Exhibit 10.3

 

INTRUSION INC.

 

STOCK OPTION AGREEMENT

 

RECITALS

 

A.                                   The Board has adopted the Plan for the
purpose of retaining the services of selected Employees, non-employee members of
the Board (or the board of directors of any Parent or Subsidiary) and
consultants and other independent advisors who provide services to the
Corporation (or any Parent or Subsidiary).

 

B.                                     Optionee is to render valuable services
to the Corporation (or a Parent or Subsidiary), and this Agreement is executed
pursuant to, and is intended to carry out the purposes of, the Plan in
connection with the Corporation’s grant of an option to Optionee.

 

C.                                     All capitalized terms in this Agreement
shall have the meaning assigned to them in the attached Appendix.

 

NOW, THEREFORE, it is hereby agreed as follows:

 

1.                                       GRANT OF OPTION.  THE CORPORATION
HEREBY GRANTS TO OPTIONEE, AS OF THE GRANT DATE, AN OPTION TO PURCHASE UP TO THE
NUMBER OF OPTION SHARES SPECIFIED IN THE GRANT NOTICE.  THE OPTION SHARES SHALL
BE PURCHASABLE FROM TIME TO TIME DURING THE OPTION TERM SPECIFIED IN PARAGRAPH 2
AT THE EXERCISE PRICE.

 

2.                                       OPTION TERM.  THIS OPTION SHALL HAVE A
MAXIMUM TERM OF TEN (10) YEARS MEASURED FROM THE GRANT DATE AND SHALL
ACCORDINGLY EXPIRE AT THE CLOSE OF BUSINESS ON THE EXPIRATION DATE, UNLESS
SOONER TERMINATED IN ACCORDANCE WITH PARAGRAPH 5 OR 6.

 

3.                                       LIMITED TRANSFERABILITY.

 

(A)                                  THIS OPTION SHALL BE NEITHER TRANSFERABLE
NOR ASSIGNABLE BY OPTIONEE OTHER THAN BY WILL OR THE LAWS OF INHERITANCE
FOLLOWING OPTIONEE’S DEATH AND MAY BE EXERCISED, DURING OPTIONEE’S LIFETIME,
ONLY BY OPTIONEE.  HOWEVER, OPTIONEE MAY DESIGNATE ONE OR MORE PERSONS AS THE
BENEFICIARY OR BENEFICIARIES OF THIS OPTION, AND THIS OPTION SHALL, IN
ACCORDANCE WITH SUCH DESIGNATION, AUTOMATICALLY BE TRANSFERRED TO SUCH
BENEFICIARY OR BENEFICIARIES UPON THE OPTIONEE’S DEATH WHILE HOLDING THIS
OPTION.  SUCH BENEFICIARY OR BENEFICIARIES SHALL TAKE THE TRANSFERRED OPTION
SUBJECT TO ALL THE TERMS AND CONDITIONS OF THIS AGREEMENT, INCLUDING (WITHOUT
LIMITATION) THE LIMITED TIME PERIOD DURING WHICH THIS OPTION MAY, PURSUANT TO
PARAGRAPH 5, BE EXERCISED FOLLOWING OPTIONEE’S DEATH.

 

(B)                                 IF THIS OPTION IS DESIGNATED A NON-STATUTORY
OPTION IN THE GRANT NOTICE, THEN THIS OPTION MAY BE ASSIGNED IN WHOLE OR IN PART
DURING OPTIONEE’S LIFETIME TO ONE OR MORE MEMBERS OF OPTIONEE’S FAMILY OR TO A
TRUST ESTABLISHED FOR THE EXCLUSIVE BENEFIT OF ONE OR MORE SUCH FAMILY MEMBERS
OR TO OPTIONEE’S FORMER SPOUSE, TO THE EXTENT SUCH

 

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ASSIGNMENT IS IN CONNECTION WITH THE OPTIONEE’S ESTATE PLAN OR PURSUANT TO A
DOMESTIC RELATIONS ORDER.  THE ASSIGNED PORTION SHALL BE EXERCISABLE ONLY BY THE
PERSON OR PERSONS WHO ACQUIRE A PROPRIETARY INTEREST IN THE OPTION PURSUANT TO
SUCH ASSIGNMENT.  THE TERMS APPLICABLE TO THE ASSIGNED PORTION SHALL BE THE SAME
AS THOSE IN EFFECT FOR THIS OPTION IMMEDIATELY PRIOR TO SUCH ASSIGNMENT.

 

4.                                       DATES OF EXERCISE.  THIS OPTION SHALL
BECOME EXERCISABLE FOR THE OPTION SHARES IN ONE OR MORE INSTALLMENTS AS
SPECIFIED IN THE GRANT NOTICE.  AS THE OPTION BECOMES EXERCISABLE FOR SUCH
INSTALLMENTS, THOSE INSTALLMENTS SHALL ACCUMULATE, AND THE OPTION SHALL REMAIN
EXERCISABLE FOR THE ACCUMULATED INSTALLMENTS UNTIL THE EXPIRATION DATE OR SOONER
TERMINATION OF THE OPTION TERM UNDER PARAGRAPH 5 OR 6.

