**Exhibit 10.3**

 

**ALPHASMART, INC.**

 

**2003 STOCK PLAN**

 

**(As amended, April 2004)**

 

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

 

 

 

 

The Plan permits the grant of Incentive Stock Options, Nonstatutory Stock Options, Stock Purchase Rights, Restricted Stock, StockAppreciation Rights, Performance Units and Performance Shares. This Plan will become effective only upon the closing of the first underwritten public offering of the Company’s Common Stock. 

 

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

 

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

 

(b) “Affiliated SAR” means an SAR that is granted in connection with a related Option, and which automatically will bedeemed to be exercised at the same time that the related Option is exercised. 

 

(c) “Applicable Laws” means the requirements relating to the administration of stock-based awards under U.S. state corporate laws, U.S. federal and state securities laws, the Code, any stock exchangeor quotation system on which the Common Stock is listed or quoted and the applicable laws of any foreign country or jurisdiction where Awards are, or will be, granted under the Plan. 

 

(d) “Award” means, individually or collectively, a grant under the Plan of Options, SARs,Stock Purchase Rights, Restricted Stock, Performance Units or Performance Shares. 

 

(e) “Award Agreement” means the written or electronic agreement setting forth the terms and provisions applicable to eachAward granted under the Plan. The Award Agreement is subject to the terms and conditions of the Plan. 

 

(f) “Beneficial Owner” means a “beneficial owner” (as defined in Rule 13d-3 of the Securities Exchange Act of1934, as amended), directly or indirectly, of securities of the Company representing 1% or more of the total voting power represented by the Company’s outstanding voting securities on the date of any grant hereunder. 

 

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

 

(h) “Change in Control” means theoccurrence of any of the following events: 

 

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

 

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

 

(iii) A change in the composition of the Board occurringwithin a two-year period, as a result of which fewer than a majority of the directors are Incumbent Directors. “Incumbent Directors” means directors who either (A) are Directors as of the effective date of the Plan, or (B) are elected, ornominated for election, to the Board with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination (but will not include an individual whose election or nomination is in connection with anactual or threatened proxy contest relating to the election of directors to the Company); or 

 

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

 

(i) “Code” means the Internal Revenue Codeof 1986, as amended. Any reference to a section of the Code herein will be a reference to any successor or amended section of the Code. 

 

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

 

(k) “Common Stock” means thecommon stock of the Company. 

 

(l)“Company” means AlphaSmart, Inc., a Delaware corporation, or any successor thereto. 

 

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

 

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

 

(o) “Disability” means total and permanent disability as defined in Section 22(e)(3) of the Code, provided that in the case of Awards other than Incentive Stock Options, the Administrator in itsdiscretion may determine whether a permanent and total disability exists in 

 

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accordance with uniform and non-discriminatory standards adopted by the Administrator from time to time. 

 

(p) “Employee” means any person, includingOfficers and Directors, employed by the Company or any Parent or Subsidiary of the Company. Neither service as a Director nor payment of a director’s fee by the Company will be sufficient to constitute “employment” by the Company.

 

(q) “Exchange Act” means theSecurities Exchange Act of 1934, as amended. 

 

(r) “Exchange Program” means a program under which (a) outstanding Awards are surrendered or cancelled in exchange for Awards of the same type (which may have lower exercise prices and different terms), Awards of adifferent type, and/or cash, and/or (b) the exercise price of an outstanding Award is reduced. The terms and conditions of any Exchange Program will be determined by the Administrator in its sole discretion. 

 

(s) “Fair Market Value” means, as of anydate, the value of Common Stock determined as follows: 

 

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

 

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

 

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

 

(t) “FiscalYear” means the fiscal year of the Company. 

 

(u) “Freestanding SAR” means a SAR that is granted independently of any Option. 

 

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

 

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

 

(x) “Nonstatutory Stock Option” means an Option that by its terms does not qualify or is not intended to qualify as anIncentive Stock Option. 

 

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

 

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

 

(aa) “Optioned Stock” means the CommonStock subject to an Award. 

 

(bb)“Outside Director” means a Director who is neither an Employee nor a Beneficial Owner and who, at the time of being elected or appointed a Director, does not hold Unvested Awards. 

 

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

 

(dd) “Participant” means the holder of an outstanding Award granted under the Plan. 

 

(ee) “Performance Share” means an Awardgranted to a Participant pursuant to Section 10. 

