Exhibit
10.1


 


2004
EQUITY INCENTIVE PLAN

OF

DEPOMED, INC.


 

















 


TABLE
OF CONTENTS


 


	
  1.

  	
  Purpose
  of this Plan

  	
  1

  
	
   

  	
   

  	
   

  
	
  2.

  	
  Definitions
  and Rules of Interpretation

  	
  1

  
	
   

  	
   

  	
   

  
	
   

  	
  2.1

  	
  Definitions

  	
  1

  
	
   

  	
  2.2

  	
  Rules of Interpretation

  	
  5

  
	
   

  	
   

  	
   

  
	
  3.

  	
  Shares
  Subject to this Plan; Term of this Plan

  	
  5

  
	
   

  	
   

  	
   

  
	
   

  	
  3.1

  	
  Number of Award Shares

  	
  5

  
	
   

  	
  3.2

  	
  Term
  of this Plan

  	
  5

  
	
   

  	
   

  	
   

  
	
  4.

  	
  Administration

  	
  5

  
	
   

  	
   

  	
   

  
	
   

  	
  4.1

  	
  General

  	
  5

  
	
   

  	
  4.2

  	
  Authority of the Administrator

  	
  6

  
	
   

  	
  4.3

  	
  Scope of Discretion

  	
  7

  
	
   

  	
   

  	
   

  
	
  5.

  	
  Participants
  Eligible to Receive Awards

  	
  7

  
	
   

  	
   

  	
   

  
	
   

  	
  5.1

  	
  Eligible Participants

  	
  7

  
	
   

  	
  5.2

  	
  Section 162(m)
  Limitation

  	
  8

  
	
   

  	
   

  	
   

  
	
  6.

  	
  Terms and Conditions
  of Options

  	
  8

  
	
   

  	
   

  	
   

  
	
   

  	
  6.1

  	
  Price

  	
  8

  
	
   

  	
  6.2

  	
  Term

  	
  8

  
	
   

  	
  6.3

  	
  Vesting

  	
  8

  
	
   

  	
  6.4

  	
  Form and Method of Payment

  	
  9

  
	
   

  	
  6.5

  	
  Assignability of Options

  	
  10

  
	
   

  	
  6.6

  	
  Substitute Options

  	
  10

  
	
   

  	
   

  	
   

  
	
  7.

  	
  Incentive
  Stock Options

  	
  10

  
	
   

  	
   

  	
   

  
	
  8.

  	
  Stock Awards

  	
  11

  
	
   

  	
   

  	
   

  
	
   

  	
  8.1

  	
  General

  	
  11

  
	
   

  	
  8.2

  	
  Right of Repurchase

  	
  12

  



 


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  8.3

  	
  Form of Payment

  	
  12

  
	
   

  	
  8.4

  	
  Nonassignability of
  Stock Awards

  	
  12

  
	
   

  	
  8.5

  	
  Substitute Stock Award

  	
  12

  
	
   

  	
  8.6

  	
  Maximum Number of Stock
  Awards

  	
  12

  
	
   

  	
   

  	
   

  
	
  9.

  	
  Exercise of
  Awards

  	
  12

  
	
   

  	
   

  	
   

  
	
   

  	
  9.1

  	
  In General

  	
  12

  
	
   

  	
  9.2

  	
  Time
  of Exercise

  	
  12

  
	
   

  	
  9.3

  	
  Issuance of Award Shares

  	
  13

  
	
   

  	
  9.4

  	
  Termination

  	
  13

  
	
   

  	
   

  	
   

  
	
  10.

  	
  Certain Transactions
  and Events

  	
  14

  
	
   

  	
   

  	
   

  
	
   

  	
  10.1

  	
  In General

  	
  14

  
	
   

  	
  10.2

  	
  Changes in Capital
  Structure

  	
  15

  
	
   

  	
  10.3

  	
  Fundamental Transactions

  	
  15

  
	
   

  	
  10.4

  	
  Changes
  in Control

  	
  16

  
	
   

  	
  10.5

  	
  Divestiture

  	
  16

  
	
   

  	
  10.6

  	
  Dissolution

  	
  16

  
	
   

  	
   

  	
   

  
	
  11.