 

5.                                       CESSATION OF SERVICE.  THE OPTION TERM
SPECIFIED IN PARAGRAPH 2 SHALL TERMINATE (AND THIS OPTION SHALL CEASE TO BE
OUTSTANDING) PRIOR TO THE EXPIRATION DATE SHOULD ANY OF THE FOLLOWING PROVISIONS
BECOME APPLICABLE:

 

(A)                                  SHOULD OPTIONEE CEASE TO REMAIN IN SERVICE
FOR ANY REASON (OTHER THAN DEATH OR PERMANENT DISABILITY) WHILE THIS OPTION IS
OUTSTANDING, THEN OPTIONEE (OR ANY PERSON OR PERSONS TO WHOM THIS OPTION IS
TRANSFERRED PURSUANT TO A PERMITTED TRANSFER UNDER PARAGRAPH 3) SHALL HAVE A
PERIOD OF THREE (3) MONTHS (COMMENCING WITH THE DATE OF SUCH CESSATION OF
SERVICE) DURING WHICH TO EXERCISE THIS OPTION, BUT IN NO EVENT SHALL THIS OPTION
BE EXERCISABLE AT ANY TIME AFTER THE EXPIRATION DATE.

 

(B)                                 SHOULD OPTIONEE DIE WHILE THIS OPTION IS
OUTSTANDING, THEN THE PERSONAL REPRESENTATIVE OF OPTIONEE’S ESTATE OR THE PERSON
OR PERSONS TO WHOM THE OPTION IS TRANSFERRED PURSUANT TO OPTIONEE’S WILL OR THE
LAWS OF INHERITANCE FOLLOWING OPTIONEE’S DEATH OR TO WHOM THE OPTION IS
TRANSFERRED DURING OPTIONEE’S LIFETIME PURSUANT TO A PERMITTED TRANSFER UNDER
PARAGRAPH 3 SHALL HAVE THE RIGHT TO EXERCISE THIS OPTION.  HOWEVER, IF OPTIONEE
DIES WHILE HOLDING THIS OPTION AND HAS AN EFFECTIVE BENEFICIARY DESIGNATION IN
EFFECT FOR THIS OPTION AT THE TIME OF HIS OR HER DEATH, THEN THE DESIGNATED
BENEFICIARY OR BENEFICIARIES SHALL HAVE THE EXCLUSIVE RIGHT TO EXERCISE THIS
OPTION FOLLOWING OPTIONEE’S DEATH.  ANY SUCH RIGHT TO EXERCISE THIS OPTION SHALL
LAPSE, AND THIS OPTION SHALL CEASE TO BE OUTSTANDING, UPON THE EARLIER OF
(I) THE EXPIRATION OF THE TWELVE (12)-MONTH PERIOD MEASURED FROM THE DATE OF
OPTIONEE’S DEATH OR (II) THE EXPIRATION DATE.

 

(C)                                  SHOULD OPTIONEE CEASE SERVICE BY REASON OF
PERMANENT DISABILITY WHILE THIS OPTION IS OUTSTANDING, THEN OPTIONEE (OR ANY
PERSON OR PERSONS TO WHOM THIS OPTION IS TRANSFERRED PURSUANT TO A PERMITTED
TRANSFER UNDER PARAGRAPH 3) SHALL HAVE A PERIOD OF TWELVE (12) MONTHS
(COMMENCING WITH THE DATE OF SUCH CESSATION OF SERVICE) DURING WHICH TO EXERCISE
THIS OPTION.  IN NO EVENT SHALL THIS OPTION BE EXERCISABLE AT ANY TIME AFTER THE
EXPIRATION DATE.

 

(D)                                 DURING THE LIMITED PERIOD OF POST-SERVICE
EXERCISABILITY, THIS OPTION MAY NOT BE EXERCISED IN THE AGGREGATE FOR MORE THAN
THE NUMBER OF OPTION SHARES FOR WHICH THE OPTION IS EXERCISABLE AT THE TIME OF
OPTIONEE’S CESSATION OF SERVICE.  UPON THE EXPIRATION OF SUCH LIMITED EXERCISE
PERIOD OR (IF EARLIER) UPON THE EXPIRATION DATE, THIS

 

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OPTION SHALL TERMINATE AND CEASE TO BE OUTSTANDING FOR ANY EXERCISABLE OPTION
SHARES FOR WHICH THE OPTION HAS NOT BEEN EXERCISED.  HOWEVER, THIS OPTION SHALL,
IMMEDIATELY UPON OPTIONEE’S CESSATION OF SERVICE FOR ANY REASON, TERMINATE AND
CEASE TO BE OUTSTANDING WITH RESPECT TO ANY OPTION SHARES FOR WHICH THIS OPTION
IS NOT OTHERWISE AT THAT TIME EXERCISABLE.

 

6.                                       SPECIAL ACCELERATION OF OPTION.

 

(A)                                  THIS OPTION, TO THE EXTENT OUTSTANDING AT
THE TIME OF A CHANGE IN CONTROL BUT NOT OTHERWISE FULLY EXERCISABLE, SHALL
AUTOMATICALLY ACCELERATE SO THAT THIS OPTION SHALL, IMMEDIATELY PRIOR TO THE
EFFECTIVE DATE OF SUCH CHANGE IN CONTROL, BECOME EXERCISABLE FOR ALL OF THE
OPTION SHARES AT THE TIME SUBJECT TO THIS OPTION AND MAY BE EXERCISED FOR ANY OR
ALL OF THOSE OPTION SHARES AS FULLY VESTED SHARES OF COMMON STOCK.  HOWEVER,
THIS OPTION SHALL NOT BECOME EXERCISABLE ON SUCH AN ACCELERATED BASIS, IF AND TO
THE EXTENT:  (I) THIS OPTION IS TO BE ASSUMED BY THE SUCCESSOR CORPORATION (OR
PARENT THEREOF) OR IS OTHERWISE TO BE CONTINUED IN FULL FORCE AND EFFECT
PURSUANT TO THE TERMS OF THE CHANGE IN CONTROL TRANSACTION OR (II) THIS OPTION
IS TO BE REPLACED WITH A CASH INCENTIVE PROGRAM OF THE SUCCESSOR CORPORATION
WHICH PRESERVES THE SPREAD EXISTING AT THE TIME OF THE CHANGE IN CONTROL ON ANY
OPTION SHARES FOR WHICH THIS OPTION IS NOT OTHERWISE AT THAT TIME EXERCISABLE
(THE EXCESS OF THE FAIR MARKET VALUE OF THOSE OPTION SHARES OVER THE AGGREGATE
EXERCISE PRICE PAYABLE FOR SUCH SHARES) AND PROVIDES FOR SUBSEQUENT PAYOUT OF
THAT SPREAD IN ACCORDANCE WITH THE SAME OPTION EXERCISE/VESTING SCHEDULE FOR
THOSE OPTION SHARES SET FORTH IN THE GRANT NOTICE.