 

(ff) “Performance Unit” means an Award granted to a Participant pursuant to Section 10. 

 

(gg) “Period of Restriction” means the period during which the transfer of Shares of Restricted Stock are subject torestrictions and therefore, the Shares are subject to a substantial risk of forfeiture. Such restrictions may be based on the passage of time, the achievement of target levels of performance, or the occurrence of other events as determined by theAdministrator. 

 

(hh) “Plan”means this 2003 Stock Plan. 

 

(ii)“Registration Date” means the effective date of the first registration statement that is filed by the Company and declared effective pursuant to Section 12(g) of the Exchange Act, with respect to any class of the Company’ssecurities. 

 

(jj) “RestrictedStock” means shares of Common Stock acquired pursuant to a grant of Stock Purchase Rights under Section 7 of the Plan, issued pursuant to a Restricted Stock award under Section 8 of the Plan, or issued pursuant to the early exercise of anOption. 

 

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

 

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

 

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

 

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

 

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(oo) “Stock Appreciation Right” or “SAR” means anAward, granted alone or in connection with an Option, that pursuant to Section 9 is designated as a SAR. 

 

(pp) “Stock Purchase Right” means the right to purchase Common Stock pursuant to Section 7 of the Plan. 

 

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

 

(rr) “Tandem SAR” means a SAR that is granted in connection with a related Option, the exercise of which will requireforfeiture of the right to purchase an equal number of Shares under the related Option (and when a Share is purchased under the Option, the SAR will be canceled to the same extent). 

 

(ss) “Unvested Awards” shall mean Options or Restricted Stock that (i) were granted to anindividual in connection with such individual’s position as an Employee and (ii) are still subject to vesting or lapsing of Company repurchase rights or similar restrictions. 

 

3. Stock Subject to the Plan. 

 

(a) Stock Subject to the Plan. Subject to the provisions of Section 14 of the Plan, the maximumaggregate number of Shares that may be optioned and sold under the Plan is such number of Shares which have been reserved but not issued under the Company’s 1998 Stock Plan (the “1998 Plan”) as of the Registration Date, plus (a) anyShares returned to the 1998 Plan as a result of termination of options or repurchase of Shares issued under such plan, and (b) an annual increase to be added on the first day of the Company’s fiscal year beginning in 2005, equal to thelesser of (i) 800,000 Shares, (ii) 3% of the outstanding Shares on such date or (iii) an amount determined by the Board. The Shares may be authorized, but unissued, or reacquired Common Stock. Shares shall not be deemed to have been issuedpursuant to the Plan with respect to any portion of an Award that is settled in cash. Upon payment in Shares pursuant to the exercise of an SAR, the number of Shares available for issuance under the Plan shall be reduced only by the number of Sharesactually issued in such payment. If the exercise price of an Option is paid by tender to the Company, or attestation to the ownership, of Shares owned by the Participant, the number of Shares available for issuance under the Plan shall be reduced bythe gross number of Shares for which the Option is exercised. 

 

(b) Lapsed Awards. If an Award expires or becomes unexercisable without having been exercised in full, or is surrendered pursuant to an Exchange Program, the unpurchased Shares which were subject thereto willbecome available for future grant or sale under the Plan (unless the Plan has terminated); provided, however, that Shares that have actually been issued under the Plan, whether upon exercise of an Award, will not be returned to the Plan andwill not become available for future distribution under the Plan, except that if unvested Shares are forfeited or repurchased by the Company, such Shares will become available for future grant under the Plan. 

 

(c) Share Reserve. The Company, during the term ofthis Plan, will at all times reserve and keep available such number of Shares as will be sufficient to satisfy the requirements of the Plan. 

 

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4. Administration of the Plan. 

 

(a) Procedure. 

