EXHIBIT 10.2

 

AMENDED AND RESTATED

 

2003 EQUITY INCENTIVE PLAN

 

OF

 

SORRENTO NETWORKS CORPORATION

 

Effective February 15, 2005

 

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TABLE OF CONTENTS

 

1.

  PURPOSE    4

2.

  DEFINITIONS AND RULES OF INTERPRETATION    4

2.1

 

Definitions

   4

2.2

 

Rules of Interpretation

   8

3.

  SHARES SUBJECT TO THIS PLAN; TERM OF THIS PLAN    8

3.1

 

Number of Award Shares

   8

3.2

 

Source of Shares

   8

3.3

 

Term of this Plan

   8

4.

  ADMINISTRATION    8

4.1

 

General

   8

4.2

 

Authority of Administrator

   9

4.3

 

Scope of Discretion

   10

5.

  PERSONS ELIGIBLE TO RECEIVE AWARDS    10

5.1

 

Eligible Individuals

   10

5.2

 

Section 162(m) Limitation

   10

6.

  TERMS AND CONDITIONS OF OPTIONS    10

6.1

 

Price

   10

6.2

 

Term

   11

6.3

 

Vesting

   11

6.4

 

Form of Payment

   11

6.5

 

Nonassignability of Options

   12

6.6

 

Substitute Options

   12

6.7

 

Cancellation and Regrant of Options

   12

7.

  INCENTIVE STOCK OPTIONS    12

8.

  STOCK APPRECIATION RIGHTS, STOCK AWARDS AND CASH AWARDS    13

8.1

 

Stock Appreciation Rights

   13

8.2

 

Stock Awards

   14

8.3

 

Cash Awards

   15

9.

  EXERCISE OF AWARDS    15

9.1

 

In General

   15

9.2

 

Time of Exercise

   15

9.3

 

Issuance of Award Shares

   15

9.4

 

Termination

   16

10.

  CERTAIN TRANSACTIONS AND EVENTS    18

10.1

 

In General

   18

10.2

 

Changes in Capital Structure

   18

10.3

 

Fundamental Transactions

   18

10.4

 

Divestiture

   18

10.5

 

Dissolution

   18

10.6

 

Cut-Back to Preserve Benefits

   18

11.

  [Reserved]    19

12.

  WITHHOLDING AND TAX REPORTING    19

12.1

 

Tax Withholding Alternatives

   19

12.2

 

Reporting of Dispositions

   19

13.

  COMPLIANCE WITH LAW    19

14.

  AMENDMENT OR TERMINATION OF THIS PLAN OR OUTSTANDING AWARDS    19

14.1

 

Amendment and Termination

   19

14.2

 

Shareholder Approval

   19

14.3

 

Effect

   20

15.

  RESERVED RIGHTS    20

15.1

 

Nonexclusivity of this Plan

   20

15.2

 

Unfunded Plan

   20

16.

  SPECIAL ARRANGEMENTS REGARDING AWARD SHARES    20

16.1

 

Escrows and Pledges

   20

 

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16.2

  

Repurchase Rights

   20

17.

   BENEFICIARIES    21

18.

   MISCELLANEOUS    21

18.1

  

Governing Law

   21

18.2

  

Determination of Value

   21

18.3

  

Reservation of Shares

   22

18.4

  

Contractual Arrangements

   22

18.5

  

Prior Plans

   22

18.6

  

Electronic Communications

   22

18.7

  

Notices

   22

 

 

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1. PURPOSE

 

The purpose of the Amended and Restated 2003 Equity Incentive Plan of Sorrento
Networks Corporation (the “Plan”) is to enhance the long-term shareholder value
of Zhone Technologies, Inc. (the “Company”) by offering opportunities to
eligible individuals to participate in the growth in value of the equity of the
Company.

 

2. DEFINITIONS AND RULES OF INTERPRETATION

 

2.1 Definitions. This Plan uses the following defined terms:

 

(a) “Administrator” means the Board, the Committee, or any officer or employee
of the Company to whom the Board or the Committee delegates authority to
administer this Plan.

 

(b) “Affiliate” means a “parent” or “subsidiary” (as each is defined in Section
424 of the Code) of the Company and any other entity that the Board or Committee
designates as an ‘Affiliate’ for purposes of this Plan.

 

(c) “Applicable Law” means any and all laws, rules and regulations of whatever
jurisdiction, within or without the United States, and the rules of, any stock
exchange or quotation system on which Shares are listed or quoted, applicable to
the taking or refraining from taking of any action under this Plan, including
the administration of this Plan and the issuance or transfer of Awards or Award
Shares.

 

(d) “Award” means a Stock Award, SAR, Cash Award, or Option granted in
accordance with the terms of the Plan.

 

(e) “Award Agreement” means the document evidencing the grant of an Award.

 

(f) “Award Shares” means Shares covered by an outstanding Award or purchased
under an Award.

 

(g) “Awardee” means: (i) a person to whom an Award has been granted, including a
holder of a Substitute Award, (ii) a person to whom an Award has been
transferred in accordance with all applicable requirements of Sections 6.5, 7(h)
and 17, and (iii) a person who holds Option Shares subject to any right of
repurchase under Section 16.2.

 

(h) “Board” means the board of directors of the Company.

 

(i) “Cash Award” means the right to receive cash as described in Section 8.3.

 

(j) “Change of Control” means a change in ownership or control of the Company
effected through either of the following transactions:

 

(i) The acquisition, directly or indirectly by any person or related group of
persons (other than the Company or an Affiliate), of beneficial ownership
(within the meaning of Rule 13d]-3 of the Exchange Act) of securities possessing
more than fifty percent (50%) of the total combined voting power of the
Company’s outstanding securities pursuant to a tender or exchange offer made
directly to the Company’s shareholders; or

 

(ii) A change in the composition of the Board over a period of thirty-six (36)
consecutive months or less such that a majority of the Board members ceases, by
reason of one or more contested elections for Board membership, to consist of
individuals who either (A) have been Board

 

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members continuously since the beginning of such period or (B) have been elected
or nominated for election as Board members during such period by at least a
majority of the Board members described in clause (A) who were still in office
at the time the Board approved such election or nomination.

 

(k) “Code” means the Internal Revenue Code of 1986.

 

(l) “Committee” means a committee composed of Company Directors appointed in
accordance with the Company’s charter documents and Section 4.

 

(m) “Company” means Zhone Technologies, Inc., a Delaware corporation.

 

(n) “Company Director” means a member of the Board.

 

(o) “Consultant” means an individual who, or an employee of any entity that,
provides bona fide services to the Company or an Affiliate not in connection
with the offer or sale of securities in a capital-raising transaction, but who
is not an Employee.

 

(p) “Director” means a member of the board of directors of the Company or an
Affiliate.

 

(q) “Divestiture” means any transaction or event that the Board specifies as a
Divestiture under Section 10.4.

 

(r) “Domestic Relations Order” means a ‘domestic relations order’ as defined in,
and otherwise meeting the requirements of, Section 414(p) of the Code, except
that reference to a “plan” in that definition shall be to this Plan.

 

(s) “Employee” means a regular employee of the Company or an Affiliate,
including an officer or Director, who is treated as an employee in the personnel
records of the Company or an Affiliate, but not individuals who are classified
by the Company or an Affiliate as: (i) leased from or otherwise employed by a
third party, (ii) independent contractors, or (iii) intermittent or temporary
workers. The Company’s or an Affiliate’s classification of an individual as an
“Employee” (or as not an ‘Employee’) for purposes of this Plan shall not be
altered retroactively even if that classification is changed retroactively for
another purpose as a result of an audit, litigation or otherwise. An Awardee
shall not cease to be an Employee due to transfers between locations of the
Company, or between the Company and an Affiliate, or to any successor to the
Company or an Affiliate that assumes the Awardee’s Options under Section 10.
Neither service as a Director nor receipt of a director’s fee shall be
sufficient to make a Director an “Employee”.

