Exhibit
10.2


2004 EQUITY INCENTIVE PLAN

OF

DEPOMED, INC.











Table of Contents


	
  

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  1.

  	
  Purpose of this Plan

  	
  1

  
	
  2.

  	
  Definitions and Rules of Interpretation

  	
  1

  
	
   

  	
  2.1

  	
  Definitions

  	
  1

  
	
   

  	
  2.2

  	
  Rules of Interpretation

  	
  4

  
	
  3.

  	
  Shares Subject to this plan; Term of this Plan

  	
  4

  
	
   

  	
  3.1 

  	
  Number of Award Shares

  	
  4

  
	
   

  	
  3.2 

  	
  Term of this Plan

  	
  5

  
	
  4.

  	
  Administration

  	
  5

  
	
   

  	
  4.1 

  	
  General

  	
  5

  
	
   

  	
  4.2 

  	
  Authority of the Administrator

  	
  5

  
	
   

  	
  4.3 

  	
  Scope of Discretion

  	
  7

  
	
  5.

  	
  Participant Eligible to Receive Awards

  	
  7

  
	
   

  	
  5.1 

  	
  Eligible Participants

  	
  7

  
	
   

  	
  5.2 

  	
  Section 162(m) Limitation

  	
  7

  
	
  6.

  	
  Terms and Conditions of Options

  	
  7

  
	
   

  	
  6.1 

  	
  Price

  	
  7

  
	
   

  	
  6.2 

  	
  Term

  	
  7

  
	
   

  	
  6.3 

  	
  Vesting

  	
  7

  
	
   

  	
  6.4 

  	
  Form and Method of Payment

  	
  8

  
	
   

  	
  6.5 

  	
  Assignability of Options

  	
  9

  
	
   

  	
  6.6 

  	
  Substitute Options

  	
  9

  
	
  7.

  	
  Incentive Stock Options

  	
  9

  
	
  8.

  	
  Stock Awards

  	
  10

  
	
   

  	
  8.1 

  	
  General

  	
  10

  
	
   

  	
  8.2 

  	
  Right of Repurchase

  	
  10

  
	
   

  	
  8.3 

  	
  Form of Payment

  	
  10

  
	
   

  	
  8.4 

  	
  Nonassignability of Stock Awards

  	
  10

  
	
   

  	
  8.5 

  	
  Substitute Stock Award

  	
  10

  
	
   

  	
  8.6 

  	
  Maximum Number of Stock Awards

  	
  11

  
	
  9.

  	
  Exercise of Awards

  	
  11

  
	
   

  	
  9.1 

  	
  In General

  	
  11

  
	
   

  	
  9.2 

  	
  Time of Exercise

  	
  11

  
	
   

  	
  9.3 

  	
  Issuance of Award Shares

  	
  11

  
	
   

  	
  9.4 

  	
  Termination

  	
  11

  
	
  10.

  	
  Certain Transactions and Events

  	
  12

  
	
   

  	
  10.1 

  	
  In General

  	
  12

  
	
   

  	
  10.2 

  	
  Changes in Capital Structure

  	
  13

  
	
   

  	
  10.3 

  	
  Fundamental Transactions

  	
  13

  
	
   

  	
  10.4 

  	
  Changes in Control

  	
  14

  
							












 


	
  

  	
  10.5 

  	
  Divestiture

  	
  14

  
	
   

  	
  10.6 

  	
  Dissolution

  	
  14

  
	
  11.

  	
  Automatic Option Grants to Non-Employee Directors

  	
  14

  
	
   

  	
  11.1 

  	
  Automatic Option Grants to Non-Employee Directors

  	
  14

  
	
   

  	
  11.2 

  	
  Certain Transactions and Events

  	
  15

  
	
   

  	
  11.3 

  	
  Limited Transferability of Options

  	
  16

  
	
  12.

  	
  Withholding and Tax Reporting

  	
  16

  
	
   

  	
  12.1 

  	
  Tax Withholding Alternatives

  	
  16

  
	
   

  	
  12.2 

  	
  Reporting of Disposition

  	
  16

  
	
  13.