 

(B)                                 IMMEDIATELY FOLLOWING THE CHANGE IN CONTROL,
THIS OPTION SHALL TERMINATE AND CEASE TO BE OUTSTANDING, EXCEPT TO THE EXTENT
ASSUMED BY THE SUCCESSOR CORPORATION (OR PARENT THEREOF) OR OTHERWISE CONTINUED
IN EFFECT PURSUANT TO THE TERMS OF THE CHANGE IN CONTROL TRANSACTION.

 

(C)                                  IF THIS OPTION IS ASSUMED IN CONNECTION
WITH A CHANGE IN CONTROL OR OTHERWISE CONTINUED IN EFFECT, THEN THIS OPTION
SHALL BE APPROPRIATELY ADJUSTED, IMMEDIATELY AFTER SUCH CHANGE IN CONTROL, TO
APPLY TO THE NUMBER AND CLASS OF SECURITIES WHICH WOULD HAVE BEEN ISSUABLE TO
OPTIONEE IN CONSUMMATION OF SUCH CHANGE IN CONTROL HAD THE OPTION BEEN EXERCISED
IMMEDIATELY PRIOR TO SUCH CHANGE IN CONTROL, AND APPROPRIATE ADJUSTMENTS SHALL
ALSO BE MADE TO THE EXERCISE PRICE, PROVIDED THE AGGREGATE EXERCISE PRICE SHALL
REMAIN THE SAME.  TO THE EXTENT THE ACTUAL HOLDERS OF THE CORPORATION’S
OUTSTANDING COMMON STOCK RECEIVE CASH CONSIDERATION FOR THEIR COMMON STOCK IN
CONSUMMATION OF THE CHANGE IN CONTROL, THE SUCCESSOR CORPORATION MAY, IN
CONNECTION WITH THE ASSUMPTION OF THIS OPTION, SUBSTITUTE ONE OR MORE SHARES OF
ITS OWN COMMON STOCK WITH A FAIR MARKET VALUE EQUIVALENT TO THE CASH
CONSIDERATION PAID PER SHARE OF COMMON STOCK IN SUCH CHANGE IN CONTROL.

 

(D)                                 THIS AGREEMENT SHALL NOT IN ANY WAY AFFECT
THE RIGHT OF THE CORPORATION TO ADJUST, RECLASSIFY, REORGANIZE OR OTHERWISE
CHANGE ITS CAPITAL OR BUSINESS STRUCTURE OR TO MERGE, CONSOLIDATE, DISSOLVE,
LIQUIDATE OR SELL OR TRANSFER ALL OR ANY PART OF ITS BUSINESS OR ASSETS.

 

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7.                                       ADJUSTMENT IN OPTION SHARES.  SHOULD
ANY CHANGE BE MADE TO THE COMMON STOCK BY REASON OF ANY STOCK SPLIT, STOCK
DIVIDEND, RECAPITALIZATION, COMBINATION OF SHARES, EXCHANGE OF SHARES OR OTHER
CHANGE AFFECTING THE OUTSTANDING COMMON STOCK AS A CLASS WITHOUT THE
CORPORATION’S RECEIPT OF CONSIDERATION, APPROPRIATE ADJUSTMENTS SHALL BE MADE TO
(I) THE TOTAL NUMBER AND/OR CLASS OF SECURITIES SUBJECT TO THIS OPTION AND
(II) THE EXERCISE PRICE IN ORDER TO REFLECT SUCH CHANGE AND THEREBY PRECLUDE A
DILUTION OR ENLARGEMENT OF BENEFITS HEREUNDER.

 

8.                                       STOCKHOLDER RIGHTS.  THE HOLDER OF THIS
OPTION SHALL NOT HAVE ANY STOCKHOLDER RIGHTS WITH RESPECT TO THE OPTION SHARES
UNTIL SUCH PERSON SHALL HAVE EXERCISED THE OPTION, PAID THE EXERCISE PRICE AND
BECOME A HOLDER OF RECORD OF THE PURCHASED SHARES.

 

9.                                       MANNER OF EXERCISING OPTION.

 

(A)                                  IN ORDER TO EXERCISE THIS OPTION WITH
RESPECT TO ALL OR ANY PART OF THE OPTION SHARES FOR WHICH THIS OPTION IS AT THE
TIME EXERCISABLE, OPTIONEE (OR ANY OTHER PERSON OR PERSONS EXERCISING THE
OPTION) MUST TAKE THE FOLLOWING ACTIONS:

 

(I)                                     EXECUTE AND DELIVER TO THE CORPORATION A
NOTICE OF EXERCISE (SEE ATTACHED FORM) FOR THE OPTION SHARES FOR WHICH THE
OPTION IS EXERCISED.

