way of merger, consolidation or otherwise (for the purposes of this clause (iii), a member ofa group will not be considered the Beneficial Owner of the securities owned by other members of thegroup);     (iv) A change in the composition of the Board occurring within a two-year period, as a resultof which fewer than a majority of the Directors are Directors who either (i) are Directors of theCompany as of the date the Plan first becomes effective pursuant to Article XV hereof or (ii) areelected, or nominated for election, to the Board with the affirmative votes of at least a majorityof those Directors whose election or nomination was not in connection with any transactiondescribed in subsections (i), (ii), or (iii) of this Section 2.5, or in connection with an actualor threatened proxy contest relating to the election of Directors to the Company; or     (v) A dissolution or liquidation of the Company.     2.6 “*Code*” means the Internal Revenue Code of 1986, as amended.     2.7 “*Committee*” means a committee of one or more members of the Board (or officers who arenot members of the Board to the extent allowed by law) appointed by the Board in accordance withSection 3.3 of the Plan.     2.8 “*Common Stock*” means the common shares of the Company.     2.9 “*Company*” means SCM Microsystems, Inc., a Delaware corporation.     2.10 “*Consultant*” means any person, including an advisor, (i) engaged by the Company or anAffiliate to render consulting or advisory services and who is compensated for such services or(ii) who is a member of the board of directors of an Affiliate. However, the term “Consultant”shall not include either Directors who are not compensated by the Company for their services as aDirector or Directors who are compensated by the Company solely for their services as a Director.     2.11 “*Continuous Service*” means that the Participant’s service with the Company or anAffiliate, whether as an Employee, Director, or Consultant is not interrupted or terminated. TheParticipant’s Continuous Service shall not be deemed to have terminated merely because of a changein the capacity in which the Participant renders service to the Company or an Affiliate as anEmployee, Consultant, or Director, or a change in the entity for which the Participant renders suchservice, provided that there is no interruption or termination of the Participant’s ContinuousService. For example, a change in status from an Employee to a Consultant or a Director will notconstitute an interruption of Continuous Service. A leave of absence approved by the Company or anAffiliate, including sick leave, military leave, or any other personal leave will generally not bedeemed to be an interruption in Continuous Service; provided, however, that the Board or the chiefexecutive officer of the Company, in that party’s sole discretion, shall make such determination ona case by case basis.     2.12 “*Covered Employee*” means the chief executive officer and the four other highestcompensated officers of the Company for whom total compensation is required to be reported tostockholders under the Exchange Act, as determined for purposes of Section 162(m) of the Code.
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     2.13 “*Designated**162(m)**Group*” means the group of Employees that includes any person who isor could become a Covered Employee in the determination of the Board.     2.14 “*Director*” means a member of the Board of Directors of the Company.     2.15 “*Disability*” means physical or mental incapacitation such that for a period of sixconsecutive months or for an aggregate of nine months in any twenty-four consecutive month period,a person is unable to substantially perform his or her duties. Any question as to the existence ofthat person’s physical or mental incapacitation as to which the person or person’s representativeand the Company cannot agree shall be determined in writing by a qualified independent physicianmutually acceptable to the person and the Company. If the person and the Company or an Affiliatecannot agree as to a qualified independent physician, each shall appoint such a physician and thosetwo physicians shall select a third who shall make such determination in writing. The determinationof Disability made in writing to the Company or an Affiliate and the person shall be final andconclusive for all purposes of the Options.     2.16 “*Employee*” means any person employed by the Company or an Affiliate. Service as aDirector or compensation by the Company or an Affiliate solely for services as a Director shall notbe sufficient to constitute “employment” by the Company or an Affiliate.     2.17 “*Exchange Act*” means the Securities Exchange Act of 1934, as amended.     2.18 “*Fair Market Value*” means, as of any date, the value of Common Stock determined asfollows:     (i) If the Common Stock is listed on any established stock exchange or traded on the NASDAQGlobal Market or NASDAQ Capital Market, the Fair Market Value of a share of Common Stock shall bethe closing sales price for such stock (or the closing bid, if no such sales were reported) asquoted on such exchange or market (or the exchange or market with the greatest volume of trading inthe Common Stock) on the date of determination, as published by Yahoo! Finance or such other sourceas the Board deems reliable;     (ii) If the Common Stock is regularly quoted by a recognized securities dealer but sellingprices are not reported, the Fair Market Value of a share of Common Stock shall be the mean betweenthe high bid and low asked prices for the Common Stock on the day of determination, as published byYahoo! Finance or such other source as the Board deems reliable; or     (iii) In the absence of such markets for the Common Stock, the Fair Market Value shall bedetermined in good faith by the Board.     2.19 “*Initial Grant*” shall have the meaning as defined in Section 7.1.     2.20 “*Misconduct*” means any of the following: (i) the commission of any act of fraud,embezzlement or dishonesty by the Optionholder or Participant; (ii) any unauthorized use ordisclosure by such person of confidential information or trade secrets of the Company (or anyParent of Subsidiary); (iii) any other intentional misconduct by such person adversely affectingthe business or affairs of the Company (or any Parent or Subsidiary) in a material manner. Theforegoing definition shall not be deemed to be inclusive of all the acts or omissions which the
