, commencing with the organizational meeting of the Board of Directors immediately following the Company's 2005 Annual Meeting of Stockholders held on December 1, 2005, non-employee directors are entitled to receive a cash retainer (the "Annual Retainer") at the rate of $10,000 per annum ($25,000 in the case of the non-executive Chairman of the Board), payable quarterly. The Annual Retainer is in addition to fees payable for meetings attended of the Board and Committees on which such non-employee director serves. On December 1, 2005, the Company's stockholders approved a proposal that permits non-employee directors, in lieu of receiving cash, to elect, at or prior to the applicable annual meeting of stockholders, to receive $11,750 ($29,400 in the case of the non-executive Chairman of the Board) of the Company's Common Stock (valued at the fair market value of the Company's Common Stock on the date of the applicable annual meeting of stockholders of the Company, such fair market value to be determined in the same manner as determined under the Company's 2003 Non-Employee Director Stock Option Plan). The shares will be subject to forfeiture in the event the non-employee director resigns or is removed for cause before the next annual meeting of stockholders of the Company. Any shares received in lieu of any portion of the cash Annual Retainer will not count against the number of shares that are to be granted to a non-employee director under the Company's 2003 Non-Employee Director Stock Option Plan. 3. Amendment to the 1998 Stock Option Plan to Increase the Number of Shares of Common Stock Subject Thereto from 2,500,000 to 3,000,000 On December 1, 2005, the Company's stockholders approved an amendment to the Company's 1998 Stock Option Plan to increase the number of shares available for issuance thereunder from 2,500,000 to 3,000,000. The 1998 Stock Option Plan is being referred to as the "1998 Plan". 3 The following is a summary of the 1998 Plan, as amended, and is qualified in its entirety by reference to the complete text thereof which is set forth as Exhibit 99.3 to this Report. Shares Subject to the Option Plan and Eligibility. The 1998 Plan, as amended, authorizes the grant of options to purchase a maximum of 3,000,000 shares of the Company's Common Stock. The number of shares subject to the 1998 Plan is subject to adjustment as discussed below under "Adjustment in Event of Capital Changes". Upon expiration, cancellation or termination of unexercised options, the shares of Common Stock subject to such options again become available for the grant of options under the 1998 Plan. Type of Options. Options granted under the 1998 Plan may either be incentive stock options ("ISOs"), within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or nonqualified stock options, which do not qualify as ISOs ("NQSOs"). ISOs, however, may only be granted to employees. Administration. The 1998 Plan must be administered by the Board of Directors or a committee of the Board consisting of not less than two members of the Board, each of whom is to be a "non-employee director," within the meaning of Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). It is also expected that Committee members will be "non-employee directors," within the meaning of Section 162(m) of the Code. Those administering the 1998 Plan are referred to as the "Administrators." The 1998 Plan is presently administered by the Compensation Committee of the Company's Board of Directors, although, at times stock options under the 1998 Plan are granted by the full Board. Among other things, the Administrators are empowered to determine, within the express limits contained in the 1998 Plan, the employees, consultants and directors to be granted options, whether an option granted to an employee is to be an ISO or a NQSO, the number of shares of Common Stock to be subject to each option, the exercise price of each option, the term of each option, the date each option shall become exercisable, any terms and conditions relating to the exercisability of each option, whether to accelerate the date of exercise of any option or installment, the form of payment of the exercise price and, with the consent of the optionee, to cancel or modify an option. The Administrators are also authorized to prescribe, amend and rescind rules and regulations relating to the 1998 Plan, to construe each stock option contract between the Company and an optionee, and make all other determinations necessary or advisable for administering the 1998 Plan. Terms and Conditions of Options. Options granted under the 1998 Plan are subject to, among other things, the following terms and conditions: (a) The exercise price of each option is determined by the Administrators; provided, however, that the exercise price of an ISO may not be less than the fair market value of the Company's Common Stock on the date of grant (110% of such fair market value if the optionee owns, or is deemed to own, more than 10% of the voting power of the Company). 4 (b) Options may be granted for terms established by the Administrators; provided, however, that the term of an ISO may not exceed ten years (five years if the optionee owns, or is deemed to own, more than 10% of the voting power of the Company). (c) The maximum number of shares of Common Stock for which options may be granted to an employee in any calendar year is 250,000. In addition, the aggregate fair market value of shares with respect to which ISOs may be granted to an employee which are exercisable for the first time during any calendar year may not exceed $100,000. (d) The exercise price of each option is payable in full upon exercise or, if the Administrators permit, in installments. Payment of the exercise price of an option may be made in cash, or, if the Administrators permit, in shares of the Company's Common Stock or any combination thereof. (e) Options may not be transferred other than by will or by the laws of descent and distribution, and may be exercised during the optionee's lifetime only by the optionee. (f) Except as may otherwise be provided in the option contract related to the option, if the optionee's relationship with the Company as an employee, director or consultant is terminated for any reason, other than death or disability, the option may be exercised, to the extent exercisable at the time of termination of such relationship, at any time within three months thereafter, but in no event after the expiration of the term of the option; provided, however, that if the relationship is terminated either for cause or without the consent of the Company, the option will terminate immediately. Except as may be provided in the option contract related to the option, an option is not affected by a change in the status of an optionee so long as the optionee continues to be an employee or director of, or a consultant to, the Company. Except as otherwise provided in the optionee's option contract, in the case of the death of an optionee while an employee, director or consultant (or, generally, within three months after termination of such relationship or within one year after termination of such relationship by reason of disability), the optionee's legal representative or beneficiary may exercise the option, to the extent exercisable on the date of death, at any time within one year after such date, but in no event after the expiration of the term of the option. Except as otherwise provided in the optionee's option contract, an optionee whose relationship with the Company is terminated by reason of disability may exercise the option, to the extent exercisable at the effective date of such termination, at any time within one year thereafter, but not after the expiration of the term of the option. (g) The Company may withhold cash and/or, with the consent of the Administrators, shares of the Company's Common Stock having an aggregate value equal to the amount which the Company determines is necessary to meet its obligations to withhold any federal, state and/or local taxes or other amounts incurred by reason of the grant, exercise or vesting of an option or the disposition of shares acquired upon the exercise of the option. Alternatively, the Company may require the optionee to pay the Company such amount in cash promptly upon demand. Adjustment in Event of Capital Changes. Appropriate adjustments are to be made in the number and kind of shares available under the 1998 Plan, in the number and kind of shares subject to 5 the 1998 Plan and each outstanding option and in the exercise prices of outstanding options, as well as the limitation on the number of shares that may be granted to any employee in any calendar year, in the event of any change in the Company's Common Stock by reason of any stock dividend, stock split, combination, reclassification, recapitalization, merger in which the Company is the surviving corporation, spin-off, split-up, exchange of shares or the like. In the event of (a) the liquidation or dissolution of the Company or (b) a transaction (or series of related transactions) that is approved by a majority of the members of the Company's Board of Directors as elected by stockholders prior to the first of such transactions (including, without limitation, a merger, consolidation, sale of stock by the Company or its stockholders, tender offer or sale of assets) and in which either (i) the voting power (in the election of directors generally) of the Company's voting securities outstanding immediately prior to such transaction ceases to represent at least 50% of the combined voting power (in the election of directors generally) of the Company or such surviving entity outstanding immediately after such transaction or (ii) the registration of the Company's Common Stock under the Securities Exchange Act of 1934 is terminated, any outstanding options shall terminate upon the earliest of any such event, unless other provision is made therefor in the transaction. Duration and Amendment of the 1998 Plan. No option may be granted under the 1998 Plan after October 7, 2008. The Board of Directors may at any time terminate or amend the 1998 Plan; provided, however, that, without the approval of the Company's stockholders, no amendment may be made which would (a) except as a result of the anti-dilution adjustments described above, increase the maximum number of shares for which options may be granted under the 1998 Plan or increase the maximum number of shares covered by options that may be granted to an employee in any calendar year, (b) change the eligibility requirements for persons who may receive options under the 1998 Plan or (c) make any change for which applicable law requires stockholder approval. No termination or amendment may adversely affect the rights of an optionee with respect to an outstanding option without the optionee's consent. 