 

(t) “Exchange Act” means the Securities Exchange Act of 1934.

 

(u) “Executive” means, if the Company has any class of any equity security
registered under Section 12 of the Exchange Act, an individual who is subject to
Section 16 of the Exchange Act or who is a “covered employee” under Section
162(m) of the Code, in either case because of the individual’s relationship with
the Company or an Affiliate. If the Company does not have any class of any
equity security registered under Section 12 of the Exchange Act, “Executive”
means any (i) Director, (ii) officer elected or appointed by the Board, or (iii)
beneficial owner of more than 10% of any class of the Company’s equity
securities.

 

(v) “Expiration Date” means, with respect to an Award, the date stated in the
Award Agreement as the expiration date of the Award or, if no such date is
stated in the Award Agreement, then the last day of the maximum exercise period
for the Award, disregarding the effect of an Awardee’s Termination or any other
event that would shorten that period.

 

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(w) “Fair Market Value” means the value of Shares as determined under Section
18.2.

 

(x) “Fundamental Transaction” means either of the following shareholder-approved
transactions:

 

(i) the Company or an Affiliate is a party to a merger, consolidation,
amalgamation, or other transaction in which the beneficial shareholders of the
Company, immediately before the transaction, beneficially own securities
representing 50% or less of the total combined voting power or value of the
Company immediately after the transaction, or

 

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

 

(y) “Grant Date” means the date the Administrator approves the grant of an
Award. However, if the Administrator specifies that an Award’s Grant Date is a
future date or the date on which a condition is satisfied, the Grant Date for
such Award is that future date or the date that the condition is satisfied.

 

(z) “Hostile Take-Over” shall mean the acquisition, directly or indirectly, by
any person or related group of persons (other than the Company or an Affiliate)
of beneficial ownership (within the meaning of Rule 13d-3 of the Exchange Act)
of securities possessing more than fifty percent (50%) of the total combined
voting power of the Company’s outstanding securities pursuant to a tender or
exchange offer made directly to the Company’s shareholders which the Board does
not recommend such shareholders to accept.

 

(aa) “Incentive Stock Option” means an Option intended to qualify as an
incentive stock option under Section 422 of the Code and designated as an
Incentive Stock Option in the Award Agreement for that Option.

 

(bb) [Reserved]

 

(cc) “Nonstatutory Option” means any Option other than an Incentive Stock
Option.

 

(dd) “Objectively Determinable Performance Condition” shall mean a performance
condition (i) that is established (A) at the time an Award is granted or (B) no
later than the earlier of (1) 90 days after the beginning of the period of
service to which it relates, or (2) before the elapse of 25% of the period of
service to which it relates, (ii) that is uncertain of achievement at the time
it is established, and (iii) the achievement of which is determinable by a third
party with knowledge of the relevant facts Examples of measures that may be used
in Objectively Determinable Performance Conditions include, without limitation,
net order dollars, net profit dollars, net profit growth, net revenue dollars,
revenue growth, individual performance, earnings per share, return on assets,
return on equity, and other financial objectives, objective customer
satisfaction indicators and efficiency measures, each with respect to the
Company and/or an individual business unit.

 

(ee) “Officer” means an officer of the Company as defined in Rule 16a-1 adopted
under the Exchange Act.

 

(ff) “Option” means a right to purchase Shares of the Company granted under this
Plan.

 

(gg) “Option Price” means the price payable under an Option for Shares, not
including any amount payable in respect of withholding or other taxes.

 

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(hh) “Option Shares” means Shares covered by an outstanding Option or purchased
under an Option.

 

(ii) “Plan” means the Amended and Restated 2003 Equity Incentive Plan of
Sorrento Networks Corporation.

 

(jj) “Prior Plans” means the Company’s 1997 Incentive and Non-Qualified Stock
Option Plan, the 1997 Directors Stock Option Plan, and the 2000 Stock
Option/Stock Issuance Plan in effect.

 

(kk) “Purchase Price” means the price payable under a Stock Award for Shares,
not including any amount payable in respect of withholding or other taxes.

 

(ll) “Reverse Vesting” means that an Option is or was fully exercisable but
that, subject to a “reverse” vesting schedule, the Company has a right to
repurchase the Option Shares as specified in Section 15.2(a), with the Company’s
right of repurchase expiring in accordance with a “forward” vesting schedule
that would otherwise have applied to the Option under which the Option Shares
were purchased or in accordance with some other vesting schedule described in
the Award Agreement. With respect to a Stock Award, Reverse Vesting means that
the Company has a right to repurchase the Award Shares purchased pursuant to the
Stock Award, as specified in Section 16.2(a), with the Company’s right of
repurchase expiring in accordance with the vesting schedule in the Award
Agreement.

 

(mm) “Rule 16b-3” means Rule 16b-3 adopted under Section 16(b) of the Exchange
Act.

 

(nn) “SAR” or “Stock Appreciation Right” means a right to receive cash based on
a change in the Fair Market Value of a specific number of Shares pursuant to an
Award Agreement, as described in Section 8.1.

 

(oo) “Securities Act” means the Securities Act of 1933.

 

(pp) “Share” means a share of the common stock of the Company or other
securities substituted for the common stock under Section 10.

 

(qq) “Stock Award” means an offer by the Company to sell shares subject to
certain restrictions pursuant to the Award Agreement as described in Section
8.2.

 

(rr) “Substitute Award” means a Substitute Option, Substitute SAR or Substitute
Stock Award granted in accordance with the terms of the Plan.

 

(ss) “Substitute Option” means an Option granted in substitution for, or upon
the conversion of, an option granted by another entity to purchase equity
securities in the granting entity.

 

(tt) “Substitute SAR” means a SAR granted in substitution for, or upon the
conversion of, a stock appreciation right granted by another entity with respect
to equity securities in the granting entity.

 

(uu) “Substitute Stock Award” means a Stock Award granted in substitution for,
or upon the conversion of, a stock award granted by another entity to purchase
equity securities in the granting entity.

 

(vv) “Take-Over Price” shall mean the greater of (i) the Fair Market Value per
share of Company’s Common Stock on the date the option is surrendered to the
Company in connection with a Hostile Take-Over or (ii) the highest reported
price per share of the Company’s Common Stock paid by the tender offeror in
effecting such Hostile Take-Over.

 

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(ww) “Termination” means that the Awardee has ceased to be, with or without any
cause or reason, an Employee, Director or Consultant. However, unless so
determined by the Administrator, “Termination” shall not include a change in
status from an Employee, Consultant or Director to another such status. An event
that causes an Affiliate to cease being an Affiliate shall be treated as the
‘Termination’ of that Affiliate’s Employees, Directors, and Consultants.

 

2.2 Rules of Interpretation. Any reference to a ‘Section,’ without more, is to a
Section of this Plan Captions and titles are used for convenience in this Plan
and shall not, by themselves, determine the meaning of this Plan Except, when
otherwise indicated by the context, the singular includes the plural and vice
versa. Any reference to a statute is also a reference to the applicable rules
and regulations adopted under that statute Any reference to a statute, rule or
regulation, or to a section of a statute, rule or regulation, is a reference to
that statute, rule, regulation, or section as amended from time to time, both
before and after the effective date of this Plan and including any successor
provisions.