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Company (or any Parent or Subsidiary) may consider grounds for dismissal or discharge of anyOptionholder, Participant or other person in the service of the Company (or any Parent orSubsidiary).     2.21 “*Non-Employee Director*” means a Director who either (i) is not a current Employee orOfficer of the Company or its parent or a subsidiary, does not receive compensation (directly orindirectly) from the Company or its parent or a subsidiary for services rendered as a consultant orin any capacity other than as a Director (except for an amount as to which disclosure would not berequired under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act(“Regulation S-K”)), does not possess an interest in any other transaction as to which disclosurewould be required under Item 404(a) of Regulation S-K and is not engaged in a business relationshipas to which disclosure would be required under Item 404(b) of Regulation S-K; or (ii) is otherwiseconsidered a “non-employee director” for purposes of Rule 16b-3.     2.22 “*Non-Qualified Stock Option*” means an Option not intended to qualify as an incentivestock option within the meaning of Section 422 of the Code and the regulations promulgatedthereunder.     2.23 “*Officer*” means a person who is an officer of the Company within the meaning of Section16 of the Exchange Act and the rules and regulations promulgated thereunder.     2.24 “*Option*” means a Non-Qualified Stock Option granted pursuant to the Plan.     2.25 “*Option Grant Agreement*” means a written agreement between the Company and anOptionholder evidencing the terms and conditions of an individual Option grant. Each Option GrantAgreement shall be subject to the terms and conditions of the Plan.     2.26 “*Optionholder*” means a person to whom an Option is granted pursuant to the Plan or, ifapplicable, such other person who holds an outstanding Option.     2.27 “*Outside Director*” means a Director who either (i) is not a current employee of theCompany or an “affiliated corporation” (within the meaning of Treasury Regulations promulgatedunder Section 162(m) of the Code), is not a former employee of the Company or an “affiliatedcorporation” receiving compensation for prior services (other than benefits under a tax qualifiedpension plan), was not an officer of the Company or an “affiliated corporation” at any time and isnot currently receiving direct or indirect remuneration from the Company or an “affiliatedcorporation” for services in any capacity other than as a Director; or (ii) is otherwise consideredan “outside director” for purposes of Section 162(m) of the Code.     2.28 “*Participant*” means a person to whom an Option is granted pursuant to the Plan or, ifapplicable, such other person who holds an outstanding Option.     2.29 “*Plan*” means this SCM Microsystems, Inc. 2007 Stock Option Plan.     2.30 “*Rule 16b-3*” means Rule 16b-3 promulgated under the Exchange Act or any successor toRule 16b-3, as in effect from time to time.     2.31 “*Securities Act*” means the Securities Act of 1933, as amended.
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     2.32 “*Share Reserve*” shall have the meaning as defined in Section 7.1.**III. ADMINISTRATION**     3.1 Administration by Board. The Board shall administer the Plan unless and untilthe Board delegates administration to a Committee, as provided in Section 3.3.     3.2 Powers of Board. The Board shall have the power, subject to, and within thelimitations of, the express provisions of the Plan:     (i) To determine the terms, conditions and restrictions applicable to each Option (which neednot be identical) and any shares acquired upon the exercise thereof, including, without limitation,(i) the exercise price of the Option, (ii) the method of payment for shares purchased upon theexercise of the Option, (iii) the method for satisfaction of any tax withholding obligation arisingin connection with the Option or such shares, including by the withholding or delivery of shares ofstock, (iv) the timing, terms and conditions of the exercisability of the Option or the vesting ofany shares acquired upon the exercise thereof, (v) the time of the expiration of the Option, (vi)the effect of the Participant’s termination of service with the Company on any of the foregoing,and (vii) all other terms, conditions and restrictions applicable to the Option or such shares notinconsistent with the terms of the Plan.     (ii) To approve one or more forms of Option Grant Agreements.     (iii) To construe and interpret the Plan and Options granted under it, and to establish, amendand revoke rules and regulations for its administration. The Board, in the exercise of this power,may correct any defect, omission or inconsistency in the Plan or in any Option Grant Agreement, ina manner and to the extent it shall deem necessary or expedient to make the Plan fully effective.     (iv) To amend the Plan or an Option as provided in Article XIII of the Plan.     (v) To adopt sub-plans and/or special provisions applicable to Options regulated by the lawsof a jurisdiction other than and outside of the United States. Such sub-plans and/or specialprovisions may take precedence over other provisions of the Plan, with the exception of Section 4of the Plan, but unless otherwise superseded by the terms of such sub-plans and/or specialprovisions, the provisions of the Plan shall govern.     (vi) To authorize any person to execute on behalf of the Company any instrument required toeffect the grant of an Option previously granted by the Board.     (vii) To accelerate, continue, extend or defer the exercisability of any Option or the vestingof any shares acquired upon the exercise thereof, including with respect to the period following anParticipant’s termination of service with the Company.     (viii) To impose such restrictions, conditions or limitations as it determines appropriate asto the timing and manner of any resales by a Participant or other subsequent transfers by theParticipant of any shares of Common Stock issued as a result of or under an Option, including,