4. Amendment to the Company's 2003 Non-Employee Director Stock Option Plan to Increase the Number of Shares of Common Stock Subject to Options to be Granted Thereunder Annually On December 1, 2005, the Company's stockholders approved an amendment to the Company's 2003 Non-Employee Director Stock Option Plan (the "2003 Plan") to increase the number of shares of the Company's Common Stock to be granted immediately following each annual meeting of stockholders at which directors are elected (an "Annual Option") to each non-employee director in office immediately following the conclusion of the meeting (whether or not elected at such meeting) as follows: (a) to each non-employee director in office immediately following the conclusion of the annual meeting of stockholders (whether or not elected at such meeting) from 5,000 to 10,000 shares; (b) to each member of the Board's newly formed Executive Advisory Committee from 5,000 to 10,000 shares (members of each other standing committee will continue to receive options to purchase 5,000 shares); and 6 (c) to each Chairperson of each standing committee from 2,000 to 10,000 shares (except that the number of shares subject to the option to be granted to the Chairperson of the Executive Advisory Committee will be 20,000 shares). At the time a person initially becomes a non-employee director, he or she will continue to be granted an option to purchase 24,000 shares of the Company's Common Stock in addition to the options he or she would be entitled to be granted as a committee member and chairperson. On December 1, 2005, the Company's Board of Directors further amended the 2003 Plan to provide that, with respect to Annual Options to be granted by the Board at its organization meeting immediately following the Company's 2005 Annual Meeting of Stockholders held on December 1, 2005, such Annual Options vest and become exercisable in eight, rather than four, quarterly installments commencing on the date of grant. The amendments became effective with respect to Annual Grants to be made beginning at the organizational meeting of the Board that took place immediately following the 2005 Annual Meeting of Stockholders held on December 1, 2005. The following is a summary of the 2003 Plan, as amended, and is qualified in its entirety by reference to the complete text thereof which is set forth as Exhibit 99.4 to this Report. Number of Shares, Administration and Eligibility. The maximum number of shares of Common Stock as to which options may be granted under the 2003 Plan is 500,000, subject to adjustment as discussed below under "Adjustment in Event of Capital Changes". Upon the expiration, cancellation or termination of unexercised options, the shares subject thereto again be available for grant under the 2003 Plan. The 2003 Plan is administered by the Board of Directors subject to the provisions of the 2003 Plan. Participation in the 2003 Plan is limited to non-employee directors. Exercise Price. The option exercise price for each share to be granted under the 2003 Plan is 100% of the fair market value of the Company's Common Stock on the date of grant. Upon exercise of the option, the exercise price is to be paid in full in cash. Option Term. Each option has a term of ten years. Initial Options vest and become exercisable, on a cumulative basis, in twelve equal quarterly installments commencing one year following the date of grant. Annual Options vest and become exercisable, with respect to those Annual Options to be granted at the organization meeting of the newly elected Board following the Company's 2005 Annual Meeting of Stockholders, in eight equal quarterly installments commencing immediately upon grant and, with respect to Annual Options granted thereafter, in four equal quarterly installments commencing on the date of grant. In the event that an optionee ceases to serve on the Board of Directors for any reason (including as a result of not being re-elected to the Board, death or disability), options held by the optionee may be exercised, at any time within one year after cessation of service but in no event after the date on which the option would otherwise expire. However, if the Non-employee director's 7 service on the Board is terminated for cause or if the non-employee director resigns without the consent of a majority of the remaining members of the Board, the non-employee director's options shall terminate immediately. Adjustment in Event of Capital Changes. In the event of any change in the outstanding Common Stock by reason of a stock dividend, stock split, stock combination, recapitalization, spin-off, split up, merger in which the Company is the surviving corporation, reorganization or the like, the number and kind of shares available for option under the 2003 Plan, the number and kind of shares to be granted initially and annually to non-employee directors, and the option price and number and kind of shares purchasable under outstanding options will be adjusted in a manner similar to the anti-dilution adjustments made under Company stock option plans for employees. See Proposal 3 above. In the event of the liquidation or dissolution of the Company, a merger or consolidation in which the Company is not the surviving corporation, or any other capital reorganization in which more than 50% of the Company's Common Stock is exchanged, outstanding options under the 2003 Plan shall terminate unless other provision is made therefor in the transaction (which provision shall be made in a manner similar to the provision made for options granted under the Company's employee stock option plans). Miscellaneous. An option may not be transferred by a non-employee director other than by will or by the laws of descent and distribution, and an option may be exercised during the optionee's lifetime only by the optionee. In addition, an option may not be exercised unless either (a) a registration statement under the Securities Act of 1933, as amended (the "Act"), is then effective and current with respect to the shares or (b) in the opinion of counsel to the Company, there is an exemption from registration under the Act for the issuance of such shares. As a further condition to exercise of an option, the Company may require that the shares underlying such option or the 2003 Plan be listed for trading on any securities market on which Common Stock is traded and have been appropriately registered or qualified under applicable state securities laws, and that any necessary or desirable governmental approval or consent has been obtained. The Company has filed a registration statement under the Act, which has become effective, covering the issuance of shares upon the exercise of options under the 2003 Plan. Duration and Amendment of the 2003 Plan. No options may be granted under the 2003 Plan after September 23, 2013. Options outstanding on that date, however, shall in all respects continue subject to the 2003 Plan. The Board may suspend or terminate the 2003 Plan at any time. Without the approval of stockholders, no alteration or amendment may be made to the 2003 Plan which would (1) change the class of eligible participants who may receive options, (2) increase the total number of shares available for the grant of options (except for anti-dilution adjustments), (3) decrease the exercise price at which options may be granted (except for anti-dilution adjustments) or (4) materially increase the benefits accruing to participants. 8 ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS. (a) Financial Statements of Businesses Acquired: None (b) Pro Forma Financial Information: None (c) Exhibits: 99.1 2005 Employee Stock Purchase Plan. 99.2 Description of Arrangement to Permit Directors to Accept Shares of Common Stock of the Company in Lieu of Annual Directors' Fees. 99.3 1998 Stock Option Plan, as amended. 99.4 2003 Non-Employee Director Stock Option Plan, as amended. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TII NETWORK TECHNOLOGIES, INC. Date: December 6, 2005 By: /s/ Timothy J. Roach --------------------------------------- Timothy J. Roach, President and Chief Executive Officer 9 EXHIBIT INDEX Exhibit Number Description - -------------------------------------------------------------------------------- 99.1 2005 Employee Stock Purchase Plan. 99.2 Description of Arrangement to Permit Directors to Accept Shares of Common Stock of the Company in Lieu of Annual Directors' Fees. 99.3 1998 Stock Option Plan, as amended. 99.4 2003 Non-Employee Director Stock Option Plan, as amended. 10 EX-99 2 ex99_1-f8k120105.txt EX-99.1; 2005 EMPLOYEE STOCK PURCHASE PLAN Exhibit 99.1 1 TII NETWORK TECHNOLOGIES, INC. 2005 EMPLOYEE STOCK PURCHASE PLAN 1. Purpose. The purpose of the TII Network Technologies, Inc. 2005 Employee Stock Purchase Plan is to provide Employees of the Company and its Designated Subsidiaries with an opportunity to invest in the Company through purchases of Common Stock of the Company at a discount through accumulated payroll deductions. It is the intention of the Company to have the Plan qualify as an employee stock purchase plan under Code Section 423. The provisions of the Plan, accordingly, shall be construed in a manner consistent with the requirements of that Code Section. 2. Definitions. (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, $0.01 par value per share, of the Company. (d) "Company" shall mean TII Network Technologies, Inc., a Delaware corporation. (e) "Compensation" shall mean an Employee's base salary or regular pay, including commissions, from the Company or one or more Designated Subsidiaries, including such amounts as are deferred by the Employee (i) under a qualified cash or deferred arrangement described in Code Section 401(k), or (ii) to a plan qualified under Code Section 125. Compensation does not include overtime, bonuses, reimbursements or other expense allowances, fringe benefits (cash or non-cash), moving expenses, deferred compensation, and contributions (other than contributions described above) made on the Employee's behalf by the Company or one or more Designated Subsidiaries under any employee benefit plan now or hereafter established. (f) "Designated Subsidiaries" shall mean the Subsidiaries which have been designated by the Board from time to time in its sole discretion as eligible to participate in the Plan. (g) "Effective Date" shall mean the later of January 1, 2006 (subject to paragraph 4(d)) or the date that the Plan is approved by the Company's stockholders. However, should any Designated Subsidiary become a Participating Company in the Plan after such date, then such entity shall designate a separate Effective Date with respect to its Employees. (h) "Eligible Employee" shall mean an Employee who is employed by the Company or a Designated Subsidiary on a given Enrollment Date; provided that the following Employees shall not be eligible to participate in the Plan for any relevant Purchase Period: (i) Employees whose customary employment is 20 hours or less per week; (ii) Employees whose 1 customary employment is for not more than 5 months in any calendar year; and (iii) Employees with less than 90 days of continuous services to the Company or a Designated Subsidiary. (i) "Employee" shall mean any individual who provides services to the Company or a Designated Subsidiary for Compensation. For purposes of the Plan, the employment relationship shall be treated as continuing intact while the individual is on sick leave or other leave of absence approved by the Company. Where the period of leave exceeds 90 days and the individual's right to reemployment is not guaranteed either by statute or by contract, the employment relationship will be deemed to have terminated on the 91st day of such leave. (j) "Enrollment Date" shall mean the first day of each Purchase Period. (k) "Exercise Date" shall mean the last day of each Purchase Period. (l) "Fair Market Value" shall mean, as of any date, the closing price of a share of Common Stock on the principal securities exchange or automated quotation system on which the Common Stock is at the time listed for trading. If there are no sales of Common Stock on that date, then the mean between the last reported bid and asked prices for that date or, if there are no bid and asked prices on that day, the closing price for the Common Stock on the next preceding day for which such closing price is quoted shall be the Fair Market Value. (m) "Participant" means an Eligible Employee of the Company or a Designated Subsidiary who has elected to participate in the Plan and who has not become an ineligible Employee or withdrawn from participation in the Plan pursuant to paragraph 5 of the Plan. (n) "Plan" shall mean this TII Network Technologies, Inc. 2005 Employee Stock Purchase Plan, as same may be amended, modified, supplemented or restated from time to time. (o) "Plan Administrator" shall mean either the Board or a committee of the Board designated by the Board as responsible for the administration of the Plan. (p) "Purchase Period" shall mean, subject to paragraph 4(d), a period of approximately six months, commencing on January 1 and July 1 of each year and terminating on the next following June 30 or December 31, respectively; provided, however, that the first Purchase Period shall commence on the Effective Date and shall end on the next June 30 or January 1, as the case may be. (q) "Purchase Price" shall mean an amount equal to 85% of the Fair Market Value of a share of Common Stock on the Enrollment Date or on the Exercise Date, whichever is lower. (r) "Reserves" shall mean the number of shares of Common Stock covered by each option under the Plan which have not yet been exercised and the number of shares of Common Stock which have been authorized for issuance under the Plan but not yet placed under option. 