 

3. SHARES SUBJECT TO THIS PLAN; TERM OF THIS PLAN

 

3.1 Number of Award Shares. Subject to adjustment under Section 10, the maximum
number of Shares that may be issued under this Plan is [        ]. When an Award
is granted, the maximum number of Shares that may be issued under this Plan
shall be reduced by the number of Shares covered by that Award. However, if an
Award later terminates or expires without having been exercised in full, the
maximum number of shares that may be issued under this Plan shall be increased
by the number of Shares that were covered by, but not purchased under, that
Award. By contrast, the repurchase of Shares by the Company shall not increase
the maximum number of Shares that may be issued under this Plan.

 

3.2 Source of Shares. Award Shares may be: (a) Shares that have never been
issued, (b) Shares that have been issued but are no longer outstanding, or (c)
Shares that are outstanding and are acquired, including shares repurchased by
the Company on the open market, to discharge the Company’s obligation to deliver
Award Shares.

 

3.3 Term of this Plan.

 

(a) This Plan shall be effective on, and Awards may be granted under this Plan
after, the date it has been both adopted by the Board and approved by the
Company’s shareholders.

 

(b) Subject to Section 13, Awards may be granted under this Plan for a period of
ten years from the earlier of the date on which the Board approves this Plan and
the date the Company’s shareholders approve this Plan. Accordingly, Awards may
not be granted under the Plan after the earlier of those dates.

 

(c) One or more provisions of the Plan, including (without limitation) the
provisions of Section 10, may, in the Administrator’s discretion, be extended to
one or more options granted under Prior Plans which do not otherwise contain
such provisions, provided, however, that no modification of any option shall
impair any existing contractual rights of any awardee unless the affected
awardee consents to such modification. When contemplating a modification of
awards granted under Prior Plans pursuant to this Section 3.3(d), the
Administrator shall give due consideration to the effect of such modification
under Applicable Law, tax laws and any adverse accounting treatment that may be
incurred.

 

4. ADMINISTRATION

 

4.1 General.

 

(a) The Board shall have ultimate responsibility for administering this Plan.
The Board may delegate certain of its responsibilities to a Committee, which
shall consist of at least two members of the Board. The Board or the Committee
may further delegate its responsibilities to any Employee of the Company or any
Affiliate. Where this Plan specifies that an action is to be taken or a
determination made by the Board, only the Board may take that action or make
that determination. Where this Plan specifies that an action is to be taken or a
determination made by the Committee, only the Committee may take that

 

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action or make that determination. Where this Plan references the
“Administrator,” the action may be taken or determination made by the Board, the
Committee, or other Administrator. However, only the Board or the Committee may
approve grants of Awards to Executives, and an Administrator other than the
Board or the Committee may grant Awards only within guidelines established by
the Board or Committee. Moreover, all actions and determinations by any
Administrator are subject to the provisions of this Plan.

 

(b) So long as the Company has registered and outstanding a class of equity
securities under Section 12 of the Exchange Act, the Committee shall consist of
Company Directors who are “Non-Employee Directors” as defined in Rule 16b-3 and,
after the expiration of any transition period permitted by Treasury Regulations
Section 1.162-27(h)(3), who are “outside directors” as defined in Section 162(m)
of the Code.

 

4.2 Authority of Administrator. Subject to the other provisions of this Plan,
the Administrator shall have the authority to:

 

(a) grant Awards, including Substitute Awards;

 

(b) determine the Fair Market Value of Shares;

 

(c) determine the Option Price and the Purchase Price of Awards;

 

(d) select the Awardees;

 

(e) determine the times at which Awards are granted;

 

(f) determine the number of Shares subject to each Award;

 

(g) determine the types of payment that may be used to purchase Award Shares;

 

(h) determine the types of payment that may be used to satisfy withholding tax
obligations;

 

(i) determine the other terms of each Award, including but not limited to the
time or times at which Awards may be exercised, whether and under what
conditions an Award is assignable, and whether an Option is a Nonstatutory
Option or an Incentive Stock Option;

 

(j) modify or amend any Award;

 

(k) authorize any person to sign any Award Agreement or other document related
to this Plan on behalf of the Company;

 

(l) determine the form of any Award Agreement or other document related to this
Plan, and whether that document, including signatures, may be in electronic
form;

 

(m) interpret this Plan and any Award Agreement or document related to this
Plan;

 

(n) correct any defect, remedy any omission, or reconcile any inconsistency in
this Plan, any Award Agreement or any other document related to this Plan;

 

(o) adopt, amend, and revoke rules and regulations under this Plan, including
rules and regulations relating to sub-plans and Plan addenda;

 

(p) adopt, amend, and revoke special rules and procedures which may be
inconsistent with the terms of this Plan, set forth (if the Administrator so
chooses) in sub-plans regarding (for example) the

 

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operation and administration of this Plan and the terms of Awards, if and to the
extent necessary or useful to accommodate non-U.S. Applicable Laws and practices
as they apply to Awards and Award Shares held by, or granted or issued to,
persons working or resident outside of the United States or employed by
Affiliates incorporated outside the United States;

 

(q) determine whether a transaction or event should be treated as a Change of
Control, a Divestiture or neither;

 

(r) determine the effect of a Fundamental Transaction and, if the Board
determines that a transaction or event should be treated as a Change of Control
or a Divestiture, then the effect of that Change of Control or Divestiture; and

 

(s) make all other determinations the Administrator deems necessary or advisable
for the administration of this Plan.

 

4.3 Scope of Discretion. Subject to the last sentence of this Section 4.3, on
all matters for which this Plan confers the authority, right or power on the
Board, the Committee, or other Administrator to make decisions, that body may
make those decisions in its sole and absolute discretion. Those decisions will
be final, binding and conclusive. Moreover, but again subject to the last
sentence of this Section 4.3, in making those decisions the Board, Committee or
other Administrator need not treat all persons eligible to receive Awards, all
Awardees, all Awards or all Award Shares the same way. However, except as
provided in Section 13.3, the discretion of the Board, Committee or other
Administrator is subject to the specific provisions and specific limitations of
this Plan, as well as all rights conferred on specific Awardees by Award
Agreements and other agreements.

 

5. PERSONS ELIGIBLE TO RECEIVE AWARDS

 

5.1 Eligible Individuals. Awards (including Substitute Awards) may be granted
to, and only to, Employees, Directors and Consultants, including to prospective
Employees, Directors and Consultants conditioned on the beginning of their
service for the Company or an Affiliate. However, Incentive Stock Options may
only be granted to Employees, as provided in Section 7(g).

 

5.2 Section 162(m) Limitation.

 

(a) Options and SARs. So long as the Company is a “publicly held corporation”
within the meaning of Section 162(m) of the Code: (i) no Employee or prospective
Employee may be granted one or more SARs and Options within any fiscal year of
the Company under this Plan to purchase more than 1,300,000 Shares under Options
or to receive compensation calculated with reference to more than that number of
Shares under SARs, subject to adjustment under Section 10, and (ii) Options and
SARs may be granted to an Executive only by the Committee (and, notwithstanding
Section 4.1(a), not by the Board). If an Option or SAR is cancelled without
being exercised or if the Option Price of an Option is reduced, that cancelled
or repriced Option or SAR shall continue to be counted against the limit on
Awards that may be granted to any individual under this Section 5.2.

