**Exhibit 10.3**

** **

**MATHSTAR, INC.**

**AMENDED AND RESTATED 2004LONG-TERM INCENTIVE PLAN**

 

**NON-STATUTORY STOCK OPTIONAGREEMENT**

 

| ** **                     | ** ** | ** **       |
|--------------------------------|------------|------------------|
| **OPTIONEE:**                  |       |             |
| **GRANT  DATE:**               |       |             |
| **NUMBER  OF OPTION SHARES:**  |       | Shares           |
| **EXERCISE  PRICE PER SHARE:** |       | $ per Share |
| **EXPIRATION  DATE:**          |       |             |

 

**                THISAGREEMENT** is madeas of the Grant Date set forth above by and between MathStar, Inc., a Delawarecorporation (the “Company”), and the Optionee named above, who has providedservices to the Company or an Affiliate of the Company as an employee,consultant, independent contractor, or other service provider (the “Optionee”).

 

                The Companydesires, by affording the Optionee an opportunity to purchase shares of itsCommon Stock, par value $.01 per share (the “Common Stock”), as hereinafterprovided, to carry out the purpose of the MathStar, Inc. Amended and Restated2004 Long-Term Incentive Plan (the “Option Plan”).

 

**                NOW,THEREFORE,** inconsideration of the mutual cove­nants hereinafter set forth, and for othergood and valuable consideration, the parties hereby agree as follows:

 

**1.  Grant of Option.** The Company hereby grants to the Optionee the right and option (the “Option”)to purchase all or any part of the aggregate number of shares of Common Stockset forth above (the “Option Shares”) (such number being subject to adjustmentas provided in Section 8 hereof) on the terms and subject to the conditions setforth in this Agreement.  This Option isnot intended to be an “incentive stock option” within the meaning of Section422 of the Internal Revenue Code of 1986, as amended (the “Code”).

**2.  Purchase Price.** The per share purchase price of the Option Shares shall be the ExercisePrice Per Share set forth above (such Exercise Price Per Share being subject toadjustment as provided in Section 8 hereof).

**3.  Term and Exercise of Option.**

(a)  The term ofthis Option shall commence on the Grant Date set forth above and shall continueuntil the Expiration Date set forth above, unless earlier terminated asprovided herein.

 

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(b)  Subject tothe earlier termination of this Option pursuant to its terms and to the termsof the Plan, this Option shall vest and become exercisable as follows but onlyif the Optionee then is an employee, consultant, independent contractor, orother service provider of the Company or an Affiliate:  the Option shall vest as to ___________percent (_____%) of the Option Shares on ___________, as to _____________percent (_____%) of the Option Shares on ____________, and as to an additional_________________ percent (____%) of the Option Shares on _______________.

(c)  To exercisethis Option, the Optionee shall give written notice to the Company, to theattention of its President or other designated agent, in substantially the formattached hereto as Exhibit A, and the Optionee shall deliver payment infull for the Option Shares with respect to which this Option is then beingexercised, as provided in Section 4(a) below.

(d)  Neither theOptionee nor the Optionee’s legal representatives, legatees or distributees, asthe case may be, will be, or will be deemed to be, a holder of any OptionShares for any purpose unless and until certificates for such Option Shares areissued to the Optionee or the Optionee’s legal representatives, legatees ordistributees under the terms of the Option Plan.

**5.   Limitations on Exercise of Option.**

(a)  Theexercise of this Option will be contingent upon receipt from the Optionee (orthe purchaser acting under Section 7 below) of the full Exercise Price ofsuch Option Shares.  Payment of theExercise Price shall be made in cash or by a certified or cashier’s check.  However, in its sole discretion, the Companymay accept shares of Common Stock of the Company that have been owned by theOptionee for at least six (6) months, having an aggregate Fair Market Value onthe date of exercise which is not less than the total Exercise Price, or acombination of cash and such shares of Common Stock, in payment of the ExercisePrice.  No Option Shares will be issueduntil full payment therefor has been made and the Optionee has executed any andall agreements that the Company may require the Optionee to execute.

(b)  Theissuance of Option Shares upon the exercise of this Option shall be subject toall applicable laws, rules, and regulations. If, in the opinion of the Board of Directors of the Company or aCommittee of the Board of Directors, (i) the listing, registration, orqualification of the Option Shares upon any securities exchange or under anystate or federal law, (ii) the consent or approval of any regulatory body,or (iii) an agreement of the Optionee with respect to the disposition ofthe Option Shares, is necessary or desirable as a condition to the issuance orsale of the Option Shares, this Option shall not be exercised and/or OptionShares shall not be sold unless and until such listing, registration,qualification, consent, approval or agreement is effected or obtained in formsatisfactory to the Board of Directors or the Committee.