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without limitation, (A) restrictions under an insider trading policy and (B) restrictions asto the use of a specified brokerage firm for such resales or other transfers.     (ix) Generally, to exercise such powers and to perform such acts as the Board deems necessary,desirable, convenient or expedient to promote the best interests of the Company that are not inconflict with the provisions of the Plan.     3.3 Delegation to Committee.     (i) General. The Board may delegate administration of the Plan to a Committee orCommittees consisting of one or more members of the Board or one or more officers of the Companywho are not members of the Board (to the extent allowed by law), and the term “Committee” shallapply to any person or persons to whom such authority has been delegated. If administration isdelegated to a Committee, the Committee also may exercise, in connection with the administration ofthe Plan, any of the powers and authority granted to the Board under the Plan, and the Committeemay delegate to a subcommittee any of the administrative powers the Committee is authorized toexercise (and references in this Plan to the Board shall thereafter be to the Committee orsubcommittee, as applicable), subject, however, to such resolutions, not inconsistent with theprovisions of the Plan, as may be adopted from time to time by the Board. The Board may abolish theCommittee at any time and revest in the Board the administration of the Plan.     (ii) Committee Composition when Common Stock is Publicly Traded. At any such time as theCommon Stock is publicly traded, in the discretion of the Board, a Committee may consist solely oftwo or more Outside Directors, in accordance with Section 162(m) of the Code, and/or solely of twoor more Non-Employee Directors, in accordance with Rule 16b-3. Within the scope of such authority,the Board or the Committee may (A) delegate to a committee of one or more individuals who are notOutside Directors the authority to grant Options to eligible persons who are either (1) not thenCovered Employees and are not expected to be Covered Employees at the time of recognition of incomeresulting from such Option or (2) not persons with respect to whom the Company wishes to complywith Section 162(m) of the Code and/or (B) delegate to a committee of one or more individuals whoare not Non-Employee Directors the authority to grant Options to eligible persons who are either(1) not then subject to Section 16 of the Exchange Act or (2) receiving an Option as to which theBoard or Committee elects not to comply with Rule 16b-3 by having two or more Non-EmployeeDirectors grant such Option.     3.4 Effect of Board’s Decision. All determinations, interpretations andconstructions made by the Board in good faith shall not be subject to review by any person andshall be final, binding and conclusive on all persons.     3.5 Compliance with Section 16 of the Exchange Act. With respect to persons subjectto Section 16 of the Exchange Act, transactions under this Plan are intended to comply with theapplicable conditions of Rule 16b-3, or any successor rule thereto. To the extent any provisions ofthis Plan or action by the Board fails to so comply, it shall be deemed null and void, to theextent permitted by law and deemed advisable by the Board. Notwithstanding the above, it shall bethe responsibility of such persons, not of the Company or the Board, to comply with therequirements of Section 16 of the Exchange Act, and neither the Company nor the Board shall be
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liable if this Plan or any transaction under this Plan fails to comply with the applicableconditions of Rule 16b-3 or any successor rule thereto, or if any person incurs any liability underSection 16 of the Exchange Act.**IV. SHARES SUBJECT TO THE PLAN**     4.1 Share Reserve. Subject to the provisions of Article XII of the Plan relating toadjustments upon changes in Common Stock, the maximum aggregate number of shares of Common Stockthat may be issued pursuant to Options shall not exceed three million five hundred thousand(3,500,000) shares of Common Stock (“Share Reserve”), provided that each share of Common Stockissued pursuant to an Option shall reduce the Share Reserve by one share.     4.2 Reversion of Shares to the Share Reserve.     (i) If any Option granted under this Plan shall for any reason (A) expire, be cancelled orotherwise terminate, in whole or in part, without having been exercised or redeemed in full, or (B)be reacquired by the Company prior to vesting, the shares of Common Stock not acquired byParticipant under such Option shall be retained by, revert or be added to the Share Reserve andbecome available for issuance under the Plan.     (ii) Shares of Common Stock that are not acquired by a holder of an Option granted under the2000 Plan, the 1997 Plan or the 1997 Director Plan shall not revert or be added to the ShareReserve or become available for issuance under the Plan.     4.3 Source of Shares. The shares of Common Stock subject to the Plan may be unissued sharesor reacquired shares, bought on the market or otherwise.**V. ELIGIBILITY**     5.1 Eligibility for Specific Options. Options may be granted to Employees, Directors, andConsultants.     5.2 Compliance with Section 162(m) of the Code. To the extent the Board determines thatcompliance with the exclusion for performance-based compensation within the meaning of Section162(m) of the Code (“Performance-Based Exception”) is desirable, the following shall apply:     (i) Section 162(m) Compliance. All Options granted to persons included in the Designated162(m) Group may comply with the requirements of the Performance-Based Exception; provided that tothe extent Section 162(m) of the Code requires periodic stockholder approval of performancemeasures, such approval shall not be required for the continuation of the Plan or as a condition togrant any Option hereunder after such approval is required. In addition, if changes are made toSection 162(m) of the Code to permit flexibility with respect to the Options available under thePlan, the Board may, subject to this Section 5.2, make any adjustments to such Options as it deemsappropriate.