 

(b) Cash Awards and Stock Awards. Any Cash Award or Stock Award intended as
“qualified performance-based compensation” within the meaning of Section 162(m)
of the Code must vest or become exercisable contingent on the achievement of one
or more Objectively Determinable Performance Conditions. The Committee shall
have the discretion to determine the time and manner of compliance with Section
162(m) of the Code.

 

6. TERMS AND CONDITIONS OF OPTIONS

 

The following rules apply to all Options:

 

6.1 Price. No Option intended as “qualified incentive-based compensation” within
the meaning of Section 162(m) of the Code may have an Option Price less than
100% of the Fair Market Value of the Shares on the Grant Date. In no event will
the Option Price of any Option be less than the par value of the Shares issuable
under the Option if that is required by Applicable Law. The Option Price of an
Incentive Stock Option shall be subject to Section 7(f).

 

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6.2 Term. No Option shall be exercisable after its Expiration Date. No Option
may have an Expiration Date that is more than ten years after its Grant Date.
Additional provisions regarding the term of Incentive Stock Options are provided
in Sections 7(a) and 7(e).

 

6.3 Vesting. Options shall be exercisable: (a) on the Grant Date, or (b) in
accordance with a schedule related to the Grant Date, the date the Optionee’s
directorship, employment or consultancy begins, or a different date specified in
the Option Agreement. If so provided in the Option Agreement, an Option may be
exercisable subject to the application of Reverse Vesting to the Option Shares.
Additional provisions regarding the vesting of Incentive Stock Options are
provided in Section 7(c). No Option granted to an individual who is subject to
the overtime pay provisions of the Fair Labor Standards Act may be exercised
before the expiration of six months after the Grant Date.

 

6.4 Form of Payment.

 

(a) The Administrator shall determine the acceptable form and method of payment
for exercising an Option.

 

(b) Acceptable forms of payment for all Option Shares are cash, check or wire
transfer, denominated in U.S. dollars except as specified by the Administrator
for non-U.S. Employees or non-U.S. sub-plans.

 

(c) In addition, the Administrator may permit payment to be made by any of the
following methods:

 

(i) other Shares, or the designation of other Shares, which (A) are “mature”
shares for purposes of avoiding variable accounting treatment under generally
accepted accounting principles (generally mature shares are those that have been
owned by the Optionee for more than six months on the date of surrender), and
(B) have a Fair Market Value on the date of surrender equal to the Option Price
of the Shares as to which the Option is being exercised;

 

(ii) provided that a public market exists for the Shares, consideration received
by the Company under a procedure under which a broker-dealer that is a member of
the National Association of Securities Dealers advances funds on behalf of an
Optionee or sells Option Shares on behalf of an Optionee (a “Cashless Exercise
Procedure”), provided that if the Company extends or arranges for the extension
of credit to an Optionee under any Cashless Exercise Procedure, no Officer or
Director may participate in that Cashless Exercise Procedure;

 

(iii) with respect only to Optionees who are neither Officers nor Directors as
of the date of exercise, one or more promissory notes meeting the requirements
of Section 6.4(e), provided, however, that promissory notes may not be used for
any portion of an Award which is not vested at the time of exercise;

 

(iv) cancellation of any debt owed by the Company or any Affiliate to the
Optionee by the Company including without limitation waiver of compensation due
or accrued for services previously rendered to the Company; and

 

(v) any combination of the methods of payment permitted by any paragraph of this
Section 6.4.

 

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(d) The Administrator may also permit any other form or method of payment for
Option Shares permitted by Applicable Law.

 

(e) The promissory notes referred to in Section 6.4(c)(iii) must be full
recourse. Unless the Committee specifies otherwise after taking into account any
relevant accounting issues, the notes shall bear interest at a fair market value
rate when the Option is exercised. Interest on the notes shall also be at least
sufficient to avoid imputation of interest under Sections 483, 1274, and 7872 of
the Code. The notes and their administration shall at all times comply with any
applicable margin rules of the Federal Reserve. The notes may also include such
other terms as the Administrator specifies Payment may not be made by promissory
note by Officers or Directors if Shares are registered under Section 12 of the
Exchange Act.

 

6.5 Nonassignability of Options. Except as determined by the Administrator, no
Option shall be assignable or otherwise transferable by the Optionee except by
will or by the laws of descent and distribution. However, Options may be
transferred and exercised in accordance with a Domestic Relations Order and may
be exercised by a guardian or conservator appointed to act for the Optionee.
Incentive Stock Options may only be assigned in compliance with Section 7(h).

 

6.6 Substitute Options. The Board may cause the Company to grant Substitute
Options in connection with the acquisition by the Company or an Affiliate of
equity securities of any entity (including by merger, tender offer, or other
similar transaction) or of all or a portion of the assets of any entity. Any
such substitution shall be effective when the acquisition closes. Substitute
Options may be Nonstatutory Options or Incentive Stock Options. Unless and to
the extent specified otherwise by the Board, Substitute Options shall have the
same terms and conditions as the options they replace, except that (subject to
Section 10) Substitute Options shall be Options to purchase Shares rather than
equity securities of the granting entity and shall have an Option Price
determined by the Board.

 

6.7 Cancellation and Regrant of Options. The Administrator shall have the
authority to effect, at any time and from time to time, with the consent of the
affected Option holders, the cancellation of any or all outstanding Options
granted under this Plan and to grant in substitution new Options covering the
same or a different number of shares of the Company’s common stock but with an
Option Price based on the Fair Market Value per share of the Company’s common
stock on the new Grant Date.

 

7. INCENTIVE STOCK OPTIONS

 

The following rules apply only to Incentive Stock Options and only to the extent
these rules are more restrictive than the rules that would otherwise apply under
this Plan. With the consent of the Optionee, or where this Plan provides that an
action may be taken notwithstanding any other provision of this Plan, the
Administrator may deviate from the requirements of this Section, notwithstanding
that any Incentive Stock Option modified by the Administrator will thereafter be
treated as a Nonstatutory Option.

 

(a) The Expiration Date of an Incentive Stock Option shall not be later than ten
years from its Grant Date, with the result that no Incentive Stock Option may be
exercised after the expiration of ten years from its Grant Date.

 

(b) No Incentive Stock Option may be granted more than ten years from the date
this Plan was approved by the Board.

 

(c) Options intended to be incentive stock options under Section 422 of the Code
that are granted to any single Optionee under all incentive stock option plans
of the Company and its Affiliates, including incentive stock options granted
under this Plan, may not vest at a rate of more than $100,000 in Fair Market
Value of stock (measured on the grant dates of the options) during any calendar
year. For this purpose, an option vests with respect to a given share of stock
the first time its holder may purchase that share, notwithstanding any right of
the Company to repurchase that share. Unless the administrator of that option
plan specifies otherwise in the related agreement governing the option, this
vesting limitation shall be applied by, to the extent necessary to satisfy this
$100,000 rule, treating certain stock options that were

 

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intended to be incentive stock options under Section 422 of the Code as
Nonstatutory Options. The stock options or portions of stock options to be
reclassified as Nonstatutory Options are those with the highest option prices,
whether granted under this Plan or any other equity compensation plan of the
Company or any Affiliate that permits that treatment. This Section 7(c) shall
not cause an Incentive Stock Option to vest before its original vesting date or
cause an Incentive Stock Option that has already vested to cease to be vested.

 

(d) In order for an Incentive Stock Option to be exercised for any form of
payment other than those described in Section 6.4(b), that right must be stated
at the time of grant in the Option Agreement relating to that Incentive Stock
Option.