 

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

 

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

 

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

 

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

 

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

 

(i) todetermine the Fair Market Value; 

 

(ii) toselect the Service Providers to whom Awards may be granted hereunder; 

 

(iii) to determine the number of Shares to be covered by each Award granted hereunder; 

 

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

 

(v) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any Award grantedhereunder. Such terms and conditions include, but are not limited to, the exercise price, the time or times when Awards may be exercised (which may be based on performance criteria), any vesting acceleration or waiver of forfeiture restrictions, andany restriction or limitation regarding any Award or the Shares relating thereto, based in each case on such factors as the Administrator will determine; 

 

(vi) to institute an Exchange Program; 

 

(vii) to construe and interpret the terms of the Plan and Awards granted pursuant to the Plan; 

 

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

 

(ix) to modify or amend each Award (subject to Section 18(c) of the Plan), including the discretionary authority to extend thepost-termination exercisability period of Awards longer than is otherwise provided for in the Plan; 

 

(x) to allow Participants to satisfy withholding tax obligations by electing to have the Company withhold from the Shares to be issuedupon exercise of an Award that number of Shares having a Fair Market Value equal to the minimum amount required to be withheld (the Fair Market Value of the Shares to be withheld will be determined on the date that the amount of tax to be withheldis to be determined and all elections by a Participant to have Shares withheld for this purpose will be made in such form and under such conditions as the Administrator may deem necessary or advisable); 

 

(xi) to authorize any person to execute on behalf of theCompany any instrument required to effect the grant of an Award previously granted by the Administrator; 

 

(xii) to allow a Participant to defer the receipt of the payment of cash or the delivery of Shares that would otherwise be due to suchParticipant under an Award 

 

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

 

(c) Effect of Administrator’s Decision. The Administrator’s decisions, determinations and interpretations will be finaland binding on all Participants and any other holders of Awards. 

 

5. Eligibility. Nonstatutory Stock Options, Stock Purchase Rights, Restricted Stock, Stock Appreciation Rights, Performance Units and Performance Shares may be granted to Service Providers. Incentive Stock Options may be granted onlyto Employees. 

 

6. Stock Options. 

 

(a) Limitations. 

 

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

 

(ii) The following limitations will apply to grants ofOptions and Stock Appreciation Rights: 

 

(1)No Service Provider will be granted, in any Fiscal Year, Options to purchase more than 333,350 Shares. 

 

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(2) In connection with his or her initial service, a Service Provider may be grantedOptions to purchase up to an additional 1,333,400 Shares, which will not count against the limit set forth in Section 6(a)(2)(ii)(1) above. 

 

(3) The foregoing limitations will be adjusted proportionately in connection with any change in the Company’s capitalization asdescribed in Section 14. 

 

(4) If an Option iscancelled in the same Fiscal Year in which it was granted (other than in connection with a transaction described in Section 14), the cancelled Option will be counted against the limits set forth in subsections (1) and (2) above. For this purpose, ifthe exercise price of an Option is reduced, the transaction will be treated as a cancellation of the Option and the grant of a new Option. 

 

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

 

(c) Option Exercise Price and Consideration. 

 

(i) Exercise Price. The per share exercise price for the Shares to be issued pursuant to exercise of an Option will be determinedby the Administrator, subject to the following: 

 

(1) In the case of an Incentive Stock Option 

 

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

 

b) granted to any Employee other than an Employee described in paragraph (A) immediately above, the per Share exercise price will be noless than 100% of the Fair Market Value per Share on the date of grant. 

 

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

 

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

 

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

 

(iii) Form of Consideration. The Administrator will determine the acceptable form of consideration for exercising an Option,including the method of payment. In the case of an Incentive Stock Option, the Administrator will determine the acceptable form of consideration at the time of grant. Such consideration may consist entirely of: (1) cash; (2) check; (3) promissorynote; (4) other Shares, provided Shares acquired directly or indirectly from the Company, (A) have been owned by the Participant and not subject to substantial risk of forfeiture for more than six months on the date of surrender, and (B) have a FairMarket Value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Option will be exercised; (5) consideration received by the Company under a cashless exercise program implemented by the Company in connectionwith the Plan; (6) a reduction in the amount of any Company liability to the Participant, including any liability attributable to the Participant’s participation in any Company-sponsored deferred compensation program or arrangement; (7) anycombination of the foregoing methods of payment; or (8) such other consideration and method of payment for the issuance of Shares to the extent permitted by Applicable Laws. 

 

(d) Exercise of Option. 

 

(i) Procedure for Exercise; Rights as a Stockholder. Any Option granted hereunder will be exercisableaccording to the terms of the Plan and at such times and under such conditions as determined by the Administrator and set forth in the Award Agreement. An Option may not be exercised for a fraction of a Share. 