2 (s) "Subsidiary" shall mean a corporation (or limited liability company electing to be taxed as a corporation), domestic or foreign, whether or not same now exists or is hereafter organized or acquired by the Company or a Subsidiary, of which not less than 50% of the voting shares are held by the Company or a Subsidiary. 3. Eligibility. (a) Any Eligible Employee who is employed by the Company or a Designated Company on a given Enrollment Date shall be eligible to participate in the Plan for the Purchase Period commencing with such Enrollment Date. (b) Any provisions of the Plan to the contrary notwithstanding, no Employee shall be granted an option under the Plan if, immediately after the grant, such Employee would own stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or of any Subsidiary of the Company, taking into account stock owned by any other person whose stock would be attributed to such Employee pursuant to Code Section 424(d) and stock which such Employee may purchase under outstanding options granted by the Company. 4. Purchase Periods. (a) The Plan shall be implemented through consecutive Purchase Periods until such time as (i) the maximum number of shares of Common Stock available for issuance under the Plan shall have been purchased, or (ii) the Plan shall have been sooner terminated in accordance with paragraph 19 hereof. (b) A Participant shall be granted a separate purchase right for each Purchase Period in which he/she participates. The purchase right shall be granted on the first day of the Purchase Period and shall be automatically exercised on the last day of the Purchase Period. (c) Except as specifically provided herein, the acquisition of Common Stock through participation in the Plan for any Purchase Period shall neither limit nor require the acquisition of Common Stock by a Participant in any subsequent Purchase Period. (d) The Board shall have the power to change the duration of Purchase Periods without stockholder approval if such change is announced at least fifteen (15) days prior to the scheduled beginning of the Purchase Period to be changed. 5. Participation. (a) An Eligible Employee may become a Participant in the Plan by completing a subscription agreement authorizing payroll deductions from the Participant's Compensation on the form prescribed by the Company and by filing such agreement with the Company's Vice President-Administration at least ten (10) business days prior to the Enrollment Date for the Purchase Period in which such participation will commence, unless a later time for filing the subscription agreement is set by the Board for all Eligible Employees with respect to a given Purchase Period. 3 (b) Payroll deductions for a Participant shall commence with the first payroll date following the Enrollment Date and shall end on the last payroll date on or prior to the Exercise Date, unless sooner terminated by the Participant as provided in paragraph 10. 6. Payroll Deductions. (a) At the time a Participant files his/her subscription agreement, he/she shall elect to have payroll deductions made on each pay day during the Purchase Period in one percent (1%) increments but not greater than ten percent (10%) of the Compensation which he/she receives on each payday during the Purchase Period, subject to the limitations of paragraph 7. (b) All payroll deductions made for a Participant shall be credited to his/her account under the Plan. A Participant may not make any additional payments into such account. (c) A Participant may discontinue his or her participation in the Plan as provided in paragraph 10, or may decrease the rate of his/her payroll deductions (within the limitations set forth in subparagraph (a) above) during the Purchase Period by completing and filing with the Company a new subscription agreement authorizing a decrease in payroll deduction rate. The decrease in rate shall be effective with the first full payroll period beginning ten (10) business days after the Company's receipt of the new subscription agreement unless the Company elects to process a given change in participation more quickly. A Participant may increase the rate of his/her payroll deductions (within the limitations set forth in subparagraph (a) above) for a future Purchase Period by filing with the Company a new subscription agreement authorizing an increase in payroll deduction rate within ten (10) business days (unless the Company elects to process a given change in participation more quickly) before the commencement of the upcoming Purchase Period. A Participant's subscription agreement shall remain in effect for successive Purchase Periods unless terminated as provided in paragraph 10. The Board shall be authorized to limit the number of participation rate changes during any Purchase Period. (d) Notwithstanding the foregoing, a Participant's payroll deductions may be decreased to zero percent (0%) during any Purchase Period to the extent necessary to comply with Code Section 423(b)(8) and clauses (ii) and (iii) of paragraph 7. Payroll deductions shall recommence at the rate provided in such Participant's subscription agreement at the beginning of the first Purchase Period which is scheduled to end in the following calendar year, unless terminated by the Participant as provided in paragraph 10. 7. Grant of Option. On the first day of each Purchase Period, each Participant for that Purchase Period shall be granted an option to purchase on the Exercise Date a number of shares of Common Stock determined by dividing such Participant's payroll deductions accumulated prior to such Exercise Date and retained in the Participant's account as of the Exercise Date by the applicable Purchase Price; provided that such option shall be subject to the following limitations: (i) those set forth in paragraphs 12 and 21 hereof, (ii) the maximum number of shares of Common Stock an Eligible Employee shall be permitted to purchase in any Purchase Period shall be 2,500, and (iii) no Eligible Employee shall be granted an option to purchase Common Stock under the Plan (and all other employee stock purchase plans of the Company and its Subsidiaries) which permits his or her rights to accrue at a rate which exceeds 4 Ten Thousand Dollars ($10,000) of the Fair Market Value of such Common Stock (determined at the time such option is granted) for each calendar year in which such option is outstanding at any time, determined in accordance with Code Section 423(b)(8) and the regulations thereunder. The limitations in clauses (i) and (ii) are subject to adjustment as provided in paragraph 18. 8. Exercise of Option. Unless a Participant withdraws from the Plan as provided in paragraph 10 below, his/her option for the purchase of shares will be exercised automatically on each Exercise Date and, subject to paragraph 7, up to the maximum number of full shares subject to option shall be purchased for such Participant at the applicable Purchase Price with the accumulated payroll deductions in his/her account. No fractional shares will be purchased. Any payroll deductions accumulated in a Participant's account which are not sufficient to purchase a full share shall be carried over to the next Purchase Period if the Participant elects to participate in the next Purchase Period or if the Participant does not so elect, returned to the Participant. During a Participant's lifetime, a Participant's option to purchase shares hereunder is exercisable only by him/her. 9. Delivery. Shares to be delivered to a Participant under the Plan will be registered in the name of the Participant. As promptly as practicable, after each Exercise Date on which a purchase of shares occurs, the Company shall arrange the delivery to such Participant, as appropriate, of a certificate representing the shares purchased upon exercise of his/her options. 10. Withdrawal, Termination of Employment. (a) A Participant may withdraw all but not less than all the payroll deductions credited to his/her account and not yet used to exercise his/her option under the Plan at any time by giving written notice to the Company in the manner prescribed by the Company. All of the Participant's payroll deductions credited to his/her account will be paid to such Participant promptly after receipt of notice of withdrawal, such Participant's option for the Purchase Period will be automatically terminated, and no further payroll deductions for the purchase of shares will be made during the Purchase Period. If a Participant withdraws from a Purchase Period, payroll deductions will not resume at the beginning of the succeeding Purchase Period unless the Participant delivers to the Company a new subscription agreement to the Company's Vice President-Administration at least ten (10) business days prior to the beginning of a Purchase Period. (b) Upon a Participant's ceasing to be an Eligible Employee for any reason, the payroll deductions credited to such Participant's account during the Purchase Period but not yet used to exercise his/her option under the Plan will be returned to such Participant or, in the case of his/her death, to the person or persons entitled thereto under paragraph 14, and such Participant's option will be automatically terminated. 11. Interest. No interest shall accrue on the payroll deductions credited to a Participant's account in the Plan. 12. Stock. (a) The maximum number of shares of Common Stock which shall be made available for sale under the Plan shall be 200,000, subject to adjustment upon changes in 5 capitalization of the Company as provided in paragraph 18. If on a given Exercise Date the number of shares with respect to which options are to be exercised exceeds the number of shares then available under the Plan, the Company shall make a pro rata allocation of the shares remaining available for purchase in as uniform a manner as shall be practicable and as it shall determine to be equitable. (b) A Participant will have no interest or voting right in shares covered by his/her option until such shares are actually purchased on the Participant's behalf in accordance with the applicable provisions of the Plan and such Participant becomes the record owner of such shares. No adjustment shall be made for dividends, distributions or other rights for which the record date is prior to the date of such purchase and such Participant becomes the record owner of such shares. 13. Administration. (a) The Plan Administrator shall have full and exclusive discretionary authority to construe, interpret and apply the terms of the Plan, to determine eligibility and to adjudicate all disputed claims filed under the Plan. Every finding, decision and determination made by the Plan Administrator shall, to the fullest extent permitted by law, be final and binding under all parties. Members of the Board who are Eligible Employees are permitted to participate in the Plan except to the extent limited by paragraph 13(b) below. (b) Notwithstanding the provisions of paragraph 13(a) above, in the event that Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended, or any successor provision ("Rule 16b-3"), provides specific requirements for the administrators of plans of this type, the Plan shall be only administered by such a body and in such a manner as shall comply with the applicable requirements of Rule 16b-3. Unless permitted by Rule 16b-3, no discretion concerning decisions regarding the Plan shall be afforded to any committee or person that is not "disinterested" as that term is used in Rule 16b-3. (c) All expenses in connection with the administration of the Plan shall be borne by the Company. 14. Designation of Beneficiary. (a) Each Participant may file a written designation of a beneficiary who is to receive shares or cash from the Participant's account under the Plan in the event of such Participant's death subsequent to an Exercise Date on which the option is exercised but prior to delivery to such Participant of such shares and cash. In addition, a Participant may file a written designation of a beneficiary who is to receive any cash from the Participant's account under the Plan in the event of such Participant's death prior to exercise of the option. The manner and form of such beneficiary designations shall be prescribed by the Plan Administrator. (b) Such designation of beneficiary may be changed by the Participant at any time by written notice. In the event of the death of a Participant and in the absence of a beneficiary validly designated under the Plan who is living at the time of such Participant's death, the Company shall deliver such shares and cash to the executor or administrator of the estate of the Participant or, if no executor or administrator of the estate of the Participant exists 6 (to the knowledge of the Company), the shares and cash shall be delivered to the spouse of the Participant at the time of the Participant's death. If there is no spouse, the shares and cash may be delivered to one or more dependents of the Participant as determined by the Company. 