  	
  Compliance with Law

  	
  17

  
	
  14.

  	
  Amendment or Termination of this Plan or Outstanding
  Awards

  	
  18

  
	
   

  	
  14.1 

  	
  Amendment and Termination

  	
  18

  
	
   

  	
  14.2 

  	
  Shareholder Approval

  	
  18

  
	
   

  	
  14.3 

  	
  Effect

  	
  18

  
	
  15.

  	
  Reserved Rights

  	
  18

  
	
   

  	
  15.1 

  	
  Nonexclusivity of this Plan

  	
  18

  
	
   

  	
  15.2 

  	
  Unfunded Plan

  	
  18

  
	
  16.

  	
  Special Arrangements Regarding Award Shares

  	
  18

  
	
   

  	
  16.1 

  	
  Escrow of Stock Certificates

  	
  18

  
	
   

  	
  16.2 

  	
  Repurchase Rights

  	
  19

  
	
   

  	
  16.3 

  	
  Market Standoff

  	
  19

  
	
  17.

  	
  Beneficiaries

  	
  19

  
	
  18.

  	
  Miscellaneous

  	
  19

  
	
   

  	
  18.1 

  	
  Governing Law

  	
  19

  
	
   

  	
  18.2 

  	
  Determination of Value

  	
  19

  
	
   

  	
  18.3 

  	
  Reservation of Shares

  	
  20

  
	
   

  	
  18.4 

  	
  Electronic Communication

  	
  20

  
	
   

  	
  18.5 

  	
  Notices

  	
  20

  
						



 
















2004 EQUITY INCENTIVE PLAN


OF


DEPOMED, INC.


(as amended
through May 31, 2007)


1.             Purpose of this Plan


The purpose of
this 2004 Equity Incentive Plan is to enhance the long-term shareholder value
of Depomed, Inc. by offering opportunities to eligible participants to share in
the growth in value of the equity of Depomed, Inc. and to provide incentives to
eligible Employees, Company Directors and Consultants to contribute to the
success 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 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 or Option granted in accordance with the terms of
this 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, or
(iii) a person who holds Award Shares subject to a right of repurchase under
Section 16.2.


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


(i)    “Change in Control” means any transaction or event that the Board
specifies as a Change in Control under Section 10.4.



 1
 









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


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


(l)    “Company” means Depomed, Inc., a California corporation.


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


(n)   “Consultant”  means an individual
who, or an entity or 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.


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


(p)   “Divestiture” means any transaction or event that the Board specifies as a
Divestiture under Section 10.5.


(q)   “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.


(r)    “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.”


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


(t)    “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 or (ii) officer elected or appointed by
the Board.


(u)   “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.



 2
 









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


(w)  “Fundamental Transaction” means any transaction or event described in
Section 10.3.


(x)    “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.


(y)   “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.


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


(aa) “Non-Employee Director” means any person who is a member of the
Board but is not an Employee of the Company or any Affiliate of the Company and
has not been an Employee of the Company or any Affiliate of the Company at any
time during the preceding twelve months.  Service as a Director does not in itself
constitute employment for purposes of this definition.


(bb) “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 achievement of
a Company goal, 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 Affiliate or individual business unit.


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


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


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


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


(gg) “Plan”  means
this 2004 Equity Incentive Plan of Depomed, Inc.


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


(ii)   “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 



 3
 









as
specified in Section 16.2(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.


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


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


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


(mm)   “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.  A Stock Award does not
include an option.


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


(oo) “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.


(pp) “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.


(qq) “Ten Percent Shareholder” means 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.


(rr)   “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, or otherwise provided in this Plan, “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.  The Shares issuable under this Plan
shall be authorized but unissued or reacquired Shares, including but not
limited to Shares  repurchased by
the Company on the open market.  Subject
to adjustment under Section 10, the maximum number of Shares that may be issued
under this Plan is 5,000,000.  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 



 4
 









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          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 (the “Effective Date”).


(b)           Subject to the provisions of Section 14,
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 this Plan after ten years
from the earlier of those dates.