 

(II)                                  PAY THE AGGREGATE EXERCISE PRICE FOR THE
PURCHASED SHARES IN ONE OR MORE OF THE FOLLOWING FORMS:

 

(A)                              CASH OR CHECK MADE PAYABLE TO THE CORPORATION
(INCLUDES CASH PAID FROM OPTIONEE’S BROKERAGE PURSUANT TO A PRESALE OF SHARES IN
A SO-CALLED “CASHLESS” EXERCISE);

 

(B)                                A PROMISSORY NOTE PAYABLE TO THE CORPORATION,
BUT ONLY TO THE EXTENT AUTHORIZED BY THE PLAN ADMINISTRATOR IN ACCORDANCE WITH
PARAGRAPH 13;

 

(C)                                SHARES OF COMMON STOCK HELD BY OPTIONEE (OR
ANY OTHER PERSON OR PERSONS EXERCISING THE OPTION) FOR THE REQUISITE PERIOD
NECESSARY TO AVOID A CHARGE TO THE CORPORATION’S EARNINGS FOR FINANCIAL
REPORTING PURPOSES AND VALUED AT FAIR MARKET VALUE ON THE EXERCISE DATE; OR

 

(D)                               THROUGH A SPECIAL SALE AND REMITTANCE
PROCEDURE PURSUANT TO WHICH OPTIONEE (OR ANY OTHER PERSON OR PERSONS EXERCISING
THE OPTION) SHALL CONCURRENTLY PROVIDE IRREVOCABLE INSTRUCTIONS (I) TO A
BROKERAGE FIRM TO EFFECT THE IMMEDIATE SALE OF THE PURCHASED SHARES AND REMIT TO
THE CORPORATION, OUT OF THE SALE PROCEEDS AVAILABLE ON THE SETTLEMENT DATE,
SUFFICIENT FUNDS TO COVER THE AGGREGATE EXERCISE PRICE PAYABLE FOR THE PURCHASED
SHARES PLUS ALL APPLICABLE INCOME AND EMPLOYMENT TAXES REQUIRED TO BE WITHHELD
BY THE CORPORATION BY REASON OF SUCH EXERCISE AND (II) TO THE CORPORATION TO
DELIVER THE CERTIFICATES FOR THE

 

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PURCHASED SHARES DIRECTLY TO SUCH BROKERAGE FIRM IN ORDER TO COMPLETE THE SALE.

 

(E)                                 EXCEPT TO THE EXTENT THE SALE AND REMITTANCE
PROCEDURE IS UTILIZED IN CONNECTION WITH THE OPTION EXERCISE, PAYMENT OF THE
EXERCISE PRICE MUST ACCOMPANY THE NOTICE OF EXERCISE DELIVERED TO THE
CORPORATION IN CONNECTION WITH THE OPTION EXERCISE.

 

Payment forms (B), (C) and (D) above shall be accepted solely at the option of
the Plan Administrator.

 

(III)                               FURNISH TO THE CORPORATION APPROPRIATE
DOCUMENTATION THAT THE PERSON OR PERSONS EXERCISING THE OPTION (IF OTHER THAN
OPTIONEE) HAVE THE RIGHT TO EXERCISE THIS OPTION.

 

(IV)                              MAKE APPROPRIATE ARRANGEMENTS WITH THE
CORPORATION (OR PARENT OR SUBSIDIARY EMPLOYING OR RETAINING OPTIONEE) FOR THE
SATISFACTION OF ALL APPLICABLE INCOME AND EMPLOYMENT TAX WITHHOLDING
REQUIREMENTS APPLICABLE TO THE OPTION EXERCISE.

 

(B)                                 AS SOON AS PRACTICAL AFTER THE EXERCISE
DATE, THE CORPORATION SHALL ISSUE TO OR ON BEHALF OF OPTIONEE (OR ANY OTHER
PERSON OR PERSONS EXERCISING THIS OPTION) A CERTIFICATE FOR THE PURCHASED OPTION
SHARES, WITH THE APPROPRIATE LEGENDS AFFIXED THERETO.

 

(C)                                  IN NO EVENT MAY THIS OPTION BE EXERCISED
FOR ANY FRACTIONAL SHARES.

 

10.                                 COMPLIANCE WITH LAWS AND REGULATIONS.

 

(A)                                  THE EXERCISE OF THIS OPTION AND THE
ISSUANCE OF THE OPTION SHARES UPON SUCH EXERCISE SHALL BE SUBJECT TO COMPLIANCE
BY THE CORPORATION AND OPTIONEE WITH ALL APPLICABLE REQUIREMENTS OF LAW RELATING
THERETO AND WITH ALL APPLICABLE REGULATIONS OF ANY STOCK EXCHANGE OR QUOTATION
SYSTEM ON WHICH THE COMMON STOCK MAY BE LISTED FOR TRADING AT THE TIME OF SUCH
EXERCISE AND ISSUANCE.

 

(B)                                 THE INABILITY OF THE CORPORATION TO OBTAIN
APPROVAL FROM ANY REGULATORY BODY HAVING AUTHORITY DEEMED BY THE CORPORATION TO
BE NECESSARY TO THE LAWFUL ISSUANCE AND SALE OF ANY COMMON STOCK PURSUANT TO
THIS OPTION SHALL RELIEVE THE CORPORATION OF ANY LIABILITY WITH RESPECT TO THE
NON-ISSUANCE OR SALE OF THE COMMON STOCK AS TO WHICH SUCH APPROVAL SHALL NOT
HAVE BEEN OBTAINED.  THE CORPORATION, HOWEVER, SHALL USE ITS BEST EFFORTS TO
OBTAIN ALL SUCH APPROVALS.