 

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

 

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

 

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

 

(iii) Disability of Participant. If a Participantceases to be a Service Provider as a result of the Participant’s Disability, the Participant may exercise his or her Option within such period of time as is specified in the Award Agreement to the extent the Option is vested on the date oftermination (but in no event later than the expiration of the term of such Option as set forth in the Award Agreement). In the absence of a specified time in the Award Agreement, the Option will remain exercisable for twelve (12) months followingthe Participant’s termination. Unless otherwise provided by the Administrator, if on the date of termination the Participant is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option will revert tothe Plan. If after termination the Participant does not exercise his or her Option within the time specified herein, the Option will terminate, and the Shares covered by such Option will revert to the Plan. 

 

(iv) Death of Participant. If a Participant dieswhile a Service Provider, the Option may be exercised following the Participant’s death within such period of time as is specified in the Award Agreement to the extent that the Option is vested on the date of death (but in no event may theoption be exercised later than the expiration of the term of such Option as set forth in the Award Agreement), by the Participant’s designated beneficiary, provided such beneficiary has been designated prior to Participant’s death in aform acceptable to the Administrator. If no such beneficiary has been designated by the Participant, then such Option may be exercised by the personal representative of the Participant’s estate or by the person(s) to whom the Option istransferred pursuant to the Participant’s will or in accordance with the laws of descent and distribution. In the absence of a specified time in the Award Agreement, the Option will remain exercisable for twelve (12) months followingParticipant’s death. Unless otherwise provided by the Administrator, if at the time of death Participant is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option will immediately revert to the Plan.If the Option is not so exercised within the time specified herein, the Option will terminate, and the Shares covered by such Option will revert to the Plan. 

 

7. Stock Purchase Rights. 

 

(a) Rights to Purchase. Stock Purchase Rights may be issued either alone, in addition to, or in tandem with other awards grantedunder the Plan and/or cash awards made outside of the Plan. After the Administrator determines that it will offer Stock Purchase Rights under the Plan, it will advise the offeree in writing or electronically, by means of an Award Agreement, of theterms, conditions and restrictions related to the offer, including the number of Shares that the offeree will 

 

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be entitled to purchase, the price to be paid, and the time within which the offeree must accept such offer. The offer will be accepted as determined by theAdministrator. 

 

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

 

(c) Other Provisions. The Award Agreement will contain such other terms, provisions and conditions not inconsistent with the Plan as may be determined by the Administrator. 

 

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

 

8. Restricted Stock.

 

(a) Grant of Restricted Stock. Subject to the terms and provisions of the Plan, the Administrator, at any time and from time totime, may grant Shares of Restricted Stock to Service Providers in such amounts as the Administrator, in its sole discretion, will determine. 

 

(b) Restricted Stock Agreement. Each Award of Restricted Stock will be evidenced by an Award Agreement that will specify the Periodof Restriction, the number of Shares granted, and such other terms and conditions as the Administrator, in its sole discretion, will determine. Unless the Administrator determines otherwise, Shares of Restricted Stock will be held by the Company asescrow agent until the restrictions on such Shares have lapsed. 

 

(c) Transferability. Except as provided in this Section 8, Shares of Restricted Stock may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated until the end of the applicablePeriod of Restriction. 

 

(d) OtherRestrictions. The Administrator, in its sole discretion, may impose such other restrictions on Shares of Restricted Stock as it may deem advisable or appropriate. 

 

(e) Removal of Restrictions. Except as otherwise provided in this Section 8, Shares of RestrictedStock covered by each Restricted Stock grant made under the Plan will be released from escrow as soon as practicable after the last day of the Period of Restriction. The Administrator, in its discretion, may accelerate the time at which anyrestrictions will lapse or be removed. 

 

(f)Voting Rights. During the Period of Restriction, Service Providers holding Shares of Restricted Stock granted hereunder may exercise full voting rights with respect to those Shares, unless the Administrator determines otherwise. 

 

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(g) Dividends and Other Distributions. During the Period of Restriction, ServiceProviders holding Shares of Restricted Stock will be entitled to receive all dividends and other distributions paid with respect to such Shares unless otherwise provided in the Award Agreement. If any such dividends or distributions are paid inShares, the Shares will be subject to the same restrictions on transferability and forfeitability as the Shares of Restricted Stock with respect to which they were paid. 

 

(h) Return of Restricted Stock to Company. On the date set forth in the Award Agreement, theRestricted Stock for which restrictions have not lapsed will revert to the Company and again will become available for grant under the Plan. 