15. Transferability. Neither payroll deductions credited to a Participant's account nor any rights with regard to the exercise of an option or to receive shares under the Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will, the laws of descent and distribution or as provided in paragraph 14 hereof) by the Participant. Any such attempt at assignment, transfer, pledge or other disposition shall be null, void and without effect, except that the Company may not treat such act as an election to withdraw funds during a Purchase Period in accordance with paragraph 10. 16. Use of Funds. All payroll deductions received or held by the Company under the Plan may be used by the Company for any corporate purpose, and the Company shall not be obligated to segregate such payroll deductions. 17. Reports. Individual bookkeeping accounts will be maintained for each Participant in the Plan. Statements of account will be given to Participants at least annually, which statements will set forth the amounts of payroll deductions, the number of shares purchased and the Purchase Prices thereof, and the remaining cash balance, if any. 18. Adjustments upon Changes in Capitalization, Dissolution, Merger or Asset Sale. (a) Subject to any required action by the stockholders of the Company, the Reserves, the number of shares specified in clause (ii) of paragraph 7 and, if such capitalization change occurs after the grant of an option, but prior to the purchase of Common Stock under such option, the number of shares to be purchased pursuant to such option and the price per share of Common Stock covered by such option shall each 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 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 and that determination shall be final, binding and conclusive. Except as expressly provided herein, no issue by the Company of a share 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. (b) In the event of (i) the liquidation or dissolution of the Company or (ii) unless other provision is made therefor by the Board, a transaction (or series of related transactions) that is approved by a majority of the members of the Company's Board of Directors who were elected by stockholders prior to the first of such transactions (including, without limitation, a merger, consolidation, sale of stock by the Company or its stockholders, tender offer or sale of assets) and in which either (x) the voting power (in the election of directors generally) of the Company's voting securities outstanding immediately prior to such transaction(s) cease to represent at least 50% of the combined voting power (in the election of directors generally) of 7 the Company or such surviving entity outstanding immediately after such transaction(s) or (y) the registration of the Common Stock under the Securities Exchange Act of 1934, as amended, is terminated, all outstanding options shall terminate upon the earliest of any such event and all payroll deductions credited to Participants' accounts but not yet used to exercise options under the Plan shall be returned to such Participants. 19. Amendment or Termination. (a) The Board may at any time and for any reason terminate or amend the Plan. Except as provided in paragraph 18, no such termination can affect options previously granted, provided that a Purchase Period may be terminated by the Board on or prior to any Exercise Date if the Board determines that the termination of the Plan is in the best interests of the Company and its stockholders. Except as provided in paragraph 18, no amendment may make any change in any option theretofor granted if such amendment adversely affects the rights of any Participant. Without the approval of stockholders, no amendment may increase the Reserves without stockholder approval, other than an adjustment pursuant to paragraph 18. In addition, to the extent necessary to comply with Rule 16b-3 or Code Section 423 (or any successor rule or provision or any other applicable law or regulation), the Company shall obtain stockholder approval in such a manner and to such a degree as required. (b) Without stockholder consent and without regard to whether any Participant's rights may be considered to have been "adversely affected," the Plan Administrator shall be entitled to change the Purchase Period, limit the frequency and/or number of changes in the amounts withheld during Purchase Periods, establish the exchange ratio applicable to amounts withheld in a currency other than U.S. dollars, permit payroll withholding in excess of the amount designated by a Participant in order to adjust for delays or mistakes in the Company's processing of properly completed withholding elections, establish reasonable waiting and adjustment periods and/or accounting and crediting procedures to ensure that amounts applied toward the purchase of Common Stock for each Participant properly correspond with amounts withheld from the Participant's Compensation, and establish such other limitations or procedures as the Plan Administrator, determines, in its sole discretion, advisable which are consistent with the Plan. 20. Notices. All notices or other communications by a Participant to the Company under or in connection with the Plan shall be deemed to have been duly given when received in the form specified by the Company at the location, or by the person, designated by the Company for the receipt thereof. 21. Conditions upon Issuance of Shares. (a) Shares shall not be issued with respect to an option unless the exercise of such option and the issuance and delivery of such shares pursuant thereto shall comply with all applicable provisions of law, domestic or foreign, including, without limitation, the Securities Act of 1933, as amended (the "Securities Act"), the Securities Exchange Act of 1934, as amended, the rules and regulations promulgated under each such law, the requirements of any stock exchange or automated quotation system upon which the shares may then be listed or quoted, and applicable income or employment tax laws. 8 (b) The Company may, but shall not be obligated to register the options or the shares subject to shares subject to any option under the Securities Act and to keep any registration statement effective or current. If the shares subject to an option are not subject to an effective and current registration statement, the Plan Administrator may require, in its sole discretion, as a condition to the receipt of an option or the exercise of any option that the Participant execute and deliver to the Company such representations and warranties, in form, substance and scope satisfactory to the Plan Administrator, as the Plan Administrator determines are necessary or appropriate to facilitate the perfection of an exemption from the registration requirements of the Securities Act, applicable state securities laws or other legal requirement, including, without limitation, that (a) the shares of Common Stock to be issued upon the exercise of the option are being acquired by the Participant for the Participant 's own account, for investment only and not with a view to the resale or distribution thereof, and (b) any subsequent resale or distribution of shares of Common Stock by such Participant will be made only pursuant to (i) a registration statement under the Securities Act which is effective and current with respect to the shares of Common Stock being sold, or (ii) a specific exemption from the registration requirements of the Securities Act, but in claiming such exemption, the Participant shall, prior to any offer of sale or sale of such shares of Common Stock, provide the Company with a favorable written opinion of counsel satisfactory to the Company, in form, substance and scope satisfactory to the Company, as to the applicability of such exemption to the proposed sale or distribution. If required and such representations, warranties or opinion are not obtained, the option may not be exercised and all payroll deductions credited to such Participant's accounts but not yet used to exercise options under the Plan shall be returned to such Participants. (c) In addition, no purchase rights may be exercised or shares issued hereunder before the Plan shall have been approved by stockholders of the Company as provided in paragraph 24. 22. Term of Plan. The Plan was adopted by the Board of Director on October 14, 2005 and shall continue in effect until the close of business on October 13, 2015 unless sooner terminated under paragraph 19. 23. Additional Restrictions of Rule 16b-3. The terms and conditions of options granted hereunder to, and the purchase of shares by, persons subject to Section 16 of the Exchange Act shall comply with the applicable provisions of Rule 16b-3. This Plan shall be deemed to contain, such options shall contain, and the shares issued upon exercise thereof shall be subject to, such additional conditions and restrictions as may be required by Rule 16b-3 to qualify for the exemption from Section 16 of the Exchange Act with respect to Plan transactions. 24. Stockholder Approval. Continuance of the Plan shall be subject to approval by the stockholders of the Company within twelve (12) months before or after the date the Plan is adopted. If such stockholder approval is obtained at a duly held stockholders' meeting, the Plan must be approved by the affirmative vote a majority of the shares present in person or represented by proxy at the meeting and entitled to vote on the subject matter at which a quorum representing a majority of the shares of the Company entitled to vote is, either in person or by proxy. If such stockholder approval is obtained by written consent, it must be obtained by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon 9 were present and voted. However, approval at a meeting or by written consent shall be by a higher degree of stockholder approval shall be required if the Board determines, in its discretion after consultation with the Company's legal counsel, that such a higher degree of stockholder approval is necessary to comply with all applicable laws or will adversely affect the qualification of the Plan under Code Section 423. 25. Notice of Designation. Each participant shall notify the Company if the participant disposes of any of the shares purchased in any Purchase Period pursuant to this Plan if such disposition occurs within two (2) years from the Enrollment Date or within twelve (12) months from the Exercise Date on which such shares were purchased. Unless and until such participant disposes of any of such shares during such period, such participant shall keep the certificates representing such shares in his or her name (and not in the name of a nominee). The Company may, at any time during such period, place and maintain a legend or legends on any certificate representing shares acquired pursuant to the Plan requesting the Company's transfer agent to notify the Company of any transfer of the shares. The obligation of the participant to provide such notice shall continue notwithstanding the placement of any such legend on certificates. 26. No Employment Rights. The Plan does not, directly or indirectly, create any right for the benefit of any Employee or class of Employees to purchase any shares under the Plan, or create in any Employee or class of Employees any right to continued employment by the Company, and it shall not be deemed to interfere in any way the Company's right to terminate, or otherwise modify, an Employee's employment at any time. 27. Effect of Plan. The provisions of the Plan shall, in accordance with its terms, be binding upon, and inure to the benefit of, all successors of each Participant in the Plan, including, without limitation, such Participant's estate and the executors, administrators or trustees thereof, heirs and legatees, and any receiver, trustee in bankruptcy or representative of creditors of such Participant. 