**6.   Nontransferability of Option.** This Option shall not be transferable by the 

 

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Optionee other than bywill or the laws of descent and distribution, and during the lifetime of theOptionee, this Option shall be exercisable only by the Optionee.

**7.    Termination of Optionee as an Employee,****Consultant, Independentcontractor, or other Service Provider for “Cause”.**  Upon termination of Optionee****as an Employee, Consultant, Independent contractor, orother Service Provider with the Company or an Affiliate for “cause” (as “cause”is determined in the sole discretion of the Board or the Committee), thisOption shall automatically terminate and be immediately forfeited, whether ornot vested, and neither the Optionee nor the Optionee’s heirs, personalrepresentatives, successors or assigns shall have any rights with respect tothis Option.

**8.   Death of Optionee.** If the Optionee dies , this Option may be exercised to the same extentthat the Optionee would have been entitled to exercise it at the date of deathand may be exercised within a period of one (1) year after the date of death,but in no case later than the Expiration Date set forth above.  In such event, this Option shall beexercisable only by the executors or administrators of the Optionee or by theperson or persons to whom the Optionee’s rights under the Option shall pass bythe Optionee’s will or the laws of descent and distribution.  Any portion of an Option that is notexercisable at the time of an Optionee’s death shall automatically terminate.

**9.   Adjustments.**  In the eventof any change in the outstanding shares of Common Stock by reason of any stockdividend, stock split, reverse stock split, reclassification, combination,exchange of shares, or other similar recapitalization of the Company, thereshall be an appropriate and proportionate adjustment to the number of OptionShares and the per share Exercise Price Per Share hereunder so that theOptionee then shall receive for the aggregate Exercise Price paid by theOptionee upon exercise of this Option the number of shares the Optionee wouldhave received if this Option had been exercised before such recapitalizationevent occurred.  No adjustment shall bemade under this Section 9 upon the issuance by the Company of any warrants,rights, or options to acquire additional Common Stock or of securities convertibleinto Common Stock unless such warrants, rights, options or convertiblesecurities are issued to all shareholders of the Company on a proportionatebasis.

**10.                Effect of Certain Transactions.** Notwithstanding any provision in thisOption to the contrary, at the time of the occurrence of any of the eventsdescribed in Sections 10(a) through (d) below, the portion of the Option thatis not vested shall immediately and automatically vest, and the Option shall beautomatically converted into an Option to acquire the kind and amount of sharesof stock or other securities or property that the Optionee would have owned orhave been entitled to receive immediately after the occurrence of the event,had the Option been exercised in full immediately before the effective date ofsuch event; provided, however, that the Expiration Date of the Option shallremain unchanged, and, in any such case, appropriate adjustment shall be madein the application of the provisions of this Option with respect to the rightsand interests thereafter of the Optionee, to the end that the provisions setforth in this Option shall thereafter correspondingly be made applicable, asnearly as may reasonably be, in relation to any shares of stock or othersecurities or property thereafter deliverable on the exercise of this Option:

 

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(a)  The sale,lease, exchange or other transfer, directly or indirectly, of all orsubstantially all of the assets of the Company (in one transaction or in aseries of related transactions) to a person or entity that is not controlled bythe Company,

(b)  Theapproval by the Company’s shareholders of any plan or proposal for theliquidation or dissolution of the Company;

(c)  Any personor entity becomes the “beneficial owner” (as defined in Rule 13d-3under the Securities Exchange Act of 1934, as amended (“Exchange Act”)),directly or indirectly, of more than fifty percent (50%) of the combined votingpower of the outstanding securities of the Company ordinarily having the rightto vote at elections of directors who were not beneficial owners of at leastfifty percent (50%) of such combined voting power as of the date the Company’sBoard of Directors adopted the Option Plan; and

(d)  A merger orconsolidation to which the Company is a party if the shareholders of theCompany immediately prior to the effective date of such merger or consolidationhave, solely on account of ownership of securities of the Company at such time,“beneficial ownership” (as defined in Rule 13d-3 under the Exchange Act)immediately following the effective date of such merger or consolidation ofsecurities of the surviving company representing less than fifty percent (50%)of the combined voting power of the surviving corporation’s then outstandingsecurities ordinarily having the right to vote at elections of directors.