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 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 such other participants as may be
specifically designated by the Board, 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 the
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 Awards are granted;


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



 5
 









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


(h)           determine the methods 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
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)           in the case of the Board, determine whether a
transaction or event should be treated as a Change in 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 in Control or a Divestiture, then the effect of that Change
in Control or Divestiture; and


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



 6
 









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.  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 14.3, 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.             Participants Eligible
to Receive Awards


5.1          Eligible Participants.  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.  So
long as the Company is a “publicly held corporation” within the meaning of
Section 162(m) of the Code: (i) no Employee may be granted one or more
Options within any fiscal year of the Company under this Plan to purchase more
than 500,000 Shares under Options, subject to adjustment pursuant to Section
10, (ii) Options may be granted to an Executive only by the Committee
(and, notwithstanding Section 4.1(a), not by the Board).  If an Option is cancelled without being
exercised or if the Option Price of an Option is reduced, that cancelled or
repriced Option shall continue to be counted against the limit on Awards that
may be granted to any participant under this Section 5.2.  Notwithstanding anything herein to the
contrary, in connection with his or her initial employment with the Company or
an Affiliate, a new Employee or prospective Employee shall be eligible to
receive up to a maximum of 750,000 Shares under Options (subject to adjustment
pursuant to Section 10), which Shares shall not be counted toward the 500,000 limitation
set forth in this Section 5.2(a).


(b)           Stock Awards.  Any 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).


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 Awardee’s
directorship, employment or consultancy begins, or a different date specified
in the Award Agreement.  If so provided
in the Award Agreement, an Option may be exercisable subject to the application
of Reverse Vesting to the Option Shares. 
Additional 



 7
 









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 and Method 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 Awardee 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 licensed broker-dealer advances funds
on behalf of an Awardee or sells Option Shares on behalf of an Awardee (a “Cashless Exercise Procedure”), provided
that if the Company extends or arranges for the extension of credit to an
Awardee under any Cashless Exercise Procedure, no Officer or Director may
participate in that Cashless Exercise Procedure;


(iii)          subject to Section 6.4(e), 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 Awardee including without limitation waiver of
compensation due or accrued for services previously rendered to the Company or
an Affiliate; and


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


(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) shall be full recourse.  Unless the Administrator specifies otherwise
after taking into account any relevant accounting issues, the promissory notes
shall bear interest at a fair market value rate when the Option is
exercised.  Interest on the promissory
notes shall also be at least sufficient to avoid imputation of interest under
Sections 483, 1274, and 7872 of the Code. 
The promissory notes and their administration shall at all times comply
with any applicable margin rules of the Federal Reserve.  The promissory 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.



 8














6.5          Assignability
of Options.  Except as
determined by the Administrator, no Option 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 and may
be exercised by a guardian or conservator appointed to act for the
Awardee.  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 on
the effective date of the acquisition. 
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 the
provisions of 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.


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
Awardee, 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 Awardee 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 (or such other amount that may be hereafter specified in the
applicable section of the Code) 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 (or other amount) rule, by treating certain stock options that were
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 form of
payment must be stated at the time of grant in the Award 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.


(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 



 9
 








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 Awardee changes status
from an Employee to a Consultant, that Awardee’s Incentive Stock Options become
Nonstatutory Options if not exercised within the time period described in
Section 7(i) (determined by treating that change in status as a
Termination solely for purposes of this Section 7(g)).


(h)           No rights under an Incentive Stock Option may be
transferred by the Awardee, other than by will or the laws of descent and
distribution.  During the life of the
Awardee, an Incentive Stock Option may be exercised only by the Awardee.  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 Awardee, 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 Awardee’s Termination for any reason
other than the Awardee’s death or disability (as defined in Section 22(e) 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 Awardee’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 Awardee’s Termination.


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


8.             Stock Awards


8.1          General.  The specific terms and conditions of a Stock
Award 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 and, if applicable, the time within which the
Awardee must accept such offer. The offer shall be accepted by execution of the
Award Agreement.  The Administrator may
require that all Shares subject to a right of repurchase or risk of forfeiture
be held in escrow until such repurchase right or risk of forfeiture
lapses.  The grant or vesting of a Stock
Award may be made contingent on the achievement of Objectively Determinable
Performance Conditions.