  	
  Automatic
  Option Grants to Non-Employee Directors

  	
  17

  
	
   

  	
   

  	
   

  
	
   

  	
  11.1

  	
  Automatic Option Grants
  to Non-Employee Directors

  	
  17

  
	
   

  	
  11.2

  	
  Certain Transactions and
  Events

  	
  18

  
	
   

  	
  11.3

  	
  Limited Transferability of
  Options

  	
  18

  
	
   

  	
   

  	
   

  
	
  12.

  	
  Withholding
  and Tax Reporting

  	
  19

  
	
   

  	
   

  	
   

  
	
   

  	
  12.1

  	
  Tax Withholding Alternatives

  	
  19

  
	
   

  	
  12.2

  	
  Reporting
  of Dispositions

  	
  19

  
	
   

  	
   

  	
   

  
	
  13.

  	
  Compliance
  with Law

  	
  19

  
	
   

  	
   

  	
   

  
	
  14.

  	
  Amendment or
  Termination of this Plan or Outstanding Awards

  	
  20

  
	
   

  	
   

  	
   

  
	
   

  	
  14.1

  	
  Amendment
  and Termination

  	
  20

  
	
   

  	
  14.2

  	
  Shareholder Approval

  	
  20

  
	
   

  	
  14.3

  	
  Effect

  	
  20

  
	
   

  	
   

  	
   

  
	
  15.

  	
  Reserved Rights

  	
  20

  
	
   

  	
   

  	
   

  
	
   

  	
  15.1

  	
  Nonexclusivity of this Plan

  	
  20

  



 


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  15.2

  	
  Unfunded
  Plan

  	
  20

  
	
   

  	
   

  	
   

  
	
  16.

  	
  Special Arrangements
  Regarding Award Shares

  	
  21

  
	
   

  	
   

  	
   

  
	
   

  	
  16.1

  	
  Escrow
  of Stock Certificates

  	
  21

  
	
   

  	
  16.2

  	
  Repurchase
  Rights

  	
  21

  
	
   

  	
  16.3

  	
  Market
  Standoff

  	
  22

  
	
   

  	
   

  	
   

  
	
  17.

  	
  Beneficiaries

  	
  22

  
	
   

  	
   

  	
   

  
	
  18.

  	
  Miscellaneous

  	
  22

  
	
   

  	
   

  	
   

  
	
   

  	
  18.1

  	
  Governing Law

  	
  22

  
	
   

  	
  18.2

  	
  Determination
  of Value

  	
  22

  
	
   

  	
  18.3

  	
  Reservation
  of Shares

  	
  23

  
	
   

  	
  18.4

  	
  Electronic Communications

  	
  23

  
	
   

  	
  18.5

  	
  Notices

  	
  23

  



 


iv

















 


2004
EQUITY INCENTIVE PLAN

OF

DEPOMED, INC.


 


(As
Adopted May 27, 2004)


 


1.                                       Purpose of this Plan


 


The purpose of this 2004
Equity Incentive Plan is to enhance the long-term shareholder value of Depomed,
Inc. by offering opportunities to eligible participants to share in the growth
in value of the equity of Depomed, Inc. and to provide incentives to eligible
Employees, Company Directors and Consultants to contribute to the success of
the Company.


 


2.                                       Definitions and Rules of Interpretation


 


2.1                                 Definitions.  This Plan uses the following defined terms:


 


(a)                                  “Administrator”  means
the Board, the Committee, or any officer or employee of the Company to whom the
Board or the Committee delegates authority to administer this Plan.


 


(b)                                 “Affiliate” means a
“parent” or “subsidiary” (as each is defined in Section 424 of the Code)
of the Company and any other entity that the Board or Committee designates as
an “Affiliate” for purposes of this Plan.