 

11.                                 SUCCESSORS AND ASSIGNS.  EXCEPT TO THE
EXTENT OTHERWISE PROVIDED IN PARAGRAPHS 3 AND 6, THE PROVISIONS OF THIS
AGREEMENT SHALL INURE TO THE BENEFIT OF, AND BE BINDING UPON, THE CORPORATION
AND ITS SUCCESSORS AND ASSIGNS AND OPTIONEE, OPTIONEE’S ASSIGNS, THE LEGAL
REPRESENTATIVES, HEIRS AND LEGATEES OF OPTIONEE’S ESTATE AND ANY BENEFICIARIES
OF THIS OPTION DESIGNATED BY OPTIONEE.

 

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12.                                 NOTICES.  ANY NOTICE REQUIRED TO BE GIVEN OR
DELIVERED TO THE CORPORATION UNDER THE TERMS OF THIS AGREEMENT SHALL BE IN
WRITING AND ADDRESSED TO THE CORPORATION AT ITS PRINCIPAL CORPORATE OFFICES. 
ANY NOTICE REQUIRED TO BE GIVEN OR DELIVERED TO OPTIONEE SHALL BE IN WRITING AND
ADDRESSED TO OPTIONEE AT THE ADDRESS INDICATED BELOW OPTIONEE’S SIGNATURE LINE
ON THE GRANT NOTICE.  ALL NOTICES SHALL BE DEEMED EFFECTIVE UPON PERSONAL
DELIVERY OR UPON DEPOSIT IN THE U.S. MAIL, POSTAGE PREPAID AND PROPERLY
ADDRESSED TO THE PARTY TO BE NOTIFIED.

 

13.                                 FINANCING.  TO THE EXTENT PERMITTED BY LAW,
THE PLAN ADMINISTRATOR MAY, IN ITS ABSOLUTE DISCRETION AND WITHOUT ANY
OBLIGATION TO DO SO, PERMIT OPTIONEE TO PAY THE EXERCISE PRICE FOR THE PURCHASED
OPTION SHARES (TO THE EXTENT SUCH EXERCISE PRICE IS IN EXCESS OF THE PAR VALUE
OF THOSE SHARES) BY DELIVERING A FULL-RECOURSE PROMISSORY NOTE PAYABLE TO THE
CORPORATION AND BEARING A MARKET RATE OF INTEREST, COMPOUNDED SEMI-ANNUALLY, AS
DETERMINED BY THE PLAN ADMINISTRATOR.  THE REMAINING TERMS OF ANY SUCH
PROMISSORY NOTE (INCLUDING THE REQUIREMENTS FOR COLLATERAL AND THE TERMS OF
REPAYMENT) SHALL BE ESTABLISHED BY THE PLAN ADMINISTRATOR IN ITS SOLE
DISCRETION.

 

14.                                 CONSTRUCTION.  THIS AGREEMENT AND THE OPTION
EVIDENCED HEREBY ARE MADE AND GRANTED PURSUANT TO THE PLAN AND ARE IN ALL
RESPECTS LIMITED BY AND SUBJECT TO THE TERMS OF THE PLAN.  ALL DECISIONS OF THE
PLAN ADMINISTRATOR WITH RESPECT TO ANY QUESTION OR ISSUE ARISING UNDER THE PLAN
OR THIS AGREEMENT SHALL BE CONCLUSIVE AND BINDING ON ALL PERSONS HAVING AN
INTEREST IN THIS OPTION.

 

15.                                 GOVERNING LAW.  THE INTERPRETATION,
PERFORMANCE AND ENFORCEMENT OF THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF
THE STATE OF TEXAS WITHOUT RESORT TO THAT STATE’S CONFLICT-OF-LAWS RULES.

 

16.                                 EXCESS SHARES.  IF THE OPTION SHARES COVERED
BY THIS AGREEMENT EXCEED, AS OF THE GRANT DATE, THE NUMBER OF SHARES OF COMMON
STOCK WHICH MAY WITHOUT STOCKHOLDER APPROVAL BE ISSUED UNDER THE PLAN, THEN THIS
OPTION SHALL BE VOID WITH RESPECT TO THOSE EXCESS SHARES, UNLESS STOCKHOLDER
APPROVAL OF AN AMENDMENT SUFFICIENTLY INCREASING THE NUMBER OF SHARES OF COMMON
STOCK ISSUABLE UNDER THE PLAN IS OBTAINED IN ACCORDANCE WITH THE PROVISIONS OF
THE PLAN.

 

17.                                 ADDITIONAL TERMS APPLICABLE TO AN INCENTIVE
OPTION.  IN THE EVENT THIS OPTION IS DESIGNATED AN INCENTIVE OPTION IN THE GRANT
NOTICE, THE FOLLOWING TERMS AND CONDITIONS SHALL ALSO APPLY TO THE GRANT:

 

(A)                                  THIS OPTION SHALL CEASE TO QUALIFY FOR
FAVORABLE TAX TREATMENT AS AN INCENTIVE OPTION IF (AND TO THE EXTENT) THIS
OPTION IS EXERCISED FOR ONE OR MORE OPTION SHARES:  (A) MORE THAN THREE
(3) MONTHS AFTER THE DATE OPTIONEE CEASES TO BE AN EMPLOYEE FOR ANY REASON OTHER
THAN DEATH OR PERMANENT DISABILITY OR (B) MORE THAN TWELVE (12) MONTHS AFTER THE
DATE OPTIONEE CEASES TO BE AN EMPLOYEE BY REASON OF PERMANENT DISABILITY.