 

(e) Any Incentive Stock Option granted to a Ten Percent Shareholder, must have
an Expiration Date that is not later than five years from its Grant Date, with
the result that no such Option may be exercised after the expiration of five
years from the Grant Date. A “Ten Percent Shareholder” is any person who,
directly or by attribution under Section 424(d) of the Code, owns stock
possessing more than ten percent of the total combined voting power of all
classes of stock of the Company or of any Affiliate on the Grant Date.

 

(f) The Option Price of an Incentive Stock Option shall never be less than the
Fair Market Value of the Shares at the Grant Date. The Option Price for the
Shares covered by an Incentive Stock Option granted to a Ten Percent Shareholder
shall never be less than 110% of the Fair Market Value of the Shares at the
Grant Date.

 

(g) Incentive Stock Options may be granted only to Employees. If an Optionee
changes status from an Employee to a Consultant, that Optionee’s Incentive Stock
Options become Nonstatutory Options if not exercised within the time period
described in Section 7(i).

 

(h) No rights under an Incentive Stock Option may be transferred by the
Optionee, other than by will or the laws of descent and distribution. During the
life of the Optionee, an Incentive Stock Option may be exercised only by the
Optionee. The Company’s compliance with a Domestic Relations Order, or the
exercise of an Incentive Stock Option by a guardian or conservator appointed to
act for the Optionee, shall not violate this Section 7(h).

 

(i) An Incentive Stock Option shall be treated as a Nonstatutory Option if it
remains exercisable after, and is not exercised within, the three-month period
beginning with the Optionee’s Termination for any reason other than the
Optionee’s death or disability (as defined in Section 22(c) of the Code). In the
case of Termination due to death, an Incentive Stock Option shall continue to be
treated as an Incentive Stock Option if it remains exercisable after, and is not
exercised within, the three-month period after the Optionee’s Termination
provided it is exercised before the Expiration Date. In the case of Termination
due to disability, an Incentive Stock Option shall be treated as a Nonstatutory
Option if it remains exercisable after, and is not exercised within, one year
after the Optionee’s Termination.

 

(j) An Incentive Stock Option may only be modified by the Board.

 

8. STOCK APPRECIATION RIGHTS, STOCK AWARDS AND CASH AWARDS

 

8.1 Stock Appreciation Rights. SARs may be granted either alone, in addition to,
or in tandem with other Awards granted under the Plan. The Administrator may
grant SARs subject to terms and conditions not inconsistent with the Plan and
determined by the Administrator. The specific terms and conditions applicable to
the Awardee shall be provided for in the Award Agreement. The following rules
apply to SARs:

 

(a) Term. No SAR shall be exercisable after its Expiration Date. No SAR may have
an Expiration Date that is more than ten years after its Grant Date.

 

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(b) Vesting. SARs shall be exercisable: (i) on the Grant Date, (ii) in
accordance with a schedule related to the Grant Date, the date the Awardee’s
directorship, employment or consultancy begins, or a different date specified in
the Award Agreement, or (iii) or upon the achievement of Objectively
Determinable Performance Conditions.

 

(c) Exercise of SARs. Upon the exercise of an SAR, in whole or in part, an
Awardee shall be entitled to a payment in an amount equal to the excess of the
Fair Market Value of a fixed number of Shares covered by the exercised portion
of the SAR on the date of exercise, over the Fair Market Value of the Shares
covered by the exercised portion of the SAR on the Grant Date. The amount due to
the Awardee the exercise of a SAR will be paid in cash or Shares over the period
or periods specified in the Award Agreement. An Award Agreement may place limits
on the amount that may be paid over any specified period or periods upon the
exercise of a SAR, on an aggregate basis or as to any Awardee. A SAR shall be
considered exercised when the Company receives written notice of exercise in
accordance with the terms of the Award Agreement from the person entitled to
exercise the SAR.

 

(d) Nonassignability of SARs. Except as determined by the Administrator, no SAR
shall be assignable or otherwise transferable by the Awardee except by will or
by the laws of descent and distribution. However, SARs may be transferred and
exercised in accordance with a Domestic Relations Order.

 

(e) Substitute SARs. The Board may cause the Company to grant Substitute SARs in
connection with the acquisition by the Company or an Affiliate of equity
securities of any entity (including by merger) or all or a portion of the assets
of any entity. Any such substitution shall be effective when the acquisition
closes. Unless and to the extent specified otherwise by the Board, Substitute
SARs shall have the same terms and conditions as the options they replace,
except that (subject to Section 10) Substitute SARs shall be exercisable with
respect to the Fair Market Value of Shares rather than equity securities of the
granting entity and shall be on terms that, as determined by the Board in its
sole and absolute discretion, properly reflects the substitution.

 

(f) Cancellation and Regrant of SARs. The Administrator shall have the authority
to effect, at any time and from time to time, with the consent of the affected
Awardee, the replacement or re-grant, through cancellation or modification, of
Stock Awards granted under the Plan.

 

8.2 Stock Awards. Stock Awards may be granted either alone, in addition to, or
in tandem with other Awards granted under the Plan. The specific terms and
conditions applicable to the Awardee shall be provided for in the Award
Agreement. The Award Agreement shall state the number of Shares that the Awardee
shall be entitled to receive or purchase, the terms and conditions on which the
Shares shall vest, the price to be paid, if any, and, if applicable, the time
within which the Awardee must accept such offer. The following rules apply to
all Stock Awards:

 

(a) Term. No Stock Award shall be exercisable after its Expiration Date. No
Stock Award may have an Expiration Date that is more than ten years after its
Grant Date.

 

(b) Vesting. Stock Awards shall be exercisable: (i) on the Grant Date, or (ii)
in accordance with a schedule related to the Grant Date, the date the Awardee’s
directorship, employment or consultancy begins, or a different date specified in
the Award Agreement.

 

(c) Right of Repurchase If so provided in the Award Agreement, Award Shares
acquired pursuant to a Stock Award may be subject to Reverse Vesting.

 

(d) Form of Payment. The Administrator shall determine the acceptable form and
method of payment for exercising a Stock Award.

 

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(i) Acceptable forms of payment for all Award Shares are cash, check. or wire
transfer, denominated in U.S. dollars except as specified by the Administrator
for non-U.S. Employees or non-U.S. sub-plans.

 

(ii) In addition, the Administrator may permit payment to be made by any of the
methods permitted with respect to the exercise of Options pursuant to Section
6.4.

 

(e) Nonassignability of Stock Awards. Except as determined by the Administrator,
no Stock Award shall be assignable or otherwise transferable by the Awardee
except by will or by the laws of descent and distribution. However, Options may
be transferred and exercised in accordance with a Domestic Relations Order.

 

(f) Substitute Stock Award. The Board may cause the Company to grant Substitute
Stock Awards in connection with the acquisition by the Company or an Affiliate
of equity securities of any entity (including by merger) or all or a portion of
the assets of any entity. Unless and to the extent specified otherwise by the
Board, Substitute Stock Awards shall have the same terms and conditions as the
options they replace, except that (subject to Section 10) Substitute Stock
Awards shall be Stock Awards to purchase Shares rather than equity securities of
the granting entity and shall have a Purchase Price that, as determined by the
Board in its sole and absolute discretion, properly reflects the substitution.

 

(g) Cancellation or Regrant of Stock Awards. The Administrator shall have the
authority to effect, at any time and from time to time, with the consent of the
affected Awardee, the replacement or re-grant, through cancellation or
modification, of Stock Awards granted under the Plan.