Notwithstanding any provision in the Option Plan or this OptionAgreement to the contrary, the Board of Directors or the Committee shall nothave the power or right, either before or after the occurrence of an eventdescribed in subparagraphs (a) through (d) above, to rescind, modify or amendthe provisions of this Section 10 without the consent of the Optionee.

 

**                11.  Limitationon Payments and Benefits.**  Notwithstanding anything in this Agreement tothe contrary, if any of the payments or benefits to be made or provided inconnection with this Agreement, together with any other payments, benefits orawards which you have the right to receive from the Company, or any corporationwhich is a member of an “affiliated group” (as defined in Section 1504(a) ofthe Code without regard to Section 1504(b) of the Code) of which the Company isa member (“Affiliate”), constitute an “excess parachute payment” (as defined inSection 280G(b) of the Code), such payments, benefits or awards to be made orprovided in connection with this Agreement, or any other agreement between youand the Company or its Affiliates, may be reduced, eliminated, modified orwaived to the extent necessary to prevent all, or any portion, of suchpayments, benefits or awards from becoming “excess parachute payments” andtherefore subject to the excise tax imposed under Section 4999 of theCode.  The Optionee will have the soleright and discretion to determine whether the payments, benefits or awards tobe made or provided in connection with this Agreement, or any other agreementbetween the Optionee and the Company, should be reduced, whether or not suchother agreement with the Company or an Affiliate expressly addresses thepotential application of Section 280G or Section 4999 of the Code (including,without limitation, that “payments” under such agreement be reduced).  The Optionee will also have the right todesignate the particular payments, benefits or awards that are to be 

 

 

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reduced, eliminated, modified or waived; providedthat no such adjustment will be made if it results in additional expense to theCompany in excess of expenses the Company would have experienced if noadjustment had been made.  Thedetermination as to whether any such decrease in the payments or benefits isnecessary must be made in good faith by legal counsel or a certified publicaccountant selected by you and reasonably acceptable to the Company, and suchdetermination will be conclusive and binding upon you and the Company.  The Company will pay or reimburse you on demandfor the reasonable fees, costs and expenses of the counsel or accountantselected to make the determinations under this Section 11.

** **

**                12.  Interpretation.** The interpretation and construction of any provision of the Option Planand this Option shall be made by the Board of Directors or the Committee andshall be final, conclusive and binding on the Optionee and all other persons.

 

**                13.  Definitions; Option Plan Governs.** Any capitalized term used herein that is not expressly defined hereinshall have the meaning ascribed to it in the Option Plan.  This Option is in all respects subject to andgoverned by all of the provisions of the Option Plan.

 

**                INWITNESS WHEREOF,**the Company has caused this Agreement to be executed in its corporate name byits duly authorized officer, and the Optionee has executed this Agreement as ofthe Grant Date set forth above.

 
| ** ** | **COMPANY:**  | MathStar, Inc. |
|------------|---------------|----------------|
|       |          |           |
|       |          | By             |   |
|       |          |           |
|       |          | Its:           |
|       |          |           |
| ** ** | **OPTIONEE:** |           |
|       |          |           |
|       |          | Address:       |
|       |          |           |
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|       |          |           |
|       |          |           |
|       |          | SSN:           |   |   |
|            |               |                |  |  |  |

 

 

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EXHIBIT A

NOTICE OF EXERCISE OF

STOCK OPTION

 

TO:

 

FROM:

 

DATE:

 

RE:          Exercise of StockOption

 

                I hereby exercisemy option to purchase                          shares of Common Stock at $______ per share(total exercise price of $                  ).  This notice is given in accordance with theterms of my Non-Statutory Stock Option Agreement (“Agreement”) dated________________.  The option price andvested amount is in accordance with Sections 2 and 3 of the Agreement.

 

**Check one:**

 

____                    Enclosed is cash, or a cashier’s or certified checkpayable to MathStar, Inc. for the total exercise price of the shares beingpurchased.

 

____                    Attached is a certificate(s) for                                            shares of common stock duly endorsed in blankand surrendered for the exercise price of the shares being purchased.*

 

____

 

                                                *The use of each of these alternatives issubject to the approval of MathStar, Inc.

 

                Please prepare thestock certificate in the following name(s):

 

Sincerely,

 

                                                                                                

(Signature)

 

                                                                                                

(Print or Type Name)

 

Letter and consideration

received on _______________

(effective date of exercise)

 

 

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