 

(B)                                 NO INSTALLMENT UNDER THIS OPTION SHALL
QUALIFY FOR FAVORABLE TAX TREATMENT AS AN INCENTIVE OPTION IF (AND TO THE
EXTENT) THE AGGREGATE FAIR MARKET VALUE (DETERMINED

 

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AT THE GRANT DATE) OF THE COMMON STOCK FOR WHICH SUCH INSTALLMENT FIRST BECOMES
EXERCISABLE HEREUNDER WOULD, WHEN ADDED TO THE AGGREGATE VALUE (DETERMINED AS OF
THE RESPECTIVE DATE OR DATES OF GRANT) OF THE COMMON STOCK OR OTHER SECURITIES
FOR WHICH THIS OPTION OR ANY OTHER INCENTIVE OPTIONS GRANTED TO OPTIONEE PRIOR
TO THE GRANT DATE (WHETHER UNDER THE PLAN OR ANY OTHER OPTION PLAN OF THE
CORPORATION OR ANY PARENT OR SUBSIDIARY) FIRST BECOME EXERCISABLE DURING THE
SAME CALENDAR YEAR, EXCEED ONE HUNDRED THOUSAND DOLLARS ($100,000) IN THE
AGGREGATE.  SHOULD SUCH ONE HUNDRED THOUSAND DOLLAR ($100,000) LIMITATION BE
EXCEEDED IN ANY CALENDAR YEAR, THIS OPTION SHALL NEVERTHELESS BECOME EXERCISABLE
FOR THE EXCESS SHARES IN SUCH CALENDAR YEAR AS A NON-STATUTORY OPTION.

 

(C)                                  SHOULD THE EXERCISABILITY OF THIS OPTION BE
ACCELERATED UPON A CHANGE IN CONTROL, THEN THIS OPTION SHALL QUALIFY FOR
FAVORABLE TAX TREATMENT AS AN INCENTIVE OPTION ONLY TO THE EXTENT THE AGGREGATE
FAIR MARKET VALUE (DETERMINED AT THE GRANT DATE) OF THE COMMON STOCK FOR WHICH
THIS OPTION FIRST BECOMES EXERCISABLE IN THE CALENDAR YEAR IN WHICH THE CHANGE
IN CONTROL TRANSACTION OCCURS DOES NOT, WHEN ADDED TO THE AGGREGATE VALUE
(DETERMINED AS OF THE RESPECTIVE DATE OR DATES OF GRANT) OF THE COMMON STOCK OR
OTHER SECURITIES FOR WHICH THIS OPTION OR ONE OR MORE OTHER INCENTIVE OPTIONS
GRANTED TO OPTIONEE PRIOR TO THE GRANT DATE (WHETHER UNDER THE PLAN OR ANY OTHER
OPTION PLAN OF THE CORPORATION OR ANY PARENT OR SUBSIDIARY) FIRST BECOME
EXERCISABLE DURING THE SAME CALENDAR YEAR, EXCEED ONE HUNDRED THOUSAND DOLLARS
($100,000) IN THE AGGREGATE.  SHOULD THE APPLICABLE ONE HUNDRED THOUSAND DOLLAR
($100,000) LIMITATION BE EXCEEDED IN THE CALENDAR YEAR OF SUCH CHANGE IN
CONTROL, THE OPTION MAY NEVERTHELESS BE EXERCISED FOR THE EXCESS SHARES IN SUCH
CALENDAR YEAR AS A NON-STATUTORY OPTION.

 

(D)                                 SHOULD OPTIONEE HOLD, IN ADDITION TO THIS
OPTION, ONE OR MORE OTHER OPTIONS TO PURCHASE COMMON STOCK WHICH BECOME
EXERCISABLE FOR THE FIRST TIME IN THE SAME CALENDAR YEAR AS THIS OPTION, THEN
THE FOREGOING LIMITATIONS ON THE EXERCISABILITY OF SUCH OPTIONS AS INCENTIVE
OPTIONS SHALL BE APPLIED ON THE BASIS OF THE ORDER IN WHICH SUCH OPTIONS ARE
GRANTED.

 

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EXHIBIT I

 

NOTICE OF EXERCISE

 

I hereby notify Intrusion Inc. (the “Corporation”) that I elect to purchase
                      shares of the Corporation’s Common Stock (the “Purchased
Shares”) at the option exercise price of $                        per share (the
“Exercise Price”) pursuant to that certain option (the “Option”) granted to me
under the Corporation’s 2005 Stock Incentive Plan on                       ,
              .

 

Concurrently with the delivery of this Exercise Notice to the Corporation, I
shall hereby pay to the Corporation the Exercise Price for the Purchased Shares
in accordance with the provisions of my agreement with the Corporation (or other
documents) evidencing the Option and shall deliver whatever additional documents
may be required by such agreement as a condition for exercise.  Alternatively, I
may utilize the special broker-dealer sale and remittance procedure specified in
my agreement to effect payment of the Exercise Price.

 

 

,

 

 

 

Date

 

 

 

 

 

 

Optionee:

 

 

 

 

 

Print Name:

 

 

 

 

Address:

 

 

 

 

 

 

 

 

 

 

 

 

Print name in exact manner it is to
appear on the stock certificate:

 

 

 

Address to which certificate is to
be sent, if different from address above:

 

 

 

 

 

 

 

Social Security Number:

 

 

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APPENDIX

 

The following definitions shall be in effect under the Agreement:

 

A.                                   “AGREEMENT” SHALL MEAN THIS STOCK OPTION
AGREEMENT.

 

B.                                     “BOARD” SHALL MEAN THE CORPORATION’S
BOARD OF DIRECTORS.

 

C.                                     “CHANGE IN CONTROL” SHALL MEAN A CHANGE
IN OWNERSHIP OR CONTROL OF THE CORPORATION EFFECTED THROUGH ANY OF THE FOLLOWING
TRANSACTIONS:

 