8.2          Right of
Repurchase.  If so
provided in the Award Agreement, Award Shares acquired pursuant to a Stock
Award may be subject to repurchase by the Company or an Affiliate if not vested
in accordance with the Award Agreement.


8.3          Form of
Payment for Stock Awards. 
The Administrator shall determine the acceptable form and method of
payment for exercising a Stock Award. 
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. 
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.


8.4          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 (including without limitation Section
17).  Notwithstanding anything to the
contrary herein, Stock Awards may be transferred and exercised in accordance
with a Domestic Relations Order.


8.5          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, tender offer, or other similar transaction) or of all or
a portion of the assets of any 



 10
 








entity.  Any such substitution shall be effective on
the effective date of the acquisition. 
Unless and to the extent specified otherwise by the Board, Substitute
Stock Awards shall have the same terms and conditions as the stock awards they
replace, except that (subject to the provisions of 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.


8.6          Maximum
Number of Stock Awards. 
The maximum aggregate number of Shares that may be issued pursuant to
Stock Awards under this Plan shall not exceed ten percent (10%) of the number
of Shares that may be issued pursuant to this Plan under Section 3.1.


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.


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.  Until Award Shares are actually issued, as
evidenced by the appropriate entry on the stock register 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, and as otherwise provided in Sections 9.4(b), (c), (d) and
(e) 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 or in writing by the
Administrator, 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 in
writing by the Administrator with respect to an approved personal or medical
leave with employment guaranteed upon return.


(c)           Death or Disability. 
Unless otherwise provided in the Award Agreement or in writing 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 



 11
 








due
to death, an Award may be exercised as provided in Section 17.  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.  Death or disability occurring after an
Awardee’s Termination shall not cause the Termination to be treated as having
occurred due to death or disability.  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 or 10.4 with respect to the
Awardee’s Awards.


(e)           Termination for Cause.  In
the discretion of the Administrator, which may be exercised on the date of
grant, or at a date later in time, 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.  “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 whether or not employment-related), 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.  Accordingly, the Administrator shall be
entitled to determine “Cause” based on the Administrator’s good faith
belief.  If the Awardee is criminally
charged with a felony or similar offense, that shall be a sufficient, but not a
necessary, basis for such a belief.


(f)            Administrator Discretion. 
Notwithstanding the provisions of Section 9.4 (a)-(e), the 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 Date; 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 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.


(g)           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, (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 or (C) interfere with the Company’s right to
terminate any consultancy.


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 in control, issuance by the
Company of shares of any class of securities or securities convertible into
shares of any class of securities, exchange or conversion of securities, or
other transaction or event shall require or be the occasion for any 



 12
 








adjustments of the
type described in this Section 10. 
Additional provisions with respect to the foregoing transactions are set
forth in Section 14.3.


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 in 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 participant under this Plan, (c) the
Purchase Price and number and class of securities issuable under each
outstanding Stock Award, (d) the Option Price and number and class of
securities issuable under each outstanding Option, and (e) the repurchase price
of any securities substituted for Award 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 down to the next lower whole security.  The Board need not adopt the same rules for
each Award or each Awardee.