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     (ii) Annual Individual Limitations. Subject to the provisions of Article X relating toadjustments upon changes in the shares of Common Stock, no Employee shall be eligible to be grantedOptions covering more than 200,000 shares of Common Stock during any calendar year; provided thatin connection with his or her initial service, an Employee may be granted Options covering not morethan an additional 200,000 shares of Common Stock, which shall not count against the limit setforth in the preceding sentence.     5.3. Consultants.     (i) A Consultant shall not be eligible for the grant of an Option if, at the time of grant, aForm S-8 Registration Statement under the Securities Act (“Form S-8”) is not available to registereither the offer or the sale of the Company’s securities to such Consultant because of the natureof the services that the Consultant is providing to the Company, or because the Consultant is not anatural person, or as otherwise provided by the rules governing the use of Form S-8, unless theCompany determines both (A) that such grant (1) shall be registered in another manner under theSecurities Act (e.g., on a Form S-1 or S-3 Registration Statement) or (2) does not requireregistration under the Securities Act in order to comply with the requirements of the SecuritiesAct, if applicable, and (B) that such grant complies with the securities laws of all other relevantjurisdictions.     (ii) Form S-8 generally is available to consultants and advisors only if (A) they are naturalpersons; (B) they provide bona fide services to the issuer, its parents, or its majority ownedsubsidiaries; and (C) the services are not in connection with the offer or sale of securities in acapital-raising transaction, and do not directly or indirectly promote or maintain a market for theissuer’s securities.**VI. TERMS AND CONDITIONS OF OPTIONS**     Each Option shall be in such form and shall contain such terms and conditions as the Boardshall deem appropriate. All Options shall be designated Non-Qualified Stock Options at the time ofgrant. The provisions of separate Options need not be identical, but each Option shall include(through incorporation of provisions hereof by reference in the Option or otherwise) the substanceof each of the following provisions:     6.1 Term. No Option shall be exercisable after the expiration of seven years fromthe date it was granted.     6.2 Exercise Price. The exercise price of each Non-Qualified Stock Option shall benot less than one hundred percent of the Fair Market Value of the Common Stock subject to theOption on the date the Option is granted. Notwithstanding the foregoing, a Non-Qualified StockOption may be granted with an exercise price lower than that set forth in the preceding sentence ifsuch Option is granted pursuant to an assumption or substitution for another option in a mannersatisfying the provisions of Section 424(a) of the Code.     6.3 Consideration. The purchase price of Common Stock acquired pursuant to an Optionshall be paid, to the extent permitted by applicable statutes and regulations, either (i) in cashor by check at the time the Option is exercised or (ii) at the discretion of the Board and only tothe extent set forth in the Option Grant Agreement: (1) by delivery to the Company of other
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Common Stock, (2) pursuant to a “same day sale” program to the extent permitted by law, or (3)by some combination of the foregoing. In the absence of a provision to the contrary in theindividual     Optionholder’s Option Grant Agreement, payment for Common Stock pursuant to an Option may onlybe made in the form of cash, check, or pursuant to a “same day sale” program.     Unless otherwise specifically provided in the Option Grant Agreement, the purchase price ofCommon Stock acquired pursuant to an Option that is paid by delivery to the Company of other CommonStock acquired, directly or indirectly from the Company, shall be paid only by shares of the CommonStock of the Company that have been held for more than six months (or such longer or shorter periodof time required to avoid a charge to earnings for financial accounting purposes).     6.4 Transferability. Unless determined otherwise by the Administrator, an Option maynot be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other thanby will or by the laws of descent or distribution and may be exercised, during the lifetime of theOptionholder, only by the Optionholder. If the Administrator makes an Option transferable, suchOption or shall contain such additional terms and conditions as the Administrator deemsappropriate. Notwithstanding the foregoing, the Optionholder may, by delivering written notice tothe Company, in a form satisfactory to the Administrator, designate a third party who, in the eventof the death of the Optionholder, shall thereafter be entitled to exercise the Option.     6.5 Vesting Generally. Options granted under the Plan shall be exercisable at suchtime and upon such terms and conditions as may be determined by the Board. The vesting provisionsof individual Options may vary. Generally, however, it is anticipated that:     (i) grants to Employees shall vest as to one fourth (1/4th) of the total award on eachanniversary of the grant date, such that the award is fully vested after four years of ContinuousService from the grant date;     (ii) promotional grants and grants to new-hire Employees shall commence vesting on the oneyear anniversary of grant and vest one thirty-sixth (1/36th) monthly thereafter, such that theaward is fully vested after four years of Continuous Service from the grant date; and     (iii) top-up grants shall vest as to one forty-eighth (1/48th) of the total award on eachmonthly anniversary of the grant date, such that the award is fully vested after four years ofContinuous Service from the grant date.     The provisions of this Section 6.5 are subject to any Option provisions governing the minimumnumber of shares of Common Stock as to which an Option may be exercised.     6.6 Termination of Continuous Service. In the event an Optionholder’s ContinuousService terminates (other than upon the Optionholder’s death or Disability or by the Company forMisconduct), the Optionholder may exercise his or her Option (to the extent that the Optionholderwas entitled to exercise such Option as of the date of termination) but only within such period oftime as is specified in the Option Grant Agreement and in no event later than the expiration of theterm of such Option as set forth in the Option Grant Agreement). If, after