 

9. Stock Appreciation Rights. 

 

(a) Grant of SARs. Subject to the terms and conditions of the Plan, an SAR may be granted to Service Providers at any time and fromtime to time as will be determined by the Administrator, in its sole discretion. The Administrator may grant Affiliated SARs, Freestanding SARs, Tandem SARs, or any combination thereof. 

 

(b) Number of Shares. The Administrator will have complete discretion to determine the number of SARsgranted to any Service Provider. 

 

(c)Exercise Price and Other Terms. The Administrator, subject to the provisions of the Plan, will have complete discretion to determine the terms and conditions of SARs granted under the Plan. However, the exercise price of Tandem or AffiliatedSARs will equal the exercise price of the related Option. 

 

(d) Exercise of Tandem SARs. Tandem SARs may be exercised for all or part of the Shares subject to the related Option upon the surrender of the right to exercise the equivalent portion of the related Option. ATandem SAR may be exercised only with respect to the Shares for which its related Option is then exercisable. With respect to a Tandem SAR granted in connection with an Incentive Stock Option: (a) the Tandem SAR will expire no later than theexpiration of the underlying Incentive Stock Option; (b) the value of the payout with respect to the Tandem SAR will be for no more than one hundred percent (100%) of the difference between the exercise price of the underlying Incentive Stock Optionand the Fair Market Value of the Shares subject to the underlying Incentive Stock Option at the time the Tandem SAR is exercised; and (c) the Tandem SAR will be exercisable only when the Fair Market Value of the Shares subject to the Incentive StockOption exceeds the Exercise Price of the Incentive Stock Option. 

 

(e) Exercise of Affiliated SARs. An Affiliated SAR will be deemed to be exercised upon the exercise of the related Option. The deemed exercise of an Affiliated SAR will not necessitate a reduction in the numberof Shares subject to the related Option. 

 

(f)Exercise of Freestanding SARs. Freestanding SARs will be exercisable on such terms and conditions as the Administrator, in its sole discretion, will determine. 

 

(g) SAR Agreement. Each SAR grant will be evidenced by an Award Agreement that will specify theexercise price, the term of the SAR, the conditions of exercise, and such other terms and conditions as the Administrator, in its sole discretion, will determine. 

 

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(h) Expiration of SARs. An SAR granted under the Plan will expire upon the datedetermined by the Administrator, in its sole discretion, and set forth in the Award Agreement. Notwithstanding the foregoing, the rules of Section 6(d) also will apply to SARs. 

 

(i) Payment of SAR Amount. Upon exercise of an SAR, a Participant will be entitled to receive paymentfrom the Company in an amount determined by multiplying: 

 

(i) The difference between the Fair Market Value of a Share on the date of exercise over the exercise price; times 

 

(ii) The number of Shares with respect to which the SAR is exercised. 

 

At the discretion of the Administrator, the payment upon SAR exercise may be in cash, in Shares of equivalent value, or insome combination thereof. 

 

10. Performance Units andPerformance Shares. 

 

(a) Grant ofPerformance Units/Shares. Performance Units and Performance Shares may be granted to Service Providers at any time and from time to time, as will be determined by the Administrator, in its sole discretion. The Administrator will have completediscretion in determining the number of Performance Units and Performance Shares granted to each Participant. 

 

(b) Value of Performance Units/Shares. Each Performance Unit will have an initial value that is established by the Administrator onor before the date of grant. Each Performance Share will have an initial value equal to the Fair Market Value of a Share on the date of grant. 

 

(c) Performance Objectives and Other Terms. The Administrator will set performance objectives in its discretion which, depending onthe extent to which they are met, will determine the number or value of Performance Units/Shares that will be paid out to the Service Providers. The time period during which the performance objectives must be met will be called the “PerformancePeriod.” Each Award of Performance Units/Shares will be evidenced by an Award Agreement that will specify the Performance Period, and such other terms and conditions as the Administrator, in its sole discretion, will determine. TheAdministrator may set performance objectives based upon the achievement of Company-wide, divisional, or individual goals, applicable federal or state securities laws, or any other basis determined by the Administrator in its discretion. 

 

(d) Earning of Performance Units/Shares. After theapplicable Performance Period has ended, the holder of Performance Units/Shares will be entitled to receive a payout of the number of Performance Units/Shares earned by the Participant over the Performance Period, to be determined as a function ofthe extent to which the corresponding performance objectives have been achieved. After the grant of a Performance Unit/Share, the Administrator, in its sole discretion, may reduce or waive any performance objectives for such Performance Unit/Share.