10 EX-99 3 ex99_2-f8k120105.txt EX-99.2; DESCRIPTION OF ARRANGEMENT Exhibit 99.2 ARRANGEMENT TO PERMIT DIRECTORS TO ACCEPT SHARES OF COMMON STOCK OF THE COMPANY IN LIEU OF ANNUAL DIRECTORS' FEES Subject to approval by the Company's stockholders at the Company's 2005 Annual Meeting of Stockholders, Non-Employee Directors (as defined in the Company's 2003 Non-Employee Director Stock Option Plan) may, in lieu of receiving cash, elect, at or prior to each annual meeting of stockholders, to receive their annual retainer (the "Annual Retainer") of $11,750 ($29,400 in the case of the non-executive Chairman of the Board) of the Company's Common Stock (valued at the fair market value of the Company's Common Stock on the date of the applicable annual meeting of stockholders of the Company, such fair market value to be determined in the same manner as determined under the Company's 2003 Non-Employee Director Stock Option Plan). The Non-Employee Director electing to receive such shares shall, prior to the issuance of such shares, pay to the Company the par value of the shares issued. The shares will be subject to forfeiture in the event the Non-Employee Director resigns or is removed for cause before the next annual meeting of stockholders of the Company. The shares issued will be held in escrow by the Secretary of the Company and will be released (i) to the Company if the shares are so forfeited or (ii) to the Non-Employee Director at, or as promptly as practicable after, the next annual meeting of stockholders of the Company if the shares shall not have been so forfeited prior thereto. Any shares received in lieu of any portion of the cash Annual Retainer will not count against the number of shares that are to be granted to a non-employee director under the Company's 2003 Non-Employee Director Stock Option Plan. EX-99 4 ex99_3-f8k120105.txt EX-99.3; 1998 STOCK OPTION PLAN, AS AMENDED Exhibit 99.3 1998 STOCK OPTION PLAN OF TII NETWORK TECHNOLOGIES, INC. (AS AMENDED THROUGH DECEMBER 1, 2005) 1. PURPOSES OF THE PLAN. This stock option plan (the "Plan") is designed to provide an incentive to employees (including directors and officers who are employees) and directors of, and consultants to, TII NETWORK TECHNOLOGIES, INC., a Delaware corporation (the "Company"), or any Parent or Subsidiary (as such terms are defined in Paragraph 19 hereof) of the Company, and to offer an additional inducement in obtaining the services of such persons. The Plan provides for the grant of "incentive stock options" ("ISOs") within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), and nonqualified stock options which do not qualify as ISOs ("NQSOs"). The Company makes no representation or warranty, express or implied, as to the qualification of any option as an "incentive stock option" under the Code. 2. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Paragraph 12 hereof, the aggregate number of shares of Common Stock, $.01 par value per share, of the Company ("Common Stock") for which options may be granted under the Plan shall not exceed 3,000,000. Such shares of Common Stock may consist either in whole or in part of authorized but unissued shares of Common Stock or shares of Common Stock held in the treasury of the Company. Subject to the provisions of Paragraph 13 hereof, any shares of Common Stock subject to an option which for any reason expires, is canceled or is terminated unexercised or which ceases for any reason to be exercisable, shall again become available for the granting of options under the Plan. The Company shall at all times during the term of the Plan reserve and keep available such number of shares of Common Stock as will be sufficient to satisfy the requirements of the Plan. 3. ADMINISTRATION OF THE PLAN. The Plan shall be administered by the Board of Directors or a committee (the "Committee") of the Board of Directors of the Company (the "Board of Directors"), which Committee, to the extent required by Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended (as the same may be in effect and interpreted from time to time, "Rule 16b-3"), shall consist of not less than two (2) directors, each of whom shall be a non-employee director within the meaning of Rule 16b-3. Unless otherwise provided in the By-laws of the Company or by resolution of the Board of Directors, a majority of the members of the Committee shall constitute a quorum, and the acts of a majority of the members present at any meeting at which a quorum is present, and any acts approved in writing by all of the members of the Committee without a meeting, shall be the acts of the Committee. Those administering the Plan are referred to herein as the "Administrators". 1 Subject to the express provisions of the Plan, the Administrators shall have the authority, in their sole discretion, to determine: the employees, consultants and directors who shall be granted options; whether an option to be granted to a employee is to be in ISO or an NQSO (options to be granted to consultants and directors who are not employees shall be NQSOs); the times when an option shall be granted; the number of shares of Common Stock to be subject to each option; the term of each option; the date each option shall become exercisable; whether an option shall be exercisable in whole, in part or in installments and, if in installments, the number of shares of Common Stock to be subject to each installment, whether the installments shall be cumulative, the date each installment shall become exercisable and the term of each installment; whether to accelerate the date of exercise of any option or installment; whether shares of Common Stock may be issued upon the exercise of an option as partly paid and, if so, the dates when future installments of the exercise price shall become due and the amounts of such installments; the exercise price of each option; the form of payment of the exercise price; whether to restrict the sale or other disposition of the shares of Common Stock acquired upon the exercise of an option and, if so, whether and under what conditions to waive any such restriction; whether and under what conditions to subject all or a portion of the grant, the vesting or the exercise of an option or the shares acquired pursuant to the exercise of an option to the fulfillment of certain restrictions or contingencies as specified in the contract referred to in Paragraph 11 hereof (the "Contract"), including, without limitation, restrictions or contingencies relating to entering into a covenant not to compete with the Company, any of its Subsidiaries or a Parent (as such term is defined in Paragraph 19 hereof), to financial objectives for the Company, any of its Subsidiaries or a Parent, a division of any of the foregoing, a product line or other category, and/or to the period of continued employment of the optionee with the Company, any of its Subsidiaries or a Parent, and to determine whether such restrictions or contingencies have been met; whether an optionee is Disabled (as such term is defined in Paragraph 19 hereof); the amount, if any, necessary to satisfy the obligation of the Company, a Subsidiary or Parent to withhold taxes or other amounts; the fair market value of a share of Common Stock; to construe the respective Contracts and the Plan; with the consent of the optionee, to cancel or modify an option, provided that the modified provision is permitted to be included in an option granted under the Plan on the date of the modification, and provided, further, that in the case of a modification (within the meaning of Section 424(h) of the Code) of an ISO, such option as modified would be permitted to be granted on the date of such modification under the terms of the Plan; to prescribe, amend and rescind rules and regulations relating to the Plan; to approve any provision of the Plan or any option granted under the Plan, or any amendment to either, which under Rule 16b-3 requires the approval of the Board of Directors, a committee of non-employee directors or the stockholders in order to be exempt (unless otherwise specifically provided herein); and to make all other determinations necessary or advisable for administering the Plan. Any controversy or claim arising out of or relating to the Plan, any option granted under the Plan or any Contract shall be determined unilaterally by the Administrators in their sole discretion. The determinations of the Administrators on the matters referred to in this Paragraph 3 shall be conclusive and binding on the parties thereto. No Administrator or former Administrator shall be liable for any action, failure to act or determination made in good faith with respect to the Plan or any option hereunder. 2 4. ELIGIBILITY. The Administrators may from time to time, in their sole discretion, consistent with the purposes of the Plan, grant options to (a) employees (including officers and directors who are employees) of, (b) directors (who are not employees) of, and (c) consultants to, the Company or any Parent or Subsidiary of the Company. Such options granted shall cover such number of shares of Common Stock as the Administrators may determine, in their sole discretion, as set forth in the applicable Contract; provided, however, that the maximum number of shares subject to options that may be granted to any employee during any calendar year under the Plan (the "162(m) Maximum") shall be 250,000 shares; and provided, further, that the aggregate market value (determined at the time the option is granted in accordance with Paragraph 5 hereof) of the shares of Common Stock for which any eligible employee may be granted ISOs under the Plan or any other plan of the Company, or of a Parent or a Subsidiary of the Company, which are exercisable for the first time by such optionee during any calendar year shall not exceed $100,000. Such ISO limitation shall be applied by taking ISOs into account in the order in which they were granted. Any option granted in excess of such ISO limitation amount shall be treated as a NQSO to the extent of such excess. 5. EXERCISE PRICE. The exercise price of the shares of Common Stock under each option shall be determined by the Administrators, in their sole discretion, as set forth in the applicable Contract; provided, however, that the exercise price of an ISO shall not be less than the fair market value of the Common Stock subject to such option on the date of grant; and provided, further, that if, at the time an ISO is granted, the optionee owns (or is deemed to own under Section 424(d) of the Code) stock possessing more than 10% of the total combined voting power of all classes of stock of the Company, of any of its Subsidiaries or of a Parent, the exercise price of such ISO shall not be less than 110% of the fair market value of the Common Stock subject to such ISO on the date of grant. The fair market value of a share of Common Stock on any day shall be (a) if actual sales price information is available with respect to the Common Stock, the average of the highest and lowest sales prices per share of Common Stock on such day, or (b) if such information is not available, the average of the highest bid and lowest asked prices per share of Common Stock on such day as reported by the market upon which the Common Stock is quoted, The Wall Street Journal, the National Quotation Bureau Incorporated or an independent dealer in the Common Stock, as determined by the Company; provided, however, that if clauses (a) and (b) of this Paragraph are all inapplicable, or if no trades have been made or no quotes are available for such day, the fair market value of the Common Stock shall be determined by the Board of Directors by any method consistent with applicable regulations adopted by the Treasury Department relating to stock options. 6. TERM. The term of each option granted pursuant to the Plan shall be such term as is established by the Administrators, in their sole discretion, as set forth in the applicable Contract; provided, however, that the term of each ISO granted pursuant to the Plan shall be for a period not exceeding ten (10) years from the date of grant thereof; and provided, further, that if, at the time an ISO is granted, the optionee owns (or is deemed to own under Section 424(d) of the Code) stock possessing more than 10% of the total combined voting power of all classes of stock of the Company, any of its Subsidiaries or a Parent, the term of the ISO 3 shall be for a period not exceeding five (5) years from the date of grant. Options shall be subject to earlier termination as hereinafter provided. 