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termination, the Optionholder does not exercise his or her Option within the time specified inthe Option Grant Agreement, the Option shall terminate. In the absence of a provision to thecontrary in the individual Optionholder’s Option Grant Agreement, the Option shall remainexercisable for 90 calendar days following the termination of the Optionholder’s ContinuousService. This period may be adjusted by the Board in its discretion. Notwithstanding the foregoing,if the Optionholder’s Continuous Service is terminated for Misconduct, the Option shall immediatelyterminate as to any unexercised portion thereof, unless the individual Optionholder’s Option GrantAgreement provides otherwise.     6.7 Disability of Optionholder. In the event that an Optionholder’s ContinuousService terminates as a result of the Optionholder’s Disability, the Optionholder may exercise hisor her Option to the extent that the Optionholder was entitled to exercise such Option as of thedate of termination, but only within such period of time as is specified in the Option GrantAgreement (and in no event later than the expiration of the term of such Option as set forth in theOption Grant Agreement). If, after termination, the Optionholder does not exercise his or herOption within the time specified in the Option Grant Agreement, the Option shall terminate. In theabsence of a provision to the contrary in the individual Optionholder’s Option Grant Agreement, theOption shall remain exercisable for twelve months following such termination. This period may beadjusted by the Board in its discretion.     6.8 Death of Optionholder. In the event (i) an Optionholder’s Continuous Serviceterminates as a result of the Optionholder’s death or (ii) the Optionholder dies within the period(if any) specified in the Option Grant Agreement after the termination of the Optionholder’sContinuous Service for a reason other than death, then the Option may be exercised (to the extentthe Optionholder was entitled to exercise such Option as of the date of death) by theOptionholder’s estate, by a person who acquired the right to exercise the Option by bequest orinheritance or by a person designated to exercise the Option upon the Optionholder’s death pursuantto Section 6.4 of the Plan, but only within such period of time as is specified in the Option GrantAgreement (and in no event later than the expiration of the term of such Option as set forth in theOption Grant Agreement). If, after death, the Option is not exercised within the time specified inthe Option Grant Agreement, the Option shall terminate. In the absence of a provision to thecontrary in the individual Optionholder’s Option Grant Agreement, the Option shall remainexercisable for twelve months following the Optionholder’s death. This period may be adjusted bythe Board in its discretion.     6.9 Extension of Termination Date. An Optionholder’s Option Grant Agreement may alsoprovide that if the exercise of the Option following the termination of the Optionholder’sContinuous Service (other than upon the Optionholder’s death or Disability or by the Company forMisconduct) would be prohibited at any time solely because the issuance of shares of Common Stockwould violate the registration requirements under the Securities Act or other applicable securitieslaw, then the Option shall terminate on the earlier of (i) the expiration of the term of the Optionset forth in the Option Grant Agreement or (ii) the expiration of a period of three months afterthe termination of the Optionholder’s Continuous Service during which the exercise of the Optionwould not be in violation of such registration requirements or other applicable securities law. Theprovisions of this Section 6.9 notwithstanding, in the event that a sale of the shares of CommonStock received upon exercise of his or her Option would subject the Optionholder to liability underSection 16(b) of the Exchange Act, then the Option will
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terminate on the earlier of (1) the fifteenth day after the last date upon which such salewould result in liability, or (2) two hundred ten days following the date of termination of theOptionholder’s employment or other service to the Company (and in no event later than theexpiration of the term of the Option).     6.10 Early Exercise Generally Not Permitted. The Company’s general policy is not toallow the Optionholder to exercise the Option as to any part or all of the shares of Common Stocksubject to the Option prior to the vesting of the Option. If, however, an Option Grant Agreementdoes permit such early exercise, any unvested shares of Common Stock so purchased may be subject toa repurchase option in favor of the Company or to any other restriction the Board determines to beappropriate.**VII. NON-DISCRETIONARY OPTIONS FOR CERTAIN DIRECTORS**     In addition to any other Options that any Director who is not an Employee may be granted on adiscretionary basis under the Plan, each Director who is not an Employee shall be automaticallygranted without the necessity of action by the Board, the following Options.     