Exhibit 10.58

 

APPENDIX D

 

 

MEDIA ARTS GROUP, INC.

 

2002 STOCK PLAN

 

1.                                       Purposes of the Plan.  The purposes of
this 2002 Stock Plan are:

 

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

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

•                                      to promote the success of the Company’s
business

 

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

 

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

 

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

 

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

 

(c)                                  “Board” means the Board of Directors of the
Company.

 

(d)                                 “Change in Control” means the occurrence of
any of the following events:

 

(i)                           Any “person” (as such term is used in Sections
13(d) and 14(d) of the Exchange Act) becomes the “beneficial owner” (as defined
in Rule 13d-3 of the Exchange Act), directly or indirectly, of securities of the
Company representing fifty percent (50%) or more of the total voting power
represented by the Company’s then outstanding voting securities; or

 

(ii)                        The consummation of the sale or disposition by the
Company of all or substantially all of the Company’s assets;

 

(iii)                     A change in the composition of the Board occurring
within a two-year period, as a result of which fewer than a majority of the
directors are Incumbent Directors.

 

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  “Incumbent Directors” means directors who either (A) are Directors as of the
effective date of the Plan, or (B) are elected, or nominated for election, to
the Board with the affirmative votes of at least a majority of the Incumbent
Directors at the time of such election or nomination (but will not include an
individual whose election or nomination is in connection with an actual or
threatened proxy contest relating to the election of directors to the Company);
or

 

(iv)                    The consummation of a merger or consolidation of the
Company with any other corporation, other than a merger or consolidation which
would result in the voting securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity or its parent) at
least fifty percent (50%) of the total voting power represented by the voting
securities of the Company or such surviving entity or its parent outstanding
immediately after such merger or consolidation.

 

(e)                                  “Code” means the Internal Revenue Code of
1986, as amended.

 

(f)                                    “Committee” means a committee of
Directors appointed by the Board in accordance with Section 4 of the Plan.

 

(g)                                 “Common Stock” means the common stock of the
Company.

 

(h)                                 “Company” means Media Arts Group, Inc., a
Delaware corporation.

 

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

 

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

 

(k)                                  “Disability” means total and permanent
disability as defined in Section 22(e)(3) of the Code.

 

(l)                                     “Employee” means any person, including
Officers and Directors, employed by the Company or any Parent or Subsidiary of
the Company.  A Service Provider shall not cease to be an Employee in the case
of (i) any leave of absence approved by the Company or (ii) transfers between
locations of the Company or between the Company, its Parent, any Subsidiary, or
any successor.  For purposes of Incentive Stock Options, no such leave may
exceed ninety days, unless reemployment upon expiration of such leave is
guaranteed by statute or contract.  If reemployment upon expiration of a leave
of absence approved by the Company is not so guaranteed, then three (3) months
following the 91st day of such leave any Incentive Stock Option held by the
Optionee shall cease to be treated as an Incentive Stock Option and shall be
treated for tax purposes as a Non­statutory Stock Option.  Neither service as a
Director nor payment of a director’s fee by the Company shall be sufficient to
constitute “employment” by the Company.

 

(m)                               “Exchange Act” means the Securities Exchange
Act of 1934, as amended.

 

(n)                                 “Fair Market Value” means, as of any date,
the value of Common Stock deter­mined as follows:

 

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

 

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

 

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

 

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

 

(p)                                 “Inside Director” means a Director who is an
Employee.

 

(q)                                 “Nonstatutory Stock Option” means an Option
not intended to qualify as an Incentive Stock Option.

 

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

 

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

 

(t)                                    “Option” means a stock option granted
pursuant to the Plan.

 

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

 

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

 

(w)                               “Optioned Stock” means the Common Stock
subject to an Option or Stock Purchase Right.

 

(x)                                   “Optionee” means the holder of an
outstanding Option or Stock Purchase Right granted under the Plan.

 

(y)                                 “Outside Director” means a Director who is
not an Employee.

 

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

 

(aa)                            “Plan” means this 2002 Stock Plan.