7. EXERCISE. An option (or any part or installment thereof), to the extent then exercisable, shall be exercised by giving written notice to the Company at its principal office stating which option is being exercised, specifying the number of shares of Common Stock as to which such option is being exercised and accompanied by payment in full of the aggregate exercise price therefor (or the amount due on exercise if the applicable Contract permits installment payments) (a) in cash or by certified check or (b) if the applicable Contract permits, with previously acquired shares of Common Stock having an aggregate fair market value on the date of exercise (determined in accordance with Paragraph 5 hereof) equal to the aggregate exercise price of all options being exercised or a combination of cash, certified check or shares of Common Stock having such value. The Company shall not be required to issue any shares of Common Stock pursuant to any such option until all required payments, including payments for any required withholding amounts, have been made. The Administrators may, in their sole discretion (in the Contract or otherwise), permit payment of the exercise price of an option by delivery by the optionee of a properly executed notice, together with a copy of his irrevocable instructions to a broker acceptable to the Administrators to deliver promptly to the Company the amount of sale or loan proceeds sufficient to pay such exercise price. In connection therewith, the Company may enter into agreements for coordinated procedures with one or more brokerage firms. A person entitled to receive Common Stock upon the exercise of an option shall not have the rights of a stockholder with respect to such shares of Common Stock until the date of issuance of a stock certificate for such shares or, in the case of uncertificated shares, until the date an entry is made on the books of the Company's transfer agent representing such shares; provided, however, that until such stock certificate is issued or until such book entry is made, any optionee using previously acquired shares of Common Stock in payment of an option exercise price shall continue to have the rights of a stockholder with respect to such previously acquired shares. In no case may a fraction of a share of Common Stock be purchased or issued under the Plan. 8. TERMINATION OF RELATIONSHIP. Except as may otherwise be expressly provided in the applicable Contract, any optionee whose relationship with the Company, its Subsidiaries and Parent as an employee, director or consultant has terminated for any reason (other than as a result of the death or Disability (as such term is defined in Paragraph 19 hereof) of the Optionee) may exercise such option, to the extent exercisable on the date of such termination, at any time within three months after the date of termination, but not thereafter and in no event after the date the option would otherwise have expired; provided, however, that if such relationship is terminated either (a) for Cause (as such term is defined in Paragraph 19 hereof), or (b) without the consent of the Company, such option shall terminate immediately. 4 For the purposes of the Plan, an employment relationship shall be deemed to exist between an individual and the Company, any of its Subsidiaries or a Parent if, at the time of the determination, the individual was an employee of such corporation for purposes of Section 422(a) of the Code. As a result, an individual on military, sick leave or other bona fide leave of absence shall continue to be considered an employee for purposes of the Plan during such leave if the period of the leave does not exceed 90 days or, if longer, so long as the individual's right to reemployment with the Company, any of its Subsidiaries or a Parent is guaranteed either by statute or by contract. If the period of leave exceeds 90 days and the individual's right to reemployment is not guaranteed by statute or by contract, the employment relationship shall be deemed to have terminated on the 91st day of such leave. Notwithstanding the foregoing, except as may otherwise be expressly provided in the applicable Contract, options granted under the Plan shall not be affected by any change in the status of the optionee so long as the optionee continues to be an employee or director of, or a consultant to, the Company, any of its Subsidiaries or a Parent (regardless of having changed from one position to another or having been transferred from one entity to another). Nothing in the Plan or in any option granted under the Plan shall confer on any optionee any right to continue in the employ of, as a director of, or as a consultant to, the Company, any of its Subsidiaries or a Parent, or interfere in any way with any right of the Company, any of its Subsidiaries or a Parent to terminate the optionee's relationship at any time for any reason whatsoever without liability to the Company, any of its Subsidiaries or a Parent. 9. DEATH OR DISABILITY OF AN OPTIONEE. Except as may otherwise be expressly provided in the applicable Contract, if an individual optionee dies (a) while he is an employee or director of, or a consultant to, the Company, any of its Subsidiaries or a Parent, (b) within three months after the termination of such relationship (unless such termination was for Cause or without the consent of the Company or such Subsidiary or Parent) or (c) within one year following the termination of such relationship by reason of Disability, the optionee's option may be exercised, to the extent exercisable on the date of the optionee's death, by the optionee's Legal Representative (as defined in Paragraph 19) at any time within one year after death, but not thereafter and in no event after the date the option would otherwise have expired. Except as may otherwise be expressly provided in the applicable Contract, any optionee whose relationship as an employee or director of, or a consultant to, the Company, any of its Subsidiaries or a Parent has terminated by reason of Disability (without continuing in another such capacity) may exercise the optionee's option, to the extent exercisable upon the effective date of such termination, at any time within one year after such date, but not thereafter and in no event after the date the option would otherwise have expired. 10. COMPLIANCE WITH SECURITIES LAWS. It is a condition to the exercise of any option that either (a) a Registration Statement under the Securities Act of 1933, as amended (the "Securities Act"), with respect to the shares of Common Stock to be issued upon such exercise shall be effective and current at the time of exercise or (b) there is an exemption from registration under the Securities Act for the issuance of the shares of Common Stock upon such exercise. Nothing herein shall be construed as requiring the Company to register shares 5 subject to any option under the Securities Act or to keep any Registration Statement effective or current. The Administrators may require, in their sole discretion, as a condition to the receipt of an option or the exercise of any option that the optionee execute and deliver to the Company such representations and warranties, in form, substance and scope satisfactory to the Administrators, as the Administrators determine are necessary or appropriate to facilitate the perfection of an exemption from the registration requirements of the Securities Act, applicable state securities laws or other legal requirement, including, without limitation, that (a) the shares of Common Stock to be issued upon the exercise of the option are being acquired by the optionee for the optionee's own account, for investment only and not with a view to the resale or distribution thereof, and (b) any subsequent resale or distribution of shares of Common Stock by such optionee will be made only pursuant to (i) a Registration Statement under the Securities Act which is effective and current with respect to the shares of Common Stock being sold, or (ii) a specific exemption from the registration requirements of the Securities Act, but in claiming such exemption, the optionee shall, prior to any offer of sale or sale of such shares of Common Stock, provide the Company with a favorable written opinion of counsel satisfactory to the Company, in form, substance and scope satisfactory to the Company, as to the applicability of such exemption to the proposed sale or distribution. In addition, if at any time the Administrators shall determine, in their sole discretion, that the listing or qualification of the shares of Common Stock subject to any option on any securities exchange, Nasdaq or under any applicable law, or the consent or approval of any governmental agency or self-regulatory body, is necessary or desirable as a condition to, or in connection with, the granting of an option or the issuing of shares of Common Stock upon the exercise thereof, such option may not be granted and such option may not be exercised in whole or in part unless such listing, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Administrators. 11. CONTRACTS. Each option shall be evidenced by an appropriate Contract which shall be duly executed by the Company and the optionee, which Contract shall contain such terms, provisions and conditions not inconsistent herewith as may be determined by the Administrators. The terms of each option and Contract need not be identical. 12. ADJUSTMENTS UPON CHANGES IN COMMON STOCK. Notwithstanding any other provision of the Plan, in the event of a stock dividend, stock split, combination, reclassification, recapitalization, merger in which the Company is the surviving corporation, spin-off, split-up or exchange of shares or the like which results in a change in the number or kind of shares of Common Stock which is outstanding immediately prior to such event, the aggregate number and kind of shares subject to the Plan, the aggregate number and kind of shares subject to each outstanding option and the exercise price thereof, and the 162(m) Maximum shall be appropriately adjusted by the Board of Directors, whose determination shall be conclusive and binding on all parties thereto. Such adjustment may provide for the elimination of fractional shares which might otherwise be subject to options without payment therefor. 6 In the event of (a) the liquidation or dissolution of the Company, or (b) a transaction (or series of related transactions) that is approved by a majority of the members of the Company's Board of Directors who were elected by stockholders prior to the first of such transactions (including, without limitation, a merger, consolidation, sale of stock by the Company or its stockholders, tender offer or sale of assets) and in which either (i) the voting power (in the election of directors generally) of the Company's voting securities outstanding immediately prior to such transaction(s) cease to represent at least 50% of the combined voting power (in the election of directors generally) of the Company or such surviving entity outstanding immediately after such transaction(s) or (ii) the registration of the Common Stock under the Securities Exchange Act of 1934 is terminated, then all outstanding options shall terminate upon the earliest of any such event, unless other provision is made therefor in the transaction. 