 

(e) Form and Timing of Payment ofPerformance Units/Shares. Payment of earned Performance Units/Shares will be made as soon as practicable after the expiration of the applicable Performance Period. The Administrator, in its sole discretion, may pay earned PerformanceUnits/Shares in the form of cash, in Shares (which have an aggregate Fair Market Value equal to the 

 

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value of the earned Performance Units/Shares at the close of the applicable Performance Period) or in a combination thereof. 

 

(f) Cancellation of Performance Units/Shares. On thedate set forth in the Award Agreement, all unearned or unvested Performance Units/Shares will be forfeited to the Company, and again will be available for grant under the Plan. 

 

11. Formula Option Grants to Outside Directors. 

 

All grants of Options to Outside Directors pursuant to this Section will be automatic and nondiscretionary and will be madein accordance with the following provisions: 

 

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

 

(b) No Discretion. No person will have any discretionto select which Outside Directors will be granted Options under this Section or to determine the number of Shares to be covered by such Options (except as provided in Sections 11(g) and 14). 

 

(c) First Option. Each person who first becomes anOutside Director following the Registration Date will be automatically granted an Option to purchase 24,000 Shares (the “First Option”) on or about the date on which such person first becomes an Outside Director, whether through electionby the stockholders of the Company or appointment by the Board to fill a vacancy; provided, however, that an Inside Director or Beneficial Owner who ceases to be an Inside Director or Beneficial Owner, respectively, but who remains a Director willnot receive a First Option. 

 

(d) SubsequentOption. Each Outside Director will be automatically granted an Option to purchase 6000 Shares (a “Subsequent Option”) on January 1 of each calendar year beginning in 2005, if as of such date, he or she will have served on the Board forat least the preceding six (6) months. 

 

(e)Terms. The terms of each Option granted pursuant to this Section will be as follows: 

 

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

 

(ii) The exercise price per Share will be 100% of the Fair Market Value per Share on the date of grant ofthe Option. 

 

(iii) Subject to Section 14, theFirst Option will vest and become exercisable as to 100% of the Shares subject to such Option on the fourth anniversary of its date of grant, provided that the Participant continues to serve as a Service Provider through such date. 

 

(f) Subject to Section 14, the Subsequent Option will vestand become exercisable in one installment upon the Participant’s completion of the four (4)-year period of service measured from the grant date. 

 

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(g) Amendment. The Administrator in its discretion may change the number of Sharessubject to the First Options and Subsequent Options. 

 

12.Leaves of Absence. Unless the Administrator provides otherwise, vesting of Awards granted hereunder will be suspended during any unpaid leave of absence. A Service Provider will not cease to be an Employee in the case of (i) any leave ofabsence approved by the Company or (ii) transfers between locations of the Company or between the Company, its Parent, or any Subsidiary. For purposes of Incentive Stock Options, no such leave may exceed ninety (90) days, unless reemployment uponexpiration of such leave is guaranteed by statute or contract. If reemployment upon expiration of a leave of absence approved by the Company is not so guaranteed, then three months following the 91st day of such leave any Incentive Stock Option held by the Participant will cease to be treated as an Incentive Stock Option and will be treated for taxpurposes as a Nonstatutory Stock Option. 

 

13.Transferability of Awards. Unless determined otherwise by the Administrator, an Award may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution andmay be exercised, during the lifetime of the Participant, only by the Participant. If the Administrator makes an Award transferable, such Award will contain such additional terms and conditions as the Administrator deems appropriate. 

 

14. Adjustments; Dissolution or Liquidation; Merger or Change inControl. 

 

(a) Adjustments. In theevent that any dividend or other distribution (whether in the form of cash, Shares, other securities, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination,repurchase, or exchange of Shares or other securities of the Company, or other change in the corporate structure of the Company affecting the Shares occurs, the Administrator, in order to prevent diminution or enlargement of the benefits orpotential benefits intended to be made available under the Plan, may (in its sole discretion) adjust the number and class of Shares that may be delivered under the Plan and/or the number, class, and price of Shares covered by each outstanding Award,the numerical Share limits in Sections 3 and 6 of the Plan and the number of Shares issuable pursuant to Section 11. 