(I)                                     A MERGER, CONSOLIDATION OR OTHER
REORGANIZATION APPROVED BY THE CORPORATION’S STOCKHOLDERS, UNLESS SECURITIES
REPRESENTING MORE THAN 50% OF THE TOTAL COMBINED VOTING POWER OF THE VOTING
SECURITIES OF THE SUCCESSOR CORPORATION ARE IMMEDIATELY THEREAFTER BENEFICIALLY
OWNED, DIRECTLY OR INDIRECTLY, BY THE PERSONS WHO BENEFICIALLY OWNED THE
CORPORATION’S OUTSTANDING VOTING SECURITIES IMMEDIATELY PRIOR TO SUCH
TRANSACTION;

 

(II)                                  THE SALE, TRANSFER OR OTHER DISPOSITION OF
ALL OR SUBSTANTIALLY ALL OF THE CORPORATION’S ASSETS; OR

 

(III)                               THE ACQUISITION, DIRECTLY OR INDIRECTLY BY
ANY PERSON OR RELATED GROUP OF PERSONS (OTHER THAN THE CORPORATION OR A PERSON
THAT DIRECTLY OR INDIRECTLY CONTROLS, IS CONTROLLED BY, OR IS UNDER COMMON
CONTROL WITH, THE CORPORATION), OF BENEFICIAL OWNERSHIP (WITHIN THE MEANING OF
RULE 13D-3 OF THE EXCHANGE ACT) OF SECURITIES POSSESSING MORE THAN 50% OF THE
TOTAL COMBINED VOTING POWER OF THE CORPORATION’S OUTSTANDING SECURITIES PURSUANT
TO A TENDER OR EXCHANGE OFFER MADE DIRECTLY TO THE CORPORATION’S STOCKHOLDERS.

 

D.                                    “CODE” SHALL MEAN THE INTERNAL REVENUE
CODE OF 1986, AS AMENDED.

 

E.                                      “COMMON STOCK” SHALL MEAN SHARES OF THE
CORPORATION’S COMMON STOCK, PAR VALUE $0.01 PER SHARE.

 

F.                                      “CORPORATION” SHALL MEAN INTRUSION INC.,
A DELAWARE CORPORATION, AND ANY CORPORATE SUCCESSOR TO ALL OR SUBSTANTIALLY ALL
OF THE ASSETS OR VOTING STOCK OF INTRUSION INC. WHICH HAS BY APPROPRIATE ACTION
ASSUMED THE PLAN.

 

G.                                     “EMPLOYEE” SHALL MEAN AN INDIVIDUAL WHO
IS IN THE EMPLOY OF THE CORPORATION (OR ANY PARENT OR SUBSIDIARY), SUBJECT TO
THE CONTROL AND DIRECTION OF THE EMPLOYER ENTITY AS TO BOTH THE WORK TO BE
PERFORMED AND THE MANNER AND METHOD OF PERFORMANCE.

 

H.                                    “EXCHANGE ACT” SHALL MEAN THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED.

 

I.                                         “EXERCISE DATE” SHALL MEAN THE DATE
ON WHICH THE OPTION SHALL HAVE BEEN EXERCISED IN ACCORDANCE WITH PARAGRAPH 9 OF
THE AGREEMENT.

 

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J.                                        “EXERCISE PRICE” SHALL MEAN THE
EXERCISE PRICE PER OPTION SHARE AS SPECIFIED IN THE GRANT NOTICE.

 

K.                                    “EXPIRATION DATE” SHALL MEAN 5:00 P.M.
CENTRAL TIME ON THE DATE ON WHICH THE OPTION EXPIRES AS SPECIFIED IN THE GRANT
NOTICE.

 

L.                                      “FAIR MARKET VALUE” PER SHARE OF COMMON
STOCK ON ANY RELEVANT DATE SHALL BE DETERMINED IN ACCORDANCE WITH THE FOLLOWING
PROVISIONS:

 

(I)                                     IF THE COMMON STOCK IS AT THE TIME
TRADED ON THE NASDAQ STOCK MARKET, THEN THE FAIR MARKET VALUE SHALL BE THE
CLOSING SELLING PRICE PER SHARE OF COMMON STOCK ON THE DATE IN QUESTION, AS SUCH
PRICE IS REPORTED BY THE NATIONAL ASSOCIATION OF SECURITIES DEALERS ON THE
NASDAQ STOCK MARKET AND PUBLISHED IN THE WALL STREET JOURNAL.  IF THERE IS NO
CLOSING SELLING PRICE FOR THE COMMON STOCK ON THE DATE IN QUESTION, THEN THE
FAIR MARKET VALUE SHALL BE THE CLOSING SELLING PRICE ON THE LAST PRECEDING DATE
FOR WHICH SUCH QUOTATION EXISTS.

 

(II)                                  IF THE COMMON STOCK IS AT THE TIME LISTED
ON ANY STOCK EXCHANGE, THEN THE FAIR MARKET VALUE SHALL BE THE CLOSING SELLING
PRICE PER SHARE OF COMMON STOCK ON THE DATE IN QUESTION ON THE STOCK EXCHANGE
DETERMINED BY THE PLAN ADMINISTRATOR TO BE THE PRIMARY MARKET FOR THE COMMON
STOCK, AS SUCH PRICE IS OFFICIALLY QUOTED IN THE COMPOSITE TAPE OF TRANSACTIONS
ON SUCH EXCHANGE AND PUBLISHED IN THE WALL STREET JOURNAL.  IF THERE IS NO
CLOSING SELLING PRICE FOR THE COMMON STOCK ON THE DATE IN QUESTION, THEN THE
FAIR MARKET VALUE SHALL BE THE CLOSING SELLING PRICE ON THE LAST PRECEDING DATE
FOR WHICH SUCH QUOTATION EXISTS.