10.3        Fundamental
Transactions.  Except
for grants to Non-Employee Directors pursuant to Section 11, in the event of
(a) a merger or consolidation in which the Company is not the surviving corporation
(other than a merger or consolidation with a wholly-owned subsidiary, a
reincorporation of the Company in a different jurisdiction, or other
transaction in which there is no substantial change in the shareholders of the
Company or their relative stock holdings and the Awards granted under this Plan
are assumed, converted or replaced by the successor corporation, which
assumption shall be binding on all participants under this Plan), (b) a merger
in which the Company is the surviving corporation but after which the
shareholders of the Company immediately prior to such merger (other than any
shareholder that merges, or which owns or controls another corporation that
merges, with the Company in such merger) cease to own their shares or other
equity interest in the Company, (c) the sale of all or substantially all of the
assets of the Company, or (d) the acquisition, sale, or transfer of more than
50% of the outstanding shares of the Company by tender offer or similar
transaction (each, a “Fundamental
Transaction”), any or all outstanding Awards may be assumed,
converted or replaced by the successor corporation (if any), which assumption,
conversion or replacement shall be binding on all participants under this
Plan.  In the alternative, the successor
corporation may substitute equivalent Awards or provide substantially similar
consideration to participants as was provided to the Company’s shareholders
(after taking into account the existing provisions of the Awards).  The successor corporation may also issue, in
place of outstanding Shares held by participants, substantially similar shares
or other property subject to repurchase restrictions no less favorable to the
participants. In the event such successor corporation (if any) does not assume
or substitute Awards, as provided above, pursuant to a transaction described in
this Section 10.3, the vesting with respect to such Awards shall fully and
immediately accelerate or the repurchase rights of the Company shall fully and
immediately terminate, as the case may be, so that the Awards may be exercised
or the repurchase rights shall terminate before, or otherwise in connection
with the closing or completion of the Fundamental Transaction or event, but
then terminate.  Notwithstanding anything
in this Plan to the contrary, the Board may, in its sole discretion, provide
that the vesting of any or all Award Shares subject to vesting or a right of
repurchase shall accelerate or lapse, as the case may be, upon a transaction
described in this Section 10.3. If the Board exercises such discretion with
respect to Options, such Options shall become exercisable in full prior to the
consummation of such event at such time and on such conditions as the Board
determines, and if such Options are not exercised prior to the consummation of
the Fundamental Transaction, they shall terminate at such time as determined by
the Board.  The Board need not adopt the
same rules for each Award or each Awardee. 
Subject to any greater rights granted to participants under the
foregoing provisions of this Section 10.3, in the event of the occurrence of
any Fundamental Transaction, any outstanding Awards shall be treated as
provided in the applicable agreement or plan of merger, consolidation,
dissolution, liquidation, or sale of assets.


10.4        Changes in
Control.  The Board may
also, but need not, specify that other transactions or events constitute a “Change in Control”.  The Board may do that either before or after
the transaction or event occurs. 
Examples of transactions or events that the Board may treat as Changes
in Control are: (a) any person or entity, including a “group” as
contemplated by 

Section 13(d)(3) of the Exchange Act, acquires securities holding 50% or
more of the total combined voting power or value of the Company, or (b) as
a result of or in connection with a contested election of Company Directors,
the persons who were 



 13
 








Company Directors
immediately before the election cease to constitute a majority of the
Board.  In connection with a Change in
Control, notwithstanding any other provision of this Plan, the Board may, but
need not, take any one or more of the actions described in Section 10.3.  In addition, the Board may extend the date
for the exercise of Awards (but not beyond their original Expiration
Date).  The Board need not adopt the same
rules for each Award or each Awardee.


10.5        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, but need not,  take one or more of the actions described
in Section 10.3 or 10.4 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.


10.6        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, Awards shall
terminate immediately prior to the dissolution.


11.          Automatic Option
Grants to Non-Employee Directors.


11.1        Automatic Option Grants to Non-Employee Directors.


(a)           Annual Grant.  On
the date of the last regular meeting of directors during each calendar year
each individual who is serving as a Non-Employee Director shall automatically
be granted a Nonstatutory Option to purchase 15,000 Shares (the “Annual Grant”), provided, however, that
such individual has served as a Non-Employee Director for at least six months.


(b)           Initial Grant.  Upon
the first appointment or election of an individual as a Non-Employee Director,
such individual shall automatically be granted a Nonstatutory Option to purchase
25,000 Shares (the “Initial Grant”).


(c)           Exercise Price.


(i)            The Option Price
shall be equal to one hundred percent (100%) of the Fair Market Value of the
Shares on the Option grant date.


(ii)           The Option Price
shall be payable in one or more of the alternative forms authorized pursuant to
Section 6.4.  Except to the extent the
sale and remittance procedure specified thereunder is utilized, payment of the
Option Price must be made on the date of exercise.


(d)           Option Term.  Each
Option shall have a term of ten (10) years measured from the Option grant date.