 

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

 

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

 

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

 

(ee)                            “Section 16(b) “ means Section 16(b) of the
Exchange Act.

 

(ff)                                “Service Provider” means an Employee,
Director or Consultant.

 

(gg)                          “Share” means a share of the Common Stock, as
adjusted in accordance with Section 14 of the Plan.

 

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

 

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

 

3.                                       Stock Subject to the Plan.  Subject to
the provisions of Section 14 of the Plan, the maximum aggregate number of Shares
that may be optioned and sold under the Plan is 0 Shares plus (a) any Shares
which have been reserved but not issued under the Company’s 1998 Stock Incentive
Plan (the “1998 Plan”) as of the date of stockholder approval of this Plan, (b)
any Shares returned to the 1998 Plan as a result of termination of options or
repur­chase of Shares issued under the 1998 Plan and (c) an annual increase to
be added on the first day of the Company’s fiscal year beginning in 2003, equal
to the lesser of (i) 500,000 shares, (ii) 4% of the outstanding shares on such
date or (iii) a lesser amount determined by the Board.  The Shares may be
authorized, but unissued, or reacquired Common Stock.

 

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

 

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4.                                       Administration of the Plan.

 

(a)                                  Procedure.

 

(i)                           Multiple Administrative Bodies.  Different
Committees with respect to different groups of Service Providers may administer
the Plan.

 

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

 

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

 

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

 

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

 

(i)                           to determine the Fair Market Value;

 

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

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

 

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

 

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

 

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

 

(vii)                 to institute an Option Exchange Program;

 

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

 

(ix)                      to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of satisfying applicable foreign laws;

 

(x)                         to modify or amend each Option or Stock Purchase
Right (subject to Section 16(c) of the Plan), including the discretionary
authority to extend the post-termination exercisability period of Options longer
than is otherwise provided for in the Plan;

 

(xi)                      to allow Optionees to satisfy withholding tax
obligations by electing to have the Company withhold from the Shares to be
issued upon exercise of an Option or Stock Purchase Right that number of Shares
having a Fair Market Value equal to the minimum amount required to be withheld. 
The Fair Market Value of the Shares to be withheld shall be determined on the
date that the amount of tax to be withheld is to be determined.  All elections
by an Optionee to have Shares withheld for this purpose shall be made in such
form and under such conditions as the Administrator may deem necessary or
advisable;

 

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

 

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

 

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

 

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

 

6.                                       Limitations.

 

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

 

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

 

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

 

(i)                           No Service Provider shall be granted, in any
fiscal year of the Company, Options to purchase more than 600,000 Shares.

 

(ii)                        In connection with his or her initial service, a
Service Provider may be granted Options to purchase up to an additional 600,000
Shares, which shall not count against the limit set forth in subsection (i)
above.

 

(iii)                     The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company’s capitalization as
described in Section 14.

 

(iv)                    If an Option is cancelled in the same fiscal year of the
Company in which it was granted (other than in connection with a transaction
described in Section 14), the cancelled Option will be counted against the
limits set forth in subsections (i) and (ii) above.  For this purpose, if the
exercise price of an Option is reduced, the transaction will be treated as a
cancellation of the Option and the grant of a new Option.

 

7.                                       Term of Plan.  Subject to Section 20 of
the Plan, the Plan shall become effective upon its adoption by the Board.  It
shall continue in effect for a term of ten (10) years unless terminated earlier
under Section 16 of the Plan.

 

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

 

9.                                       Option Exercise Price and
Consideration.

 

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

 

(i)                           In the case of an Incentive Stock Option

 

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

 

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

 

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

 

(iii)                     Notwithstanding the foregoing, Options may be granted
with a per Share exercise price of less than 100% of the Fair Market Value per
Share on the date of grant pursuant to a merger or other corporate transaction.

 

(b)                                 Waiting Period and Exercise Dates.  At the
time an Option is granted, the Administrator shall fix the period within which
the Option may be exercised and shall determine any con­ditions that must be
satisfied before the Option may be exercised.