7.1 Initial Grant. On the date that a Director who is not an Employee commencesservice on the Board, an initial grant of Non-Qualified Stock Options shall automatically be madeto that Director who is not an Employee (the “Initial Grant”). The number of shares subject to thisInitial Grant and other terms governing this Initial Grant shall be as determined by the Board inits sole discretion. If the Board does not establish the number of shares subject to the InitialGrant for a given newly-elected Director who is not an Employee prior to the date of grant for suchInitial Grant, then the number shall be ten thousand (10,000) shares. If at the time a Director whois also an Employee or does not otherwise Qualify as an Outside Director commences service on theBoard, such Director shall be entitled to an Initial Grant at such time as such Directorsubsequently is no longer an Employee or qualifies as an Outside Director and if such Directorremains a Director.     7.2 Annual Grant. An annual grant of Non-Qualified Stock Options(the “Annual Grant”)shall automatically be made to each Director who (i) is re-elected to the Board or who otherwisecontinues as a Director, (ii) qualifies as an Outside Director on the relevant grant date and (iii)has served as a Director for at least six months. The number of shares subject to this Annual Grantand other terms governing this Annual Grant shall be as determined by the Board in its solediscretion. If the Board does not establish the number of shares subject to the Annual Grant, thenthe number shall be five thousand (5,000) shares. The date and time of grant of an Annual Grant isthe date of the annual meeting of the Company’s stockholders and the time shall be immediately uponthe adjournment of the annual meeting of the Company’s stockholders.     7.3 Vesting. Initial Grants and Annual Grants granted pursuant to this Article VIIshall vest as to one twelfth (1/12th) of the total award on each monthly anniversary of the grantdate, such that the award is fully vested after one year of Continuous Service on the Board fromthe grant date.     7.4 Termination of Continuous Service as a Director. In the event an Optionholder’sstatus as a Director terminates for any reason other than death, the Optionholder may exercise his
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or her Option granted under this Article VII to the extent that the Optionholder was entitledto exercise such Option as of the date of termination, but only within 90 calendar days followingthe date of such termination (and in no event later than the expiration of the term of such Optionas set forth in the Option Grant Agreement). This period may be adjusted by the Board in itsdiscretion, provided that the affected Optionholder shall be recused from such decision of theBoard. If an Optionholder’s status as a Director terminates due to death, the Optionholder’sestate, a person who acquired the right to exercise the Option by bequest or inheritance, or aperson designated to exercise the Option upon the Optionholder’s death pursuant to Section 6.4 ofthe Plan must exercise the Option granted under this Article VII to the extent that theOptionholder was entitled to exercise such Option as of the date of termination, but only withintwelve months following the date of such termination (and in no event later than the expiration ofthe term of such Option as set forth in the Option Agreement). This period may be adjusted by theBoard in its discretion. If, after termination, an Option granted under this Article VII is notexercised within 90 calendar days or twelve months, as applicable, following the date of suchtermination, the Option shall terminate.**VIII. COVENANTS OF THE COMPANY**     8.1 Availability of Shares. During the term of the Options, the Company shall keepavailable at all times the number of shares of Common Stock required to satisfy such Options.     8.2 Securities Law Compliance. The Company shall seek to obtain from each regulatorycommission or agency having jurisdiction over the Plan such authority as may be required to grantOptions and to issue and sell shares of Common Stock upon exercise, redemption or satisfaction ofthe Options; provided, however, that this undertaking shall not require the Company to registerunder the Securities Act the Plan or any Option or any Common Stock issued or issuable pursuant toany such Option. If, after reasonable efforts, the Company is unable to obtain from any suchregulatory commission or agency the authority which counsel for the Company deems necessary for thelawful issuance and sale of Common Stock under the Plan, the Company shall be relieved from anyliability for failure to issue and sell Common Stock related to such Options unless and until suchauthority is obtained.**IX. USE OF PROCEEDS FROM STOCK**     Proceeds from the sale of Common Stock pursuant to Options shall constitute general funds ofthe Company.**X. CANCELLATION AND RE-GRANT OF OPTIONS**     10.1 Repricing and/or Cancellation of Options. Other than in connection with achange in the Company’s capitalization (as described in Section 12), the Board shall have theauthority to effect, at any time and from time to time, with the consent of the affectedOptionholders and stockholder approval, (i) the repricing of any outstanding Options under the Planto lower the exercise price and/or (ii) the cancellation of any outstanding Options under the Planand the grant in substitution therefor of new Options under the Plan covering the same or differentnumber of shares of Common Stock, but having an exercise price per share not less than one hundredpercent of the Fair Market Value per share of Common Stock on the new grant date.