(e)           Exercise and Vesting of Options.  The
Shares underlying each Option issued pursuant to each Initial Grant shall vest
and be exercisable in a series of forty-eight (48) successive equal monthly
installments at the end of each full month from the date of grant, for so long
as the Non-Employee Director continuously remains a Director. The Shares
underlying each Option issued pursuant to each Annual Grant shall vest and be
exercisable in a series of twelve (12) successive equal monthly installments at
the end of each full month from the date of grant, for so long as the
Non-Employee Director continuously remains a Director.



 14
 








(f)            Termination
of Board Service.  The following provisions shall govern the exercise
of any Options held by the Awardee at the time the Awardee ceases to serve as a
Non-Employee Director:


(i)            In General.  Except as otherwise provided in Section 11.3,
after cessation of service as a Director (the “Cessation
Date”), the Awardee’s Options shall be exercisable to the extent
(but only to the extent) they are vested on the Cessation Date and only during
the three months after such Cessation Date, 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
Option shall automatically terminate.


(ii)           Death or Disability.  If an
Awardee’s cessation of service on the Board is due to death or disability (as
determined by the Board), all Non-Employee Director Options of that Awardee,
whether or not exercisable upon such Cessation Date, may be exercised at any
time on or prior to the Expiration Date. 
In the case of a cessation of service due to death, an Option may be
exercised as provided in Section 17. 
In the case of a cessation of service 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 Option on behalf of the Awardee. 
Death or disability occurring after an Awardee’s cessation of service
shall not cause the cessation of service to be treated as having occurred due
to death or disability.  To the extent an
Option is not so exercised within the time specified for its exercise, the
Option shall automatically terminate.


11.2        Certain Transactions
and Events.


(a)           In the event of a Fundamental
Transaction while the Awardee remains a Non-Employee Director, the Shares at
the time subject to each outstanding Option held by such Awardee pursuant to
Section 11, but not otherwise vested, shall automatically vest in full so that
each such Option shall, immediately prior to the effective date of the
Fundamental Transaction, become exercisable for all the Shares as fully vested
Shares and may be exercised for any or all of those vested Shares. Immediately
following the consummation of the Fundamental Transaction, each Option shall
terminate and cease to be outstanding, except to the extent assumed by the
successor corporation (or Affiliate thereof).


(b)           In the event of a Change in Control
while the Awardee remains a Non-Employee Director, the Shares at the time
subject to each outstanding Option held by such Awardee pursuant to Section 11,
but not otherwise vested, shall automatically vest in full so that each such
Option shall, immediately prior to the effective date of the Change in Control,
become exercisable for all the Shares as fully vested Shares and may be
exercised for any or all of those vested Shares. Each such Option shall remain
exercisable for such fully vested Shares until the expiration or sooner
termination of the Option term in connection with a Change in Control.


(c)           Each Option which is
assumed in connection with a Fundamental Transaction shall be appropriately
adjusted, immediately after such Fundamental Transaction, to apply to the
number and class of securities which would have been issuable to the Awardee in
consummation of such Fundamental Transaction had the Option been exercised
immediately prior to such Fundamental Transaction. Appropriate adjustments
shall also be made to the Option Price payable per share under each outstanding
Option, provided the aggregate Option Price payable for such securities shall
remain the same.


(d)           The grant of Options
pursuant to Section 11 shall in no way affect the right of the Company 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.



 15
 








(e)           The remaining terms
of each Option granted pursuant to Section 11 shall, as applicable, be the same
as terms in effect for Awards granted under this Plan.  Notwithstanding the foregoing, the provisions
of Section 9.4 and Section 10 shall not apply to Options granted pursuant to
Section 11.