13. AMENDMENTS AND TERMINATION OF THE PLAN. The Plan was adopted by the Board of Directors on October 8, 1998. No ISO may be granted under the Plan after October 7, 2008. The Board of Directors, without further approval of the Company's stockholders, may at any time suspend or terminate the Plan, in whole or in part, or amend it from time to time in such respects as it may deem advisable, including, without limitation, in order that ISOs granted hereunder meet the requirements for "incentive stock options" under the Code, or to comply with the provisions of Rule 16b-3, Section 162(m) of the Code or any change in applicable law, regulations, rulings or interpretations of administrative agencies; provided, however, that no amendment shall be effective without the requisite prior or subsequent stockholder approval which would (a) except as contemplated in Paragraph 12 hereof, increase the maximum number of shares of Common Stock for which options may be granted under the Plan or the 162(m) Maximum, (b) change the eligibility requirements to receive options hereunder or (c) make any change for which applicable law requires stockholder approval. No termination, suspension or amendment of the Plan shall, without the consent of the optionee, adversely affect the optionee's rights under any option granted under the Plan. The power of the Administrators to construe and administer any option granted under the Plan prior to the termination or suspension of the Plan nevertheless shall continue after such termination or during such suspension. 14. NON-TRANSFERABILITY. No option granted under the Plan shall be transferable otherwise than by will or the laws of descent and distribution, and options may be exercised, during the lifetime of the optionee, only by the optionee or his Legal Representatives. Except to the extent provided in the immediately preceding sentence, options may not be assigned, transferred, pledged, hypothecated or disposed of in any way (whether by operation of law or otherwise) and shall not be subject to execution, attachment or similar process, and any such attempted assignment, transfer, pledge, hypothecation or disposition shall be null and void ab initio and of no force or effect. 15. WITHHOLDING TAXES. The Company, a Subsidiary or Parent may withhold (a) cash or (b) with the consent of the Administrators (in the Contract or otherwise), shares of Common Stock to be issued upon exercise of an option having an aggregate fair market 7 value on the relevant date (determined in accordance with Paragraph 5 hereof) or a combination of cash and shares, in an amount equal to the amount which the Administrators determine is necessary to satisfy the obligation of the Company, a Subsidiary or Parent to withhold Federal, state and local income taxes or other amounts incurred by reason of the grant, vesting, exercise or disposition of an option, or the disposition of the underlying shares of Common Stock. Alternatively, the Company, a Subsidiary or Parent may require the holder to pay to it such amount, in cash, promptly upon demand. 16. LEGENDS; PAYMENT OF EXPENSES. The Company may endorse such legend or legends upon the certificates for shares of Common Stock issued upon exercise of an option under the Plan and may issue such "stop transfer" instructions to its transfer agent in respect of such shares as it determines, in its discretion, to be necessary or appropriate to (a) prevent a violation of, or to perfect an exemption from, the registration requirements of the Securities Act and any applicable state securities laws, (b) implement the provisions of the Plan or any agreement between the Company and the optionee with respect to such shares of Common Stock or (c) permit the Company to determine the occurrence of a "disqualifying disposition," as described in Section 421(b) of the Code, of the shares of Common Stock issued or transferred upon the exercise of an ISO granted under the Plan. The Company shall pay all issuance taxes with respect to the issuance of shares of Common Stock upon the exercise of an option granted under the Plan, as well as all fees and expenses incurred by the Company in connection with such issuance. 17. USE OF PROCEEDS. The cash proceeds received upon the exercise of an option under the Plan shall be added to the general funds of the Company and used for such corporate purposes as the Board of Directors may determine, in its discretion. 18. SUBSTITUTIONS AND ASSUMPTIONS OF OPTIONS OF CERTAIN CONSTITUENT CORPORATIONS. Anything in this Plan to the contrary notwithstanding, the Board of Directors may, without further approval by the Company's stockholders, substitute new options for prior options of a Constituent Corporation (as such term is defined in Paragraph 19 thereof) or assume the prior options of such Constituent Corporation. 19. DEFINITIONS. For purposes of the Plan, the following terms shall be defined as set forth below: (a) "Cause" shall mean (i) in the case of an employee or consultant, if there is a written employment or consulting agreement between the optionee and the Company, any of its Subsidiaries or a Parent which defines termination of such relationship for cause, cause as defined in such agreement, and (ii) in all other cases, cause within the meaning of applicable state law. (b) "Constituent Corporation" shall mean any corporation which engages with the Company, any of its Subsidiaries or a Parent in a transaction to which Section 8 424(a) of the Code applies (or would apply if the option assumed or substituted were an ISO), or any Parent or any Subsidiary of such corporation. (c) "Disability" shall mean a permanent and total disability within the meaning of Section 22(e)(3) of the Code. (d) "Legal Representative" shall mean the executor, administrator or other person who at the time is entitled by law to exercise the rights of a deceased or incapacitated optionee with respect to an option granted under the Plan. (e) "Parent" shall have the same definition as "parent corporation" in Section 424(e) of the Code. (f) "Subsidiary" shall have the same definition as "subsidiary corporation" in Section 424(f) of the Code. 20. GOVERNING LAW; CONSTRUCTION. The Plan, the options and Contracts hereunder and all related matters shall be governed by, and construed in accordance with, the laws of the State of Delaware, without regard to conflict of law provisions. Neither the Plan nor any Contract shall be construed or interpreted with any presumption against the Company by reason of the Company causing the Plan or Contract to be drafted. Whenever from the context it appears appropriate, any term stated in either the singular or plural shall include the singular and plural, and any term stated in the masculine, feminine or neuter gender shall include the masculine, feminine and neuter. 21. PARTIAL INVALIDITY. The invalidity, illegality or unenforceability of any provision in the Plan, any option or Contract shall not affect the validity, legality or enforceability of any other provision, all of which shall be valid, legal and enforceable to the fullest extent permitted by applicable law. 22. STOCKHOLDER APPROVAL. The Plan shall be subject to approval by a majority of the votes present in person or by proxy and entitled to vote thereon at the next duly held meeting of the Company's stockholders at which a quorum is present. No options granted hereunder may be exercised prior to such approval; provided, however, that the date of grant of any option shall be determined as if the Plan had not been subject to such approval. The amendment to the Plan authorized by the Board on September 5, 2000 shall be effective on the date of the Company's 2000 Annual Meeting of Stockholders provided it is approved by stockholders at such meeting. If the amendment is not approved, the Plan as it exists prior to such amendment shall continue in full force and effect. 9 EX-99 5 ex99_4-f8k120105.txt EX-99.4; 2003 NON-EMP. DIR STK OPT PLAN Exhibit 99.4 TII NETWORK TECHNOLOGIES, INC. 2003 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN (AS AMENDED EFFECTIVE DECEMBER 1, 2005) 1. PURPOSE OF THE PLAN The purpose of this 2003 Non-Employee Director Stock Option Plan (the "Plan") of TII Network Technologies, Inc., a Delaware corporation (the "Company"), is to make available shares of the Common Stock, par value $.01 per share, of the Company (the "Common Stock") for purchase by Directors who are not common law employees of the Company (the "Non-Employee Directors") and thus to attract and retain the services of experienced and knowledgeable Non-Employee Directors for the benefit of the Company and its stockholders and to provide additional incentive for such Non-Employee Directors to continue to work for the best interests of the Company and its stockholders through continuing ownership of Common Stock. 2. STOCK SUBJECT TO THE PLAN Subject to the provisions of Article 10, the total number of shares of Common Stock for which options may be granted under the Plan shall be 500,000. Shares issued under the Plan may be either authorized but unissued shares or shares which shall have been purchased or acquired by the Company for this or any other purpose. Such shares are from time to time to be allotted for option and sale to Non-Employee Directors in accordance with the Plan. In the event any option granted under the Plan shall expire, be canceled or terminate for any reason without having been exercised in full or shall cease for any reason to be exercisable in whole or in part, the unpurchased shares subject thereto shall again be available for grant under the Plan. 3. ADMINISTRATION OF THE PLAN The Plan shall be administered by the Board of Directors of the Company (the "Board"). The Board shall, subject to the express provisions of the Plan, grant options pursuant to the terms of the Plan; shall have the power to interpret the Plan, correct any defect, supply any omission or reconcile any inconsistency in the Plan; prescribe, amend and rescind rules and regulations relating to, but not inconsistent with, the Plan; determine the terms and provisions of the respective option agreements (which need not be identical); and make determinations necessary or advisable for the administration of the Plan. The determination of the Board on the matters referred to in this Article 3 shall be conclusive. No member of the Board shall be liable for any action or determination made in good faith with respect to the Plan or any options granted hereunder 4. OPTION GRANTS (a) Subject to clause (d) of this Article 4, each individual who subsequent to the day on which the Company's 2003 Annual Meeting of Stockholders is concluded becomes a Non- 1 Employee Director for the first time shall, effective as of the date such person becomes a Non-Employee Director, be granted an initial option to purchase 24,000 shares of Common Stock (an "Initial Option"). (b) In addition, immediately following the Company's 2003 and 2004 Annual Meetings of Stockholders, each Non-Employee Director in office immediately following the conclusion of such meeting (whether or not elected at such meeting) shall, effective as of the date such meeting is held, be granted, at the organization meeting of the newly elected Board following such annual meeting of stockholders, an option ("Annual Options") to purchase 5,000 shares of Common Stock plus 5,000 shares of Common Stock for each then standing Committee of the Board on which such director will be serving and 2,000 shares of Common Stock for each such standing Committee of the Board as to which such director will be serving as Chairperson; provided that an individual who becomes a Non-Employee Director for the first time at an annual meeting of stockholders shall only be granted an Initial Option under clause (a) of this Article 4 and options with respect to such Committee memberships and Chairpersonships under this clause (b) of this Article 4. (c) In addition, immediately following the Company's 2005 Annual Meeting of Stockholders and at each annual meeting of stockholders thereafter at which directors are elected, each Non-Employee Director in office immediately following the conclusion of such meeting (whether or not elected at such meeting) shall, effective as of the date such meeting is held, be granted, at the organization meeting of the newly elected Board following such annual meeting of stockholders), an Annual Option to purchase 10,000 shares of Common Stock plus 5,000 shares of Common Stock for each then standing Committee of the Board on which such director will be serving (10,000 shares in the case of the Executive Committee of the Board) and 10,000 shares of Common Stock for each such standing Committee of the Board as to which such director will be serving as Chairperson (20,000 shares in the case of the Chairperson of the Executive Committee); provided that an individual who becomes a Non-Employee Director for the first time at an annual meeting of stockholders shall only be granted an Initial Option under clause (a) of this Article 4 and options with respect to such Committee memberships and Chairpersonships under this clause (c) of this Article 4. (d) An employee of the Company who ceases such relationship shall not be deemed to become a Non-Employee Director unless and until he or she is serving as a Non-Employee Director immediately following the conclusion of the next annual meeting of stockholders at which Directors are elected (including if such person is not subject to election as a Director at such meeting) and shall not be entitled to an Initial Option. 