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Notwithstanding the foregoing, the Board may grant an Option with an exercise price lower thanthat set forth above if such Option is granted as part of a transaction to which Section 424(a) ofthe Code applies. As set forth above, prior to the implementation of any such repricing orcancellation of one or more outstanding Options, the Board shall obtain the approval of thestockholders of the     Company to the extent required by any NASDAQ, New York Stock Exchange, or other securitiesexchange listing requirements as appropriate, or applicable law.     10.2 Effect of Cancellation. Shares subject to an Option cancelled under thisArticle X shall continue to be counted against the maximum award of Options permitted to be grantedpursuant to Section 5.2 of the Plan. The repricing of an Option under this Article X, resulting ina reduction of the exercise price, shall be deemed to be a cancellation of the original Option andthe grant of a substitute Option; in the event of such repricing, both the original and thesubstituted Options shall be counted against the maximum awards of Options permitted to be grantedpursuant to Section 5.2 of the Plan. The provisions of this Section 10.2 shall be applicable onlyto the extent required by Section 162(m) of the Code.**XI. MISCELLANEOUS**     11.1 Acceleration of Exercisability and Vesting. The Board shall have the power toaccelerate exercisability and/or vesting of any Option granted pursuant to the Plan upon a Changein Control or upon the death or Disability or termination of Continuous Service of the Participant.In furtherance of such power, the Board or Committee may accelerate the time at which an Option maybe first exercised or the time during which an Option or any part thereof will vest in accordancewith the Plan, notwithstanding any provisions in the Option Grant Agreement to the contrary.     11.2 Stockholder Rights. No Participant shall be deemed to be the holder of, or tohave any of the rights of a holder with respect to, any shares of Common Stock subject to an Optionexcept to the extent that the Company has issued the shares of Common Stock relating to suchOption.     11.3 No Employment or Other Service Rights. Nothing in the Plan or any instrumentexecuted or Option granted pursuant thereto shall confer upon any Participant any right to continueto serve the Company or an Affiliate in the capacity in effect at the time the Option was grantedor shall affect the right of the Company or an Affiliate to terminate (i) the employment of anEmployee with or without notice and with or without cause, (ii) the service of a Consultantpursuant to the terms of such Consultant’s agreement with the Company or an Affiliate, or (iii) theservice of a Director pursuant to the Bylaws of the Company, and any applicable provisions of thecorporate law of the state or other jurisdiction in which the Company is domiciled, as the case maybe.     11.4 Investment Assurances. The Company may require a Participant, as a condition ofexercising or redeeming an Option or acquiring Common Stock under any Option, (i) to give writtenassurances satisfactory to the Company as to the Participant’s knowledge and experience infinancial and business matters and/or to employ a purchaser representative reasonably
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satisfactory to the Company who is knowledgeable and experienced in financial and businessmatters and that he or she is capable of evaluating, alone or together with the purchaserrepresentative, the merits and risks of acquiring the Common Stock; (ii) to give written assurancessatisfactory to the Company stating that the Participant is acquiring Common Stock subject to theOption for the Participant’s own account and not with any present intention of selling or otherwisedistributing the Common Stock; and (iii) to give such other written assurances as the Company maydetermine are reasonable in order to comply with applicable law. The foregoing requirements, andany assurances given pursuant to such requirements, shall be inoperative if (A) the issuance of theshares of Common Stock under the Option has been registered under a then currently effectiveregistration statement under the Securities Act or (B) as to any particular requirement, adetermination is made by counsel for the Company that such requirement need not be met in thecircumstances under the then applicable securities laws, and in either case otherwise complies withapplicable law. The Company may, upon advice of counsel to the Company, place legends on stockcertificates issued under the Plan as such counsel deems necessary or appropriate in order tocomply with applicable laws, including, but not limited to, legends restricting the transfer of theCommon Stock.     11.5 Withholding Obligations. To the extent provided by the terms of an Option GrantAgreement, the Participant may satisfy any federal, state, local, or foreign tax withholdingobligation relating to the exercise or redemption of an Option or the acquisition, vesting,distribution, or transfer of Common Stock under an Option by any of the following means (inaddition to the Company’s right to withhold from any compensation or other amounts payable to theParticipant by the Company) or by a combination of such means: (i) tendering a cash payment; (ii)authorizing the Company to withhold shares of Common Stock from the shares of Common Stockotherwise issuable to the Participant, provided, however, that no shares of Common Stock arewithheld with a value exceeding the minimum amount of tax required to be withheld by law; or (iii)delivering to the Company owned and unnumbered shares of Common Stock.     11.6 Section 409A. Notwithstanding anything in the Plan to the contrary, it is theintent of the Company that all Options granted under this Plan shall not cause an imposition of theadditional taxes provided for in Section 409A(a)(1)(B) of the Code; furthermore, it is the intentof the Company that the Plan shall be administered so that the additional taxes provided for inSection 409A(a)(1)(B) of the Code are not imposed. In the event that the Company determines in goodfaith that any provision of this Plan does not comply with Section 409A of the Code, the Companymay amend this Plan to the minimum extent necessary to cause the Plan to comply.**XII. ADJUSTMENTS UPON CHANGES IN STOCK**     12.1 Capitalization Adjustments. If any change is made in the Common Stock subjectto the Plan, or subject to any Option, without the receipt of consideration by the Company (throughmerger, consolidation, reorganization, recapitalization, reincorporation, stock dividend, spinoff,dividend in property other than cash, stock split, liquidating dividend, extraordinary dividends ordistributions, combination of shares, exchange of shares, change in corporate structure or othertransaction not involving the receipt of consideration by the Company), the Plan may beappropriately adjusted in the class(es) and maximum number of securities subject to the Planpursuant to Section 4.1 above, the maximum number of securities subject to award to any person