11.3        Limited
Transferability of Options. 
Each Option granted pursuant to Section 11 may be assigned in whole or
in part during the Awardee’s lifetime to one or more members of the Awardee’s
family or to a trust established exclusively for one or more such family
members or to an entity in which the Awardee is majority owner or to the
Awardee’s former spouse, to the extent such assignment is in connection with
the Awardee’s estate or financial plan or pursuant to a Domestic Relations
Order. The assigned portion may only be exercised by the person or persons who
acquire a proprietary interest in the Option pursuant to the assignment. The
terms applicable to the assigned portion shall be the same as those in effect
for the Option immediately prior to such assignment and shall be set forth in
such documents issued to the assignee as the Administrator may deem
appropriate. The Awardee may also designate one or more persons as the
beneficiary or beneficiaries of his or her outstanding Options under Section
11, and those Options shall, in accordance with such designation, automatically
be transferred to such beneficiary or beneficiaries upon the Awardee’s death
while holding those Options. Such beneficiary or beneficiaries shall take the
transferred Options subject to all the terms and conditions of the applicable
Award Agreement evidencing each such transferred Option, including without
limitation, the limited time period during which the Option may be exercised
following the Awardee’s death.


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.


(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, in its sole discretion, 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 



 16
 








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. 
Subject to Section 14.2 and 14.3, the Board may at any time amend,
suspend, or terminate this Plan.


14.2        Shareholder
Approval.  The Company
shall obtain the approval of the Company’s shareholders for any amendment to
this Plan if shareholder approval is 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 amendment, suspension, or termination of
this Plan, and no modification of any Award even in the absence of an
amendment, suspension, or termination of this Plan, shall impair any existing
contractual rights of any Awardee unless the affected Awardee consents to the
amendment, suspension, termination, or modification.  However, no such consent shall be required if
the Board determines, in its sole and absolute discretion, that the amendment,
suspension, termination, or modification: 
(a) is required or advisable in order for the Company, this Plan or the
Award to satisfy Applicable Law, to meet the requirements of any accounting
standard or to avoid any adverse accounting treatment, or (b) in connection
with any transaction or event described in Section 10, is in the best interests
of the Company or its shareholders.  The
Board may, but need not, take the tax or accounting consequences to affected
Awardees into consideration in acting under the preceding sentence.  Those decisions shall be final, binding and
conclusive.  Termination of this Plan
shall not affect the Administrator’s ability to exercise the powers granted to
it under this Plan with respect to (i) Awards granted before the termination of
this Plan or (ii) Award Shares issued under such Awards even if those Award
Shares are issued after the termination of this Plan.


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.


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        Escrow of
Stock Certificates.  To
enforce any restrictions on Award Shares, 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 



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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)           General.  If an
Option is subject to Reverse Vesting or a Stock Award is subject to vesting
conditions, 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: 
(a) the 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) and (b) 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 which shall be either (i) the 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
Award Shares or (B) the Fair Market Value of those Award Shares as of the
date of the Termination.  The repurchase
price shall be paid in cash or if the Award Shares were purchased in whole or
in part with a promissory note, cancellation in whole or in part of
indebtedness under that note, or a combination of those means.  The Company may assign this right of
repurchase.


(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.


16.3        Market Standoff.  If requested by the Company or a
representative of its underwriters in connection with a registration of any
securities of the Company under the Securities Act, Awardees or certain
Awardees shall be prohibited from selling some or all of their Award Shares
during a period not to exceed 180 days after the effective date of the Company’s
registration statement.  This restriction
shall not apply to any registration statement on Form S-8, Form S-4 or an
equivalent registration statement.


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.  Such designation shall be
accompanied by a signed acknowledgment from the Awardee’s spouse, if any,
consenting to such designation.  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 laws of the State of California.


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



 18
 








(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 by such stock exchange or national market system, or, if not reported
by such stock exchange or national market system, 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 bid prices 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 Board
or Committee will determine Fair Market Value in good faith.  The Board or Committee 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 shareholder’s equity, 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.


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


18.4        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.


18.5        Notices.  Unless the Administrator specifies otherwise,
any notice to the Company under any Award 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
Company, and shall only be effective when received by the Company.


Adopted by the Board
on:  March 19, 2004


Approved by the
shareholders on:  May 27, 2004


Effective date of this
Plan:  May 27, 2004


Amended by the Board on:  March
23, 2006 and March 22, 2007


Amendment approved
by the shareholders on:  May 31, 2007



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