 

(III)                               IF THE COMMON STOCK IS AT THE TIME NEITHER
LISTED ON ANY STOCK EXCHANGE OR THE NASDAQ STOCK MARKET, THEN THE FAIR MARKET
VALUE SHALL BE DETERMINED BY THE PLAN ADMINISTRATOR AFTER TAKING INTO ACCOUNT
SUCH FACTORS AS THE PLAN ADMINISTRATOR SHALL DEEM APPROPRIATE.

 

M.                                 “GRANT DATE” SHALL MEAN THE DATE OF GRANT OF
THE OPTION AS SPECIFIED IN THE GRANT NOTICE.

 

N.                                    “GRANT NOTICE” SHALL MEAN THE NOTICE OF
GRANT OF STOCK OPTION ACCOMPANYING THE AGREEMENT, PURSUANT TO WHICH OPTIONEE HAS
BEEN INFORMED OF THE BASIC TERMS OF THE OPTION EVIDENCED HEREBY.

 

O.                                    “INCENTIVE OPTION” SHALL MEAN AN OPTION
THAT SATISFIES THE REQUIREMENTS OF CODE SECTION 422.

 

P.                                      “NON-STATUTORY OPTION” SHALL MEAN AN
OPTION NOT INTENDED TO SATISFY THE REQUIREMENTS OF CODE SECTION 422.

 

Q.                                    “NOTICE OF EXERCISE” SHALL MEAN THE NOTICE
OF EXERCISE IN THE FORM ATTACHED HERETO AS EXHIBIT I.

 

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R.                                     “OPTION SHARES” SHALL MEAN THE NUMBER OF
SHARES OF COMMON STOCK SUBJECT TO THE OPTION AS SPECIFIED IN THE GRANT NOTICE.

 

S.                                      “OPTIONEE” SHALL MEAN THE PERSON TO WHOM
THE OPTION IS GRANTED AS SPECIFIED IN THE GRANT NOTICE.

 

T.                                     “PARENT” SHALL MEAN ANY CORPORATION
(OTHER THAN THE CORPORATION) IN AN UNBROKEN CHAIN OF CORPORATIONS ENDING WITH
THE CORPORATION, PROVIDED EACH CORPORATION IN THE UNBROKEN CHAIN (OTHER THAN THE
CORPORATION) OWNS, AT THE TIME OF THE DETERMINATION, STOCK POSSESSING 50% OR
MORE OF THE TOTAL COMBINED VOTING POWER OF ALL CLASSES OF STOCK IN ONE OF THE
OTHER CORPORATIONS IN SUCH CHAIN.

 

U.                                    “PERMANENT DISABILITY” SHALL MEAN THE
INABILITY OF OPTIONEE TO ENGAGE IN ANY SUBSTANTIAL GAINFUL ACTIVITY BY REASON OF
ANY MEDICALLY DETERMINABLE PHYSICAL OR MENTAL IMPAIRMENT WHICH IS EXPECTED TO
RESULT IN DEATH OR HAS LASTED OR CAN BE EXPECTED TO LAST FOR A CONTINUOUS PERIOD
OF TWELVE (12) MONTHS OR MORE.

 

V.                                     “PLAN” SHALL MEAN THE CORPORATION’S 2005
STOCK INCENTIVE PLAN.

 

W.                                “PLAN ADMINISTRATOR” SHALL MEAN EITHER THE
BOARD OR A COMMITTEE OF THE BOARD ACTING IN ITS CAPACITY AS ADMINISTRATOR OF THE
PLAN.

 

X.                                    “SERVICE” SHALL MEAN THE OPTIONEE’S
PERFORMANCE OF SERVICES FOR THE CORPORATION (OR ANY PARENT OR SUBSIDIARY) IN THE
CAPACITY OF AN EMPLOYEE, A NON-EMPLOYEE MEMBER OF THE BOARD OR AN INDEPENDENT
CONTRACTOR.  SERVICE SHALL NOT BE DEEMED TO CEASE DURING A PERIOD OF MILITARY
LEAVE, SICK LEAVE OR OTHER PERSONAL LEAVE APPROVED BY THE CORPORATION; PROVIDED,
HOWEVER, THAT FOR A LEAVE WHICH EXCEEDS NINETY (90) DAYS, SERVICE SHALL BE
DEEMED TO CEASE, IF THE OPTION IS DESIGNATED AN INCENTIVE STOCK OPTION IN THE
GRANT NOTICE, ON THE NINETY-FIRST (91ST) DAY OF SUCH LEAVE, UNLESS THE
OPTIONEE’S RIGHT TO RETURN TO SERVICE FOLLOWING SUCH LEAVE IS GUARANTEED BY LAW
OR STATUTE.  EXCEPT TO THE EXTENT OTHERWISE REQUIRED BY LAW, NO SERVICE CREDIT
SHALL BE GIVEN FOR VESTING PURPOSES HEREUNDER FOR ANY PERIOD THE OPTIONEE IS ON
A LEAVE OF ABSENCE.

 

Y.                                     “SUBSIDIARY” SHALL MEAN ANY CORPORATION
(OTHER THAN THE CORPORATION) IN AN UNBROKEN CHAIN OF CORPORATIONS BEGINNING WITH
THE CORPORATION, PROVIDED EACH CORPORATION (OTHER THAN THE LAST CORPORATION) IN
THE UNBROKEN CHAIN OWNS, AT THE TIME OF THE DETERMINATION, STOCK POSSESSING 50%
OR MORE OF THE TOTAL COMBINED VOTING POWER OF ALL CLASSES OF STOCK IN ONE OF THE
OTHER CORPORATIONS IN SUCH CHAIN.

 

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