 

(c)                                  Form of Consideration.  The Administrator
shall determine the acceptable form of consideration for exercising an Option,
including the method of payment.  In the case of an Incentive Stock Option, the
Administrator shall determine the acceptable form of consideration at the time
of grant.  Such consideration may consist entirely of:

 

(i)                           cash;

 

(ii)                        check;

 

(iii)                     promissory note;

 

(iv)                    other Shares which, in the case of Shares acquired
directly or indirectly from the Company, (A) have been owned by the Optionee for
more than six (6) months on the date of surrender, and (B) have a Fair Market
Value on the date of surrender equal to the aggregate exercise price of the
Shares as to which said Option shall be exercised;

 

(v)                       consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan;

 

(vi)                    a reduction in the amount of any Company liability to
the Optionee, including any liability attributable to the Optionee’s
participation in any Company-sponsored deferred compensation program or
arrangement;

 

(vii)                 any combination of the foregoing methods of payment; or

 

(viii)              such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws.

 

10.                                 Exercise of Option.

 

(a)                                  Procedure for Exercise; Rights as a
Stockholder.  Any Option granted here­under shall be exercisable according to
the terms of the Plan and at such times and under such conditions as determined
by the Administrator and set forth in the Option Agreement.  Unless the

 

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Administrator provides otherwise, vesting of Options granted hereunder shall be
suspended during any unpaid leave of absence.  An Option may not be exercised
for a fraction of a Share.

 

An Option shall be deemed exercised when the Company receives: (i) written or
electronic notice of exercise (in accordance with the Option Agreement) from the
person entitled to exercise the Option, and (ii) full payment for the Shares
with respect to which the Option is exercised.  Full payment may consist of any
consideration and method of payment authorized by the Administrator and
permitted by the Option Agreement and the Plan.  Shares issued upon exercise of
an Option shall be issued in the name of the Optionee or, if requested by the
Optionee, in the name of the Optionee and his or her spouse.  Until the Shares
are issued (as evidenced by the appropriate entry on the books of the Company or
of a duly authorized transfer agent of the Company), no right to vote or receive
dividends or any other rights as a stockholder shall exist with respect to the
Optioned Stock, notwithstanding the exercise of the Option.  The Company shall
issue (or cause to be issued) such Shares promptly after the Option is
exercised.  No adjustment will be made for a dividend or other right for which
the record date is prior to the date the Shares are issued, except as provided
in Section 14 of the Plan.

 

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

 

(b)                                 Termination of Relationship as a Service
Provider.  If an Optionee ceases to be a Service Provider, other than upon the
Optionee’s death or Disability, the Optionee may exercise his or her Option
within such period of time as is specified in the Option Agreement to the extent
that the Option is vested on the date of termination (but in no event later than
the expiration of the term of such Option as set forth in the Option
Agreement).  In the absence of a specified time in the Option Agreement, the
Option shall remain exercisable for three (3) months following the Optionee’s
termination.  If, on the date of termination, the Optionee is not vested as to
his or her entire Option, the Shares covered by the unvested portion of the
Option shall revert to the Plan.  If, after termination, the Optionee does not
exercise his or her Option within the time specified by the Administrator, the
Option shall terminate, and the Shares covered by such Option shall revert to
the Plan.

 

(c)                                  Disability of Optionee.  If an Optionee
ceases to be a Service Provider as a result of the Optionee’s Disability, the
Optionee may exercise his or her Option within such period of time as is
specified in the Option Agreement to the extent the Option is vested on the date
of termi­nation (but in no event later than the expiration of the term of such
Option as set forth in the Option Agreement).  In the absence of a specified
time in the Option Agreement, the Option shall remain exercisable for twelve
(12) months following the Optionee’s termination.  If, on the date of
termina­tion, the Optionee is not vested as to his or her entire Option, the
Shares covered by the unvested portion of the Option shall revert to the Plan. 
If, after termination, the Optionee does not exercise his or her Option within
the time specified herein, the Option shall terminate, and the Shares covered by
such Option shall revert to the Plan.