 

8.3 Cash Awards. Cash Awards may be granted either alone, in addition to, or in
tandem with other Awards granted under the Plan. Once the Administrator
determines that it will grant a Cash Award, it shall advise the Awardee, by
means of an Award Agreement, of the terms, conditions and restrictions related
to the Cash Award. The following rules apply to all Cash Awards:

 

(a) Term. No Cash Award shall be payable after its Expiration Date. No Cash
Award may have an Expiration Date that is more than ten years after its Grant
Date.

 

(b) Vesting. Cash Awards shall be payable: (i) on the Grant Date, (ii) in
accordance with a schedule related to the Grant Date, the date the Awardee’s
directorship, employment or consultancy begins, or a different date specified in
the Award Agreement, or (iii) or upon the achievement of Objectively
Determinable Performance Conditions.

 

9. EXERCISE OF AWARDS

 

9.1 In General. An Award shall be exercisable in accordance with this Plan and
the Award Agreement under which it is granted.

 

9.2 Time of Exercise. Options and Stock Awards shall be considered exercised
when the Company receives: (a) written notice of exercise from the person
entitled to exercise the Option or Stock Award, (b) full payment, or provision
for payment, in a form and method approved by the Administrator, for the Shares
for which the Option or Stock Award is being exercised, and (c) with respect to
Nonstatutory Options, payment, or provision for payment, in a form approved by
the Administrator, of all applicable withholding taxes due upon exercise. An
Award may not be exercised for a fraction of a Share SARs and Cash Awards shall
be considered exercised when the Company receives written notice of the exercise
from the person entitled to exercise the SAR or Cash Award.

 

9.3 Issuance of Award Shares. The Company shall issue Award Shares in the name
of the person properly exercising the Award. If the Awardee is that person and
so requests, the Award Shares shall be issued in the name of the Awardee and the
Awardee’s spouse. The Company shall endeavor to issue Award Shares promptly
after an Award is exercised. However, until Award Shares are actually

 

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issued, as evidenced by the appropriate entry on the stock books of the Company
or its transfer agent, the Awardee will not have the rights of a shareholder
with respect to those Award Shares, even though the Awardee has completed all
the steps necessary to exercise the Award. No adjustment shall be made for any
dividend, distribution, or other right for which the record date precedes the
date the Award Shares are issued, except as provided in Section 10.

 

9.4 Termination.

 

(a) In General. Except as provided in an Award Agreement or in writing by the
Administrator, including in an Award Agreement, and as otherwise provided in
Sections 9.4(b), (c), (d), (e), (f), (g) and (h), after an Awardee’s
Termination, the Awardee’s Awards shall be exercisable to the extent (but only
to the extent) they are vested on the date of that Termination and only during
the three months after the Termination, but in no event after the Expiration
Date. To the extent the Awardee does not exercise an Award within the time
specified for exercise, the Award shall automatically terminate.

 

(b) Leaves of Absence. Unless otherwise provided in the Award Agreement, no
Award may be exercised more than three months after the beginning of a leave of
absence, other than a personal or medical leave approved by an authorized
representative of the Company with employment guaranteed upon return Awards
shall not continue to vest during a leave of absence, unless otherwise
determined by the Administrator with respect to an approved personal or medical
leave with employment guaranteed upon return.

 

(c) Death or Disability. Unless otherwise provided by the Administrator, if an
Awardee’s Termination is due to death or disability (as determined by the
Administrator with respect to all Awards other than Incentive Stock Options and
as defined by Section 22(e) of the Code with respect to Incentive Stock
Options), all Awards of that Awardee to the extent exercisable at the date of
that Termination may be exercised for one year after that Termination, but in no
event after the Expiration Date. In the case of Termination due to death, an
Award may be exercised as provided in Section 16. In the case of Termination due
to disability, if a guardian or conservator has been appointed to act for the
Awardee and been granted this authority as part of that appointment, that
guardian or conservator may exercise the Award on behalf of the Awardee. In the
case of an Awardee who dies or become disabled within three months after
Termination, if the Termination was not due to Cause, the Awardee’s Awards may
be exercised for one year after that Termination. To the extent an Award is not
so exercised within the time specified for its exercise, the Award shall
automatically terminate.

 

(d) Divestiture. If an Awardee’s Termination is due to a Divestiture, the Board
may take any one or more of the actions described in Section 10.3 with respect
to the Awardee’s Awards.

 

(e) Retirement. Unless otherwise provided by the Administrator, if an Awardee’s
Termination is due to the Awardee’s retirement in accordance with the Company’s
or an Affiliate’s retirement policy, all Awards of that Awardee to the extent
exercisable at the Awardee’s date of retirement may be exercised for one year
after the Awardee’s date of retirement, but in no event after the Expiration
Date. To the extent the Awardee does not exercise an Option within the time
specified for exercise, the Award shall automatically terminate.

 

(f) Severance Programs. Unless otherwise provided by the Administrator, if an
Awardee’s Termination results from participation in a voluntary severance
incentive program of the Company or an Affiliate approved by the Board, all
Awards of that Employee to the extent exercisable at the time of that
Termination shall be exercisable for one year after the Awardee’s Termination,
but in no event after the Expiration Date. If the Awardee does not exercise an
Award within the time specified for exercise, the Award shall automatically
terminate.

 

(g) Termination for Cause. If an Awardee’s Termination is due to Cause, all of
the Awardee’s Awards shall automatically terminate and cease to be exercisable
at the time of Termination and the Administrator may rescind any and all
exercises of Awards by the Awardee that occurred after the first

 

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event constituting Cause. ‘Cause’ means employment-related dishonesty, fraud,
misconduct or disclosure or misuse of confidential information, or other
employment-related conduct that is likely to cause significant injury to the
Company, an Affiliate, or any of their respective employees, officers or
directors (including, without limitation, commission of a felony or similar
offense), in each case as determined by the Administrator. ‘Cause’ shall not
require that a civil judgment or criminal conviction have been entered against
or guilty plea shall have been made by the Awardee regarding any of the matters
referred to in the previous sentence.

 

(h) Administrator Discretion. Notwithstanding the provisions of Section 9.4
(a)-(g), the Plan Administrator shall have complete discretion, exercisable
either at the time an Award is granted or at any time while the Award remains
outstanding, to:

 

(i) Extend the period of time for which the Award is to remain exercisable,
following the Awardee’s Termination, from the limited exercise period otherwise
in effect for that Award to such greater period of time as the Administrator
shall deem appropriate, but in no event beyond the expiration of the option
term; and/or

 

(ii) Permit the Award to be exercised, during the applicable post-Termination
exercise period, not only with respect to the number of vested shares of the
Company’s common stock for which such Award may be exercisable at the time of
the Awardee’s Termination but also with respect to one or more additional
installments in which the Awardee would have vested had the Awardee not been
subject to Termination; and/or

 

(iii) Permit the lapse of some or all of the Company’s repurchase rights, as to
any given Award, that is subject to Reverse Vesting.

 

(i) Consulting or Employment Relationship. Nothing in this Plan or in any Award
Agreement, and no Award or the fact that Award Shares remain subject to
repurchase rights, shall: (A) interfere with or limit the right of the Company
or any Affiliate to terminate the employment or consultancy of any Awardee at
any time, whether with or without cause or reason, and with or without the
payment of severance or any other compensation or payment, or (B) interfere with
the application of any provision in any of the Company’s or any Affiliate’s
charter documents or Applicable Law relating to the election, appointment, term
of office, or removal of a Director.