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pursuant to Section 5.2 above, and the number of securities subject to Initial Grants andAnnual Grants to Directors that are not Employees under Article VII of the Plan, and the terms ofthe outstanding Options may be appropriately adjusted. The Board may make such adjustments in itssole discretion, and its determination shall be final, binding, and conclusive. For the avoidanceof doubt, the conversion of any convertible securities of the Company shall not be treated as atransaction “without receipt of consideration” by the Company.     12.2 Adjustments Upon a Change in Control.     (i) If a Change in Control occurs as defined in Section 2.5(i) through 2.5(iv), then the Boardor the board of directors of any surviving entity or acquiring entity may provide or require thatthe surviving or acquiring entity shall have the power but not the obligation to: (1) assume orcontinue all or any part of the Options outstanding under the Plan or (2) substitute substantiallyequivalent stock awards (including an award to acquire substantially the same consideration paid tothe stockholders in the transaction by which the Change in Control occurs) for those outstandingunder the Plan. In the event any surviving entity or acquiring entity refuses to assume or continuesuch Options or to substitute similar stock awards for those outstanding under the Plan, then withrespect to Options held by Participants whose Continuous Service has not terminated, the Board inits sole discretion and without liability to any person may: (1) provide for the payment of a cashamount in exchange for the cancellation of an Option equal to the product of (x) the excess, ifany, of the Fair Market Value per share of Common Stock at such time over the exercise price, times(y) the total number of shares then subject to such Option; (2) continue the Options; or (3) notifyParticipants holding an Option that they must exercise any portion of such Option (including, atthe discretion of the Board, any unvested portion of such Option) at or prior to the closing of thetransaction by which the Change in Control occurs and that the Options shall terminate if not soexercised or redeemed at or prior to the closing of the transaction by which the Change in Controloccurs. With respect to any other Options outstanding under the Plan, such Options shall terminateif not exercised or redeemed prior to the closing of the transaction by which the Change in Controloccurs. The Board shall not be obligated to treat all Options, even those that are of the sametype, in the same manner.     (ii) In the event of a Change in Control as defined in Section 2.5(v), all outstanding Optionsshall terminate immediately prior to such event.**XIII. AMENDMENT OF THE PLAN AND OPTIONS**     13.1 Amendment of Plan. The Board at any time, and from time to time, may amend thePlan. However, except as provided in Section 12 of the Plan relating to adjustments upon changes inCommon Stock, no amendment shall be effective unless approved by the stockholders of the Company tothe extent stockholder approval is necessary to satisfy the requirements of the Code, any NASDAQ,New York Stock Exchange, or other securities exchange listing requirements, or other applicable lawor regulation.     13.2 Stockholder Approval. The Board may, in its sole discretion, submit any otheramendment to the Plan for stockholder approval, including, but not limited to, amendments to thePlan intended to satisfy the requirements of Section 162(m) of the Code and the regulations
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thereunder regarding the exclusion of performance-based compensation from the limit oncorporate deductibility of compensation paid to certain executive officers.     13.3 Contemplated Amendments. It is expressly contemplated that the Board may amendthe Plan in any respect the Board deems necessary or advisable to provide eligible Employees withthe maximum benefits provided or to be provided under the provisions of the Code and theregulations promulgated thereunder and/or to bring the Plan and/or Options granted under it intocompliance therewith.     13.4 No Material Impairment of Rights. Rights under any Option granted beforeamendment of the Plan shall not be materially impaired by any amendment of the Plan unless (i) theCompany requests the consent of the Participant and (ii) the Participant consents in writing.     13.5 Amendment of Options. The Board at any time, and from time to time, may amendthe terms of any one or more Options; provided, however, that the rights of the Participant underany Option shall not be materially impaired by any such amendment unless (i) the Company requeststhe consent of the Participant and (ii) the Participant consents in writing.**XIV. TERMINATION OR SUSPENSION OF THE PLAN**     14.1 Plan Term. The Board may suspend or terminate the Plan at any time. Unlesssooner terminated, the Plan shall terminate on the day before the tenth anniversary of the datethat the Plan is approved by the stockholders of the Company, as the adoption of the Plan by theBoard is conditioned upon such stockholder approval. No Options may be granted under the Plan whilethe Plan is suspended or after it is terminated.     14.2 No Material Impairment of Rights. Suspension or termination of the Plan shallnot materially impair rights and obligations under any Option granted while the Plan is in effectexcept with the written consent of the Participant.**XV. EFFECTIVE DATE OF PLAN**     The Plan shall become effective immediately following its approval by the stockholders of theCompany, which approval shall be within twelve months before or after the date the Plan is adoptedby the Board. No Options may be granted under the Plan prior to the time that the stockholders haveapproved the Plan.**XVI. CHOICE OF LAW**     The law of the State of California shall govern all questions concerning the construction,validity and interpretation of this Plan, without regard to such state’s conflict of laws rules.The laws of jurisdiction and venue shall be governed by the laws of the county and city of SanFrancisco, California. Notwithstanding the foregoing, with respect to matters affecting the Planthat are addressed by the General Corporation Law of the State of Delaware, the laws of the Stateof Delaware shall control.
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