5. OPTION PRICE The exercise price at which shares of the Common Stock may be purchased pursuant to options granted under the Plan shall be 100% of the fair market value of the Common Stock on the date an option is granted, but not less than the par value of the Common Stock. The fair market value of the Common Stock on any day shall be (a) if actual sales price information is generally reported for the Common Stock on its principal market, the closing price of the 2 Common Stock on such day (or last day of trade prior to such day if not traded on such day), (b) if actual sales price information is not generally reported for the Common Stock on its principal market, the mean between the highest bid and lowest asked prices for the Common Stock on such day (or the last day quoted prior to such day if not quoted on such day), in each case as reported by such market or on a consolidated tape reflecting transactions on such market, or (c) if neither of the above are applicable, the mean between the then current highest independent bid and lowest independent asked prices for the Common Stock, determined by the Board (the determination of which shall be conclusive) on the basis of reasonable inquiry. 6. TERM OF EACH OPTION The term of each option shall be ten years (the "Scheduled Expiration Date"), subject to earlier termination as provided in the Plan. 7. EXERCISE OF OPTIONS (a) An Initial Option, subject to the provisions of Article 9, shall vest and become exercisable, on a cumulative basis, in twelve equal quarterly installments commencing one year following the date of grant. Annual Options, subject to the provisions of Article 9, shall vest and be exercisable, with respect to those Annual Options to be granted at the organization meeting of the newly elected Board following the Company's 2005 Annual Meeting of Stockholders, in eight equal quarterly installments commencing immediately upon grant and, with respect to Annual Options granted thereafter, in four equal quarterly installments commencing immediately upon grant. (b) A Non-Employee Director purchasing less than the number of shares available to him or her in any period under the option may purchase any such unpurchased shares in any subsequent period of the option term. (c) The option shall not be exercisable at any time in an amount less than 100 shares (or the remaining shares then covered by and purchasable under the option if less than 100 shares). In no case may a fraction of a share be exercised, purchased or issued under the Plan. (d) The purchase price of the shares as to which an option shall be exercised shall be paid in full in cash or by check at the time of exercise. In addition, the Non-Employee Director shall pay to the Company in cash, upon demand, the amount, if any, which the Company determines is necessary to satisfy its obligation to withhold federal, state and local income and other taxes or other amounts incurred by reason of the grant or exercise of the option. (e) An option (or any part thereof), to the extent then exercisable, shall be exercised by giving written notice to the Company at its principal office, specifying the number of shares of Common Stock as to which such option is being exercised and accompanied by payment in full of the aggregate exercise price therefor. 3 (f) A Non-Employee Director entitled to receive shares of Common Stock upon the exercise of an option shall not have the rights of a stockholder with respect to such shares of Common Stock until the date of issuance of a stock certificate to him or her for such shares. (g) Nothing in the Plan or in any option granted under the Plan shall confer on any Non-Employee Director any right to continue as a director of the Company. 8. NON-TRANSFERABILITY OF OPTIONS No option granted under the Plan shall be transferable other than by will or the laws of descent and distribution by the Non-Employee Director or his or her legal representatives, and may be exercised during the Non-Employee Director's lifetime only by him or her. Except to such extent, options may not be assigned, transferred, pledged, hypothecated or disposed of in any way (whether by operation of law or otherwise) and shall not be subject to execution, attachment or similar process. 9. TERMINATION OF SERVICES ON THE BOARD OF DIRECTORS In the event that a Non-Employee Director to whom an option has been granted under the Plan shall cease to serve on the Board for any reason (including as a result of not being re-elected to the Board, death or disability), such option may be exercised in whole or in part by the Non-Employee Director, at any time within one year after such cessation of service but not thereafter, and in no event after the scheduled expiration date of the option; provided, however, that if his or her service on the Board shall have been terminated for cause or if he or she resigns without the consent of a majority of the remaining members of the Board, his or her options shall terminate immediately. 10. ADJUSTMENT OF AND CHANGES IN COMMON STOCK (a) In the event of any change in the outstanding Common Stock by reason of a stock dividend, stock split, stock combination, recapitalization, spin-off, split up, merger in which the Company is the surviving corporation, reorganization or the like, the aggregate number and kind of shares subject to the Plan, the number and kind of shares to be granted initially and annually, and the aggregate number and kind of shares subject to each outstanding option and the exercise price thereof shall be adjusted by the Board in a manner similar to the antidilution adjustments made under the Company's employee stock option plans. (b) In the event of (i) the liquidation or dissolution of the Company, (ii) a merger or consolidation in which the Company is not the surviving corporation, or (iii) any other capital reorganization in which more than 50% of the shares of Common Stock of the Company are exchanged, outstanding options shall terminate, unless other provision is made therefor in the transaction (which provision shall be made in a manner similar to the provision made for options granted under the Company's employee stock option plans). 4 11. COMPLIANCE WITH SECURITIES LAWS (a) It is a condition to the exercise of any option that either (i) a Registration Statement under the Securities Act of 1933, as amended, or any succeeding act (collectively, the "Securities Act"), with respect to its underlying shares shall be effective and current at the time of exercise of the option or (ii) in the opinion of counsel to the Company, there shall be an exemption from registration under the Securities Act for the issuance of shares of Common Stock upon such exercise. Nothing herein shall be construed as requiring the Company to register shares subject to the Plan for issuance or for resale. (b) In connection with fulfilling the condition set forth in clause (a)(ii) of this Article 11, the Company may require a Non-Employee Director, as a condition to the exercise of an option, to execute and deliver to the Company representations and warranties, in form and substance satisfactory to counsel to the Company, that (i) the shares of Common Stock to be issued upon the exercise of the option are being acquired by the Non-Employee Director for his or her own account, for investment only and not with a view to the resale or distribution thereof, all within the meaning of the Securities Act, and (ii) any subsequent resale or distribution of shares of Common Stock by such Non-Employee Director will be made only pursuant to (x) a Registration Statement under the Securities Act which is effective and current with respect to the shares of Common Stock being sold at the time of sale or (y) a specific exemption from the registration requirements of the Securities Act, but in claiming such exemption, the Non-Employee Director shall, prior to any offer or sale or distribution of such shares of Common Stock, provide the Company with a favorable written opinion of counsel, in form and substance satisfactory to counsel to the Company, as to the applicability of such exemption to the proposed sale or distribution. The Company may endorse such legend or legends upon the certificates for shares of Common Stock issued upon exercise of an option under the Plan, and may issue such "stop transfer" instructions to its transfer agent in respect of such shares, as it determines, in its discretion, to be necessary or appropriate to prevent a violation of, or to perfect an exemption from, the registration requirements of the Securities Act. (c) The Company may also require, as a further condition to the exercise of an option, in whole or in part, that the shares of Common Stock underlying such option or the Plan be specifically listed on the securities markets on which the Company's Common Stock is traded and be registered or qualified under any applicable state securities laws, and that the consent or approval of any governmental regulatory body, which the Company deems necessary or desirable as a condition to the exercise of such option or the issue of shares thereunder, shall have been effected or obtained free of any conditions requiring the Company to qualify as a foreign corporation or to execute a general consent to service of process in any jurisdiction wherein it has not already done so and free of any other conditions not customarily imposed by a securities exchange, law or governmental regulatory body in connection with such listing, qualification, consent or approval. 5 12. AMENDMENT AND TERMINATION The Board may amend, suspend or terminate the Plan or any portion thereof at any time. The Board may not, without the approval of the Company's stockholders within 12 months after the date of adoption of any such amendment or amendments, make any alteration or amendment thereof which (i) makes any change in the class of eligible participants as determined in accordance with Articles 1 and 4 hereof; (ii) increases the total number of shares of Common Stock for which options may be granted under the Plan except as provided in Article 10 hereof; (iii) decreases the option exercise price provided in Article 5 hereof except as provided in Article 10 hereof; or (iv) materially increases the benefits accruing to participants under the Plan within the meaning of Rule 16b-3. No amendment shall adversely affect the rights under any then outstanding option without the consent of the holder thereof. 13. STOCK OPTION CONTRACTS Each option shall be evidenced by an appropriate contract which shall be duly executed by the Company and the Non-Employee Director, and shall contain such terms and conditions not inconsistent with the Plan as may be determined by the Board. 14. DUTIES OF THE COMPANY The Company shall, at all times during the term of each option, reserve and keep available for issuance or delivery such number of shares of Common Stock as will be sufficient to satisfy the requirements of all options at the time outstanding, shall pay all original issue taxes with respect to the issuance or delivery of shares pursuant to the exercise of such options and all other fees and expenses necessarily incurred by the Company in connection therewith. 15. EFFECTIVE PERIOD The Plan shall become effective on September 24, 2003, the date of its adoption by the Board of Directors; provided, however that if the Plan is not approved within 12 months thereof by the favorable vote of stockholders then required for such action under the Delaware General Corporation Law at a meeting to be held to consider such approval, the Plan and any options granted under the Plan will be null and void and of no further effect. No options may be granted under the Plan after September 23, 2013. Options outstanding on or prior to such date shall, however, in all respects continue subject to the Plan. 6 -----END PRIVACY-ENHANCED MESSAGE-----