 

(d)                                 Death of Optionee.  If an Optionee dies
while a Service Provider, the Option may be exercised following the Optionee’s
death within such period of time as is specified in the Option Agreement to the
extent that the Option is vested on the date of death (but in no event may

 

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the option be exercised later than the expiration of the term of such Option as
set forth in the Option Agreement), by the Optionee’s designated beneficiary,
provided such beneficiary has been designated prior to Optionee’s death in a
form acceptable to the Administrator.  If no such beneficiary has been
designated by the Optionee, then such Option may be exercised by the personal
representative of the Optionee’s estate or by the person(s) to whom the Option
is transferred pursuant to the Optionee’s will or in accordance with the laws of
descent and distribution.  In the absence of a specified time in the Option
Agreement, the Option shall remain exercisable for twelve (12) months following
Optionee’s death.  If, at the time of death, Optionee is not vested as to his or
her entire Option, the Shares covered by the unvested portion of the Option
shall immediately revert to the Plan.  If the Option is not so exercised within
the time specified herein, the Option shall terminate, and the Shares covered by
such Option shall revert to the Plan.

 

11.                                 Stock Purchase Rights.

 

(a)                                  Rights to Purchase.  Stock Purchase Rights
may be issued either alone, in addition to, or in tandem with other awards
granted under the Plan and/or cash awards made outside of the Plan.  After the
Administrator determines that it will offer Stock Purchase Rights under the
Plan, it shall advise the offeree in writing or electronically, by means of a
Notice of Grant, of the terms, conditions and restrictions related to the offer,
includ­ing the number of Shares that the offeree shall be entitled to purchase,
the price to be paid, and the time within which the offeree must accept such
offer.  The offer shall be accepted by execution of a Restricted Stock Purchase
Agreement in the form determined by the Administrator.

 

(b)                                 Repurchase Option.  Unless the Administrator
determines otherwise, the Restricted Stock Purchase Agreement shall grant the
Company a repurchase option exercisable upon the voluntary or involuntary
termination of the purchaser’s service with the Company for any reason
(including death or Disability).  The purchase price for Shares repurchased
pursuant to the Restricted Stock Purchase Agreement shall be the original price
paid by the purchaser and may be paid by cancellation of any indebtedness of the
purchaser to the Company.  The repurchase option shall lapse at a rate
determined by the Administrator.

 

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

 

(d)                                 Rights as a Stockholder.  Once the Stock
Purchase Right is exercised, the purchaser shall have the rights equivalent to
those of a stockholder, and shall be a stockholder when his or her purchase is
entered upon the records of the duly authorized transfer agent of the Company. 
No adjustment will be made for a dividend or other right for which the record
date is prior to the date the Stock Purchase Right is exercised, except as
provided in Section 14 of the Plan.

 

12.                                 Transferability of Options and Stock
Purchase Rights.  Unless determined otherwise by the Administrator, an Option or
Stock Purchase Right may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee.  If the Administrator makes an Option or Stock

 

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Purchase Right transferable, such Option or Stock Purchase Right shall contain
such additional terms and conditions as the Administrator deems appropriate.

 

13.                                 Formula Option Grants to Outside Directors. 
All grants of Options to Outside Directors pursuant to this Section shall be
automatic and nondiscretionary and shall be made strictly in accordance with the
following provisions:

 

(a)                                  All Options granted pursuant to this
Section shall be Nonstatutory Stock Options and, except as otherwise provided
herein, shall be subject to the other terms and conditions of the Plan.

 

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

 

(c)                                  Each person who first becomes an Outside
Director following the effective date of this Plan, as determined in accordance
with Section 7 hereof, shall be auto­matically granted an Option to purchase
[5,000] Shares (the “First Option”) or the date on which such person first
becomes an Outside Director, whether through election by the stock­holders of
the Company or appointment by the Board to fill a vacancy; provided, however,
that an Inside Director who ceases to be an Inside Director but who remains a
Director shall not receive a First Option.

 

(d)                                 Each Outside Director shall be automatically
granted an Option to purchase 5,000 Shares (a “Subsequent Option”) on the date
of each Annual Meeting of Stockholders beginning with the 2002 Annual Meeting.