 

(b) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, the Administrator willnotify each Participant as soon as practicable prior to the effective date of such proposed transaction. To the extent it has not been previously exercised, an Award will terminate immediately prior to the consummation of such proposed action.

 

(c) Change in Control. In the event ofa Change in Control, each outstanding Option, Stock Purchase Right and Stock Appreciation Right will be assumed or an equivalent option or right substituted by the successor corporation or a Parent or Subsidiary of the successor corporation. In theevent that the successor corporation refuses to assume or substitute for the Option, Stock Purchase Right or Stock Appreciation Right, the Participant will fully vest in and have the right to exercise the Option, Stock Purchase Right or StockAppreciation Right as to all of the Optioned Stock, including Shares as to which it would not otherwise be vested or exercisable (subject to consummation of the Change in Control). If an Option, Stock Purchase Right or Stock Appreciation Rightbecomes fully vested and exercisable in lieu of assumption or substitution in the event of a 

 

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Change in Control, the Administrator will notify the Participant in writing or electronically that the Option, Stock Purchase Right or Stock AppreciationRight will be fully vested and exercisable for a period of time determined by the Administrator in its sole discretion, and the Option, Stock Purchase Right or Stock Appreciation Right will terminate upon the expiration of such period. 

 

With respect to Options, SARs and/or Stock PurchaseRights granted to an Outside Director that are assumed or substituted for, if on the date of or following such assumption or substitution the Participant’s status as a Director or a director of the successor corporation, as applicable, isterminated other than upon a voluntary resignation by the Participant, then the Participant will fully vest in and have the right to exercise the Option, SAR and/or Stock Purchase Rights as to all of the Optioned Stock, including Shares as to whichit would not otherwise be vested or exercisable. 

 

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

 

15. No Effect on Employment orService. Neither the Plan nor any Award will confer upon a Participant any right with respect to continuing the Participant’s relationship as a Service Provider with the Company, nor will they interfere in any way with theParticipant’s right or the Company’s right to terminate such relationship at any time, with or without cause, to the extent permitted by Applicable Laws. 

 

16. Date of Grant. The date of grant of an Award will be, for all purposes, the date on which the Administrator makesthe determination granting such Award, or such other later date as is determined by the Administrator. Notice of the determination will be provided to each Participant within a reasonable time after the date of such grant. 

 

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17. Term of Plan. Subject to Section 21 of the Plan, the Plan will become effective upon itsadoption by the Board. It will continue in effect for a term of ten (10) years unless terminated earlier under Section 18 of the Plan. 

 

18. Amendment and Termination of the Plan. 

 

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

 

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

 

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

 

19. Conditions Upon Issuance of Shares. 

 

(a) Legal Compliance. Shares will not be issued pursuant to the exercise of an Award unless the exercise of such Award and theissuance and delivery of such Shares will comply with Applicable Laws and will be further subject to the approval of counsel for the Company with respect to such compliance. 

 

(b) Investment Representations. As a condition to the exercise of an Award, the Company may requirethe person exercising such Award to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel forthe Company, such a representation is required. 

 

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

 

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

 

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**THE ALPHASMART, INC. 2003 STOCK PLAN**

 

**SUB-PLAN FOR UK EMPLOYEES**

 

1. The purpose of this Sub-Plan is to provide incentive for present and future employees of AlphaSmart Europe Limited through the grant of options over Common Stock.

 

2. This Sub-Plan is governed by the AlphaSmart, Inc. 2003 Stock Plan and allits provisions shall be identical to those of the Plan save that the following sections shall be as stated in this Sub-Plan in order to accommodate the specific requirements of UK law. 

 
**1.****Purposes of the Sub-Plan**
 

The purposes of this Sub-Plan are: 

 
 •to attract and retain the best available personnel for positions of substantial responsibility; 
 
 •to provide additional incentive to Employees; and 
 
 •to promote the success of the Company’s business. 
 

The Sub-Plan permits the grant of Nonstatutory Stock Options, Stock Purchase Rights, Restricted Stock, Stock Appreciation Rights, Performance Units andPerformance Shares. 

 
**2.****Eligibility**
 

Nonstatutory Stock Options, Stock Purchase Rights, Restricted Stock, Stock Appreciation Rights, Performance Units and Performance Shares may be granted toEmployees. 

 

**General**

 

References to Incentive Stock Options shall not apply to Options grantedunder the Sub Plan.