 

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10. CERTAIN TRANSACTIONS AND EVENTS

 

10.1 In General. Except as provided in this Section 10, no change in the capital
structure of the Company, merger, sale or other disposition of assets or a
subsidiary, change of control, issuance by the Company of shares of any class of
securities convertible into shares of any class, conversion of securities, or
other transaction or event shall require or be the occasion for any adjustments
of the type described in this Section 10. Additional provisions with respect to
the foregoing transactions are set forth in Section 13.3.

 

10.2 Changes in Capital Structure. In the event of any stock split, reverse
stock split, recapitalization, combination or reclassification of stock, stock
dividend, spin-off, or similar change to the capital structure of the Company
(not including a Fundamental Transaction or Change of Control), the Board shall
make whatever adjustments it concludes are appropriate to: (a) the number and
type of Awards that may be granted under this Plan, (b) the number and type of
Options that may be granted to any individual under this Plan, (c) the Terms of
any SAR, (d) the Purchase Price of any Stock Award, (e) the Option Price and
number and class of securities issuable under each outstanding Option, and (f)
the repurchase price of any securities substituted for Option Shares that are
subject to repurchase rights. The specific adjustments shall be determined by
the Board Unless the Board specifies otherwise, any securities issuable as a
result of any such adjustment shall be rounded to the next lower whole security.
The Board need not adopt the same rules for each Award or each Awardee.

 

10.3 Fundamental Transactions. If the Company engages in a Fundamental
Transaction, then, subject to Section 18.4 of this Plan, but notwithstanding any
other provision of this Plan, the Board shall do one or more of the following
contingent on the closing or completion of the Fundamental Transaction: (a)
arrange for the substitution, in exchange for Awards, of options to purchase
equity securities other than Shares (including, if appropriate, equity
securities of an entity other than the Company) (an ‘assumption’ of Awards) on
such terms and conditions as the Board determines are appropriate, (b)
accelerate the vesting and termination of outstanding Awards, in whole or in
part, so that Awards can be exercised before or otherwise in connection with the
closing or completion of the Fundamental Transaction or event but then
terminate, (c) cancel or arrange for the cancellation of Awards in exchange for
cash payments to Awardees, or (d) either arrange for any repurchase rights of
the Company with respect to Award Shares to apply to the securities issued in
substitution for Shares or terminate repurchase rights on Award Shares.

 

10.4 Divestiture. If the Company or an Affiliate sells or otherwise transfers
equity securities of an Affiliate to a person or entity other than the Company
or an Affiliate, or leases, exchanges or transfers all or any portion of its
assets to such a person or entity, then the Board may specify that such
transaction or event constitutes a ‘Divestiture’. In connection with a
Divestiture, notwithstanding any other provision of this Plan, the Board may
take one or more of the actions described in Section 10.3 with respect to Awards
or Award Shares held by, for example, Employees, Directors or Consultants for
whom that transaction or event results in a Termination. The Board need not
adopt the same rules for each Award or each Awardee.

 

10.5 Dissolution. If the Company adopts a plan of dissolution, the Board may
cause Awards to be fully vested and exercisable (but not after their Expiration
Date) before the dissolution is completed but contingent on its completion and
may cause the Company’s repurchase rights on Award Shares to lapse upon
completion of the dissolution. The Board need not adopt the same rules for each
Award or each Awardee. However, to the extent not exercised before the earlier
of the completion of the dissolution or their Expiration Date, Awards shall
terminate just before the dissolution is completed.

 

10.6 Cut-Back to Preserve Benefits. If the Administrator determines that the net
after-tax amount to be realized by any Awardee, taking into account any
accelerated vesting, termination of repurchase rights, or cash payments to that
Awardee in connection with any transaction or event addressed in this Section 10
would be greater if one or more of those steps were not taken or payments were
not made with respect to that Awardee’s Awards or Award Shares, then and to that
extent one or more of those steps shall not be taken and payments shall not be
made.

 

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11. [RESERVED

 

However, all Options granted under this Article before this amendment and
restatement came into effect, shall be governed by the terms of the 2003 Stock
Incentive Plan of Sorrento Networks Corporation prior to this amendment and
restatement.]

 

12. WITHHOLDING AND TAX REPORTING

 

12.1 Tax Withholding Alternatives.

 

(a) General. Whenever Award Shares are issued or become free of restrictions,
the Company may require the Awardee to remit to the Company an amount sufficient
to satisfy any applicable tax withholding requirement, whether the related tax
is imposed on the Awardee or the Company. The Company shall have no obligation
to deliver Award Shares or release Award Shares from an escrow or permit a
transfer of Award Shares until the Awardee has satisfied those tax withholding
obligations. Whenever payment in satisfaction of Awards is made in cash, the
payment will be reduced by an amount sufficient to satisfy all tax withholding
requirements.

 

(b) Method of Payment. The Awardee shall pay any required withholding using the
forms of consideration described in Section 6.4(b), except that, in the
discretion of the Administrator, the Company may also permit the Awardee to use
any of the forms of payment described in Section 6.4(c). The Administrator may
also permit Award Shares to be withheld to pay required withholding. If the
Administrator permits Award Shares to be withheld, the Fair Market Value of the
Award Shares withheld, as determined as of the date of withholding, shall not
exceed the amount determined by the applicable minimum statutory withholding
rates.

 

12.2 Reporting of Dispositions. Any holder of Option Shares acquired under an
Incentive Stock Option shall promptly notify the Administrator, following such
procedures as the Administrator may require, of the sale or other disposition of
any of those Option Shares if the disposition occurs during: (a) the longer of
two years after the Grant Date of the Incentive Stock Option and one year after
the date the Incentive Stock Option was exercised, or (b) such other period as
the Administrator has established.

 

13. COMPLIANCE WITH LAW

 

The grant of Awards and the issuance and subsequent transfer of Award Shares
shall be subject to compliance with all Applicable Law, including all applicable
securities laws. Awards may not be exercised, and Award Shares may not be
transferred, in violation of Applicable Law. Thus, for example, Awards may not
be exercised unless: (a) a registration statement under the Securities Act is
then in effect with respect to the related Award Shares, or (b) in the opinion
of legal counsel to the Company, those Award Shares may be issued in accordance
with an applicable exemption from the registration requirements of the
Securities Act and any other applicable securities laws. The failure or
inability of the Company to obtain from any regulatory body the authority
considered by the Company’s legal counsel to be necessary or useful for the
lawful issuance of any Award Shares or their subsequent transfer shall relieve
the Company of any liability for failing to issue those Award Shares or
permitting their transfer. As a condition to the exercise of any Award or the
transfer of any Award Shares, the Company may require the Awardee to satisfy any
requirements or qualifications that may be necessary or appropriate to comply
with or evidence compliance with any Applicable Law.

 

14. AMENDMENT OR TERMINATION OF THIS PLAN OR OUTSTANDING AWARDS

 

14.1 Amendment and Termination. The Board may at any time amend, suspend, or
terminate this Plan.

 

14.2 Shareholder Approval. The Board shall have complete and exclusive power and
authority to amend or modify the Plan in any or all respects. However, the
Company shall obtain the approval of the Company’s shareholders for any
amendment to this Plan if shareholder approval is

 

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necessary or desirable to comply with any Applicable Law or with the
requirements applicable to the grant of Awards intended to be Incentive Stock
Options. The Board may also, but need not, require that the Company’s
shareholders approve any other amendments to this Plan.

 

14.3 Effect. No such amendment or modification as contemplated in Section 14.2
of this Plan shall adversely affect the rights and obligations with respect to
Awards at the time outstanding under the Plan unless the Awardee consents to
such amendment or modification.