 

(e)                                  Notwithstanding the provisions of
subsections (c) and (d) hereof, any exercise of an Option granted before the
Company has obtained stockholder approval of the Plan in accordance with
Section 20 hereof shall be conditioned upon obtaining such stock­holder approval
of the Plan in accordance with Section 20 hereof.

 

(f)                                    The terms of each Option granted pursuant
to this Section shall be as follows:

 

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

 

(ii)                        the exercise price per Share shall be 85% of the
Fair Market Value per Share on the date of grant of the Option.

 

(iii)                     subject to Section 14 hereof, the First Option shall
vest and become exercisable immediately.

 

(iv)                    subject to Section 14 hereof, the Subsequent Option
shall vest and become exercisable immediately.

 

14.                                 Adjustments Upon Changes in Capitalization,
Merger or Change in Control.

 

(a)                                  Changes in Capitalization.  Subject to any
required action by the stockholders of the Company, the number of shares of
Common Stock that have been authorized for issuance

 

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under the Plan but as to which no Options or Stock Purchase Rights have yet been
granted or which have been returned to the Plan upon cancellation or expiration
of an Option or Stock Purchase Right, the number of Shares that may be added
annually to the Plan pursuant to Section 3(i), the number of shares which may be
granted pursuant to the automatic grant provisions of Section 13 and the number
of shares of Common Stock as well as the price per share of Common Stock covered
by each such outstanding Option or Stock Purchase Right, shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock, or any other
increase or decrease in the number of issued shares of Common Stock effected
without receipt of consideration by the Company; provided, however, that
conversion of any convertible securities of the Company shall not be deemed to
have been “effected without receipt of consideration.”  Such adjustment shall be
made by the Board, whose determination in that respect shall be final, binding
and conclusive.  Except as expressly provided herein, no issuance by the Company
of shares of stock of any class, or securities convertible into shares of stock
of any class, shall affect, and no adjust­ment by reason thereof shall be made
with respect to, the number or price of shares of Common Stock subject to an
Option or Stock Purchase Right.

 

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

 

(c)                                  Merger or Change in Control.  In the event
of a merger of the Company with or into another corporation, or a Change in
Control, each outstanding Option and Stock Purchase Right shall be assumed or an
equivalent option or right substituted by the successor corporation or a Parent
or Subsidiary of the successor corporation.  With respect to Options granted to
an Outside Director pursuant to Section 13 that are assumed or substituted for,
if following such assumption or substitution the Optionee’s status as a Director
or a director of the successor corporation, as applicable, is terminated other
than upon a voluntary resignation by the Optionee, then the Optionee shall fully
vest in and have the right to exercise the Option as to all of the Optioned
Stock, including Shares as to which it would not otherwise be vested or
exercisable.

 

In the event that the successor corporation refuses to assume or substitute for
the Option or Stock Purchase Right, the Optionee shall fully vest in and have
the right to exercise the Option or Stock Purchase Right as to all of the
Optioned Stock, including Shares as to which it would not otherwise be vested or
exercisable.  If an Option or Stock Purchase Right becomes fully vested and
exercisable in lieu of assumption or substitution in the event of a merger or
sale of assets, the Administrator shall notify the Optionee in writing or
electronically that the Option or Stock Purchase Right shall be fully vested and
exercisable for a period of fifteen (15) days from the date of

 

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such notice, and the Option or Stock Purchase Right shall terminate upon the
expiration of such period.

 

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

 

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

 

16.                                 Amendment and Termination of the Plan.

 

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

 

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

 

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

 

17.                                 Conditions Upon Issuance of Shares.

 

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

 

(b)                                 Investment Representations.  As a condition
to the exercise of an Option or Stock Purchase Right, the Company may require
the person exercising such Option or Stock

 

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Purchase Right to represent and warrant at the time of any such exercise that
the Shares are being purchased only for investment and without any present
intention to sell or distribute such Shares if, in the opinion of counsel for
the Company, such a representation is required.

 

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

 

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

 

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

 

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