 

15. RESERVED RIGHTS

 

15.1 Nonexclusivity of this Plan.

 

This Plan shall not limit the power of the Company or any Affiliate to adopt
other incentive arrangements including, for example, the grant or issuance of
stock options, stock, or other equity-based rights under other plans or
independently of any plan.

 

15.2 Unfunded Plan. This Plan shall be unfunded. Although bookkeeping accounts
may be established with respect to Awardees, any such accounts will be used
merely as a convenience. The Company shall not be required to segregate any
assets on account of this Plan, the grant of Awards, or the issuance of Award
Shares. The Company and the Administrator shall not be deemed to be a trustee of
stock or cash to be awarded under this Plan. Any obligations of the Company to
any Awardee shall be based solely upon contracts entered into under this Plan,
such as Award Agreements. No such obligations shall be deemed to be secured by
any pledge or other encumbrance on any assets of the Company. Neither the
Company nor the Administrator shall be required to give any security or bond for
the performance of any such obligations.

 

16. SPECIAL ARRANGEMENTS REGARDING AWARD SHARES

 

16.1 Escrows and Pledges. To enforce any restrictions on Award Shares including
restrictions related to Reverse Vesting, the Administrator may require their
holder to deposit the certificates representing Award Shares, with stock powers
or other transfer instruments approved by the Administrator endorsed in blank,
with the Company or an agent of the Company to hold in escrow until the
restrictions have lapsed or terminated. The Administrator may also cause a
legend or legends referencing the restrictions to be placed on the certificates.
Any Awardee who delivers a promissory note as partial or full consideration for
the purchase of Award Shares will be required to pledge and deposit with the
Company some or all of the Award Shares as collateral to secure the payment of
the note. However, the Administrator may require or accept other or additional
forms of collateral to secure the note and, in any event, the Company will have
full recourse against the maker of the note, notwithstanding any pledge or other
collateral.

 

16.2 Repurchase Rights.

 

(a) Reverse Vesting. If an Option or Stock Award is subject to Reverse Vesting,
the Company shall have the right, during the seven months after the Awardee’s
Termination, to repurchase any or all of the Award Shares that were unvested as
of the date of that Termination. If the Award Shares were purchased with a
promissory note, the repurchase price shall be the lower of: the Option Price or
Purchase Price for such Shares, (minus the amount of any cash dividends paid or
payable with respect to the Award Shares for which the record date precedes the
repurchase) and the Fair Market Value at the date of Termination. In all other
cases, the repurchase price shall be determined by the Administrator in
accordance with this Section 16.2. The repurchase determined by the
Administrator shall be either (i) the Option Price or Purchase Price for the
Award Shares (minus the amount of any cash dividends paid or payable with
respect to the Award Shares for which the record date precedes the repurchase)
or (ii) the lower of (A) the Option Price or Purchase Price for the Shares or
(B) the Fair Market Value of those Option Shares as of the date of the
Termination. The repurchase price shall be paid in cash or, if the Option Shares
were purchased in whole or in part with a promissory note, cancellation of
indebtedness under that note, or a combination of those means. The Company may
assign this right of repurchase.

 

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(b) Procedure. The Company or its assignee may choose to give the Awardee a
written notice of exercise of its repurchase rights under this Section 16.2.
However, the Company’s failure to give such a notice shall not affect its rights
to repurchase Award Shares. The Company must, however, tender the repurchase
price during the period specified in this Section 16.2 for exercising its
repurchase rights in order to exercise such rights.

 

17. BENEFICIARIES

 

An Awardee may file a written designation of one or more beneficiaries who are
to receive the Awardee’s rights under the Awardee’s Awards after the Awardee’s
death. An Awardee may change such a designation at any time by written notice.
If an Awardee designates a beneficiary, the beneficiary may exercise the
Awardee’s Awards after the Awardee’s death. If an Awardee dies when the Awardee
has no living beneficiary designated under this Plan, the Company shall allow
the executor or administrator of the Awardee’s estate to exercise the Award or,
if there is none, the person entitled to exercise the Option under the Awardee’s
will or the laws of descent and distribution. In any case, no Award may be
exercised after its Expiration Date.

 

18. MISCELLANEOUS

 

18.1 Governing Law. This Plan, the Award Agreements and all other agreements
entered into under this Plan, and all actions taken under this Plan or in
connection with Awards or Award Shares, shall be governed by the substantive
laws, but not the choice of law rules, of the state of incorporation of the
Company.

 

18.2 Determination of Value. Fair Market Value shall be determined as follows:

 

(a) Listed Stock. If the Shares are traded on any established stock exchange or
quoted on a national market system, Fair Market Value shall be the closing sales
price for the Shares as quoted on that stock exchange or system for the date the
value is to be determined (the ‘Value Date’) as reported in The Wall Street
Journal or a similar publication. If no sales are reported as having occurred on
the Value Date, Fair Market Value shall be that closing sales price for the last
preceding trading day on which sales of Shares are reported as having occurred.
If no sales are reported as having occurred during the five trading days before
the Value Date, Fair Market Value shall be the closing bid for Shares on the
Value Date. If Shares are listed on multiple exchanges or systems, Fair Market
Value shall be based on sales or bids on the primary exchange or system on which
Shares are traded or quoted.

 

(b) Stock Quoted by Securities Dealer. If Shares are regularly quoted by a
recognized securities dealer but selling prices are not reported on any
established stock exchange or quoted on a national market system, Fair Market
Value shall be the mean between the high bid and low asked prices on the Value
Date. If no prices are quoted for the Value Date, Fair Market Value shall be the
mean between the high bid and low asked prices on the last preceding trading day
on which any bid and asked prices were quoted.

 

(c) No Established Market. If Shares are not traded on any established stock
exchange or quoted on a national market system and are not quoted by a
recognized securities dealer, the Administrator (following guidelines
established by the Board or Committee) will determine Fair Market Value in good
faith. The Administrator will consider the following factors, and any others it
considers significant, in determining Fair Market Value: (i) the price at which
other securities of the Company have been issued to purchasers other than
Employees, Directors, or Consultants, (ii) the Company’s net worth, prospective
earning power, dividend-paying capacity, and non-operating assets, if any, and
(iii) any other relevant factors, including the economic outlook for the Company
and the Company’s industry, the Company’s position in that industry, the
Company’s goodwill and other intellectual property, and the values of securities
of other businesses in the same industry.

 

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18.3 Reservation of Shares. During the term of this Plan, the Company will at
all times reserve and keep available such number of Shares as are still issuable
under this Plan.

 

18.4 Contractual Arrangements. Notwithstanding anything to the contrary set
forth within this Plan, the terms and conditions of all existing and future
employment and consulting agreements with the Company, including without
limitation, any definitions contained in those agreements, shall be unaffected
by and shall supersede the terms of this Plan.

 

18.5 Prior Plans. All options outstanding under the Prior Plans shall continue
to be governed solely by the terms of the documents evidencing such options, and
no provision of the Plan shall be deemed to affect or otherwise modify the
rights or obligations of the holders of such transferred options with respect to
their acquisition of shares of the Company’s Common Stock.

 

18.6 Electronic Communications. Any Award Agreement, notice of exercise of an
Award, or other document required or permitted by this Plan may be delivered in
writing or, to the extent determined by the Administrator, electronically.
Signatures may also be electronic if permitted by the Administrator.

 

18.7 Notices. Unless the Administrator specifies otherwise, any notice to the
Company under any Option Agreement or with respect to any Awards or Award Shares
shall be in writing (or, if so authorized by Section 18.4, communicated
electronically), shall be addressed to the Secretary of the Company, and shall
only be effective when received by the Secretary of the Company.

 

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