 


(c)                                  “Applicable Law”
means any and all laws of whatever jurisdiction, within or without the United
States, and the rules of any stock exchange or quotation system on which Shares
are listed or quoted, applicable to the taking or refraining from taking of any
action under this Plan, including the administration of this Plan and the
issuance or transfer of Awards or Award Shares.


 


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


 


(e)                                  “Award Agreement” means
the document evidencing the grant of an Award.


 


(f)                                    “Award Shares” means
Shares covered by an outstanding Award or purchased under an Award.


 


(g)                                 “Awardee” means:
(i) a person to whom an Award has been granted, including a holder of a
Substitute Award, (ii) a person to whom an Award has been transferred in
accordance with all applicable requirements of Sections 6.5, 7(h), and 17, or
(iii) a person who holds Award Shares subject to a right of repurchase under
Section 16.2.


 


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


 


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


 


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


 


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


 


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


 


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


 


(n)                                 “Consultant” means an
individual who, or an entity or employee of any entity that, provides bona fide
services to the Company or an Affiliate not in connection with the offer or
sale of securities in a capital-raising transaction, but who is not an
Employee.


 


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


 


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


 


(q)                                 “Domestic Relations Order” means a “domestic relations order” as
defined in, and otherwise meeting the requirements of, Section 414(p) of
the Code, except that reference to a “plan” in that definition shall be to this
Plan.


 


(r)                                    “Employee” means a
regular employee of the Company or an Affiliate, including an Officer or
Director, who is treated as an employee in the personnel records of the Company
or an Affiliate, but not individuals who are classified by the Company or an
Affiliate as: (i) leased from or otherwise employed by a third party,
(ii) independent contractors, or (iii) intermittent or temporary
workers.  The Company’s or an
Affiliate’s classification of an individual as an “Employee” (or as not an
“Employee”) for purposes of this Plan shall not be altered retroactively even
if that classification is changed retroactively for another purpose as a result
of an audit, litigation or otherwise. 
An Awardee shall not cease to be an Employee due to transfers between
locations of the Company, or between the Company and an Affiliate, or to any successor
to the Company or an Affiliate that assumes the Awardee’s Options under
Section 10.  Neither service as a
Director nor receipt of a director’s fee shall be sufficient to make a Director
an “Employee.”


 


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


 


(t)                                    “Executive” means, if
the Company has any class of any equity security registered under
Section 12 of the Exchange Act, an individual who is subject to
Section 16 of the Exchange Act or who is a “covered employee” under
Section 162(m) of the Code, in either case  because of the individual’s
relationship with the Company or an Affiliate. 
If the Company does not have any class of any equity security registered
under Section 12 of the Exchange Act, “Executive” means any (i) Director
or (ii) officer elected or appointed by the Board.


 


2

















 


(u)                                 “Expiration Date” means,
with respect to an Award, the date stated in the Award Agreement as the
expiration date of the Award or, if no such date is stated in the Award
Agreement, then the last day of the maximum exercise period for the Award,
disregarding the effect of an Awardee’s Termination or any other event that
would shorten that period.


 


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


 


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


 


(x)                                   “Grant Date” means
the date the Administrator approves the grant of an Award.  However, if the Administrator specifies that
an Award’s Grant Date is a future date or the date on which a condition is
satisfied, the Grant Date for such Award is that future date or the date that
the condition is satisfied.


 


(y)                                 “Incentive Stock Option”
means an Option intended to qualify as an incentive stock option under
Section 422 of the Code and designated as an Incentive Stock Option in the
Award Agreement for that Option.


 


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


 


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


 


(bb)                          “Objectively Determinable
Performance Condition”  shall mean a performance condition
(i) that is established (A) at the time an Award is granted or
(B)  no later than the earlier of (1) 90 days after the beginning of
the period of service to which it relates, or (2) before the elapse of 25%
of the period of service to which it relates, (ii) that is uncertain of
achievement at the time it is established, and (iii) the achievement of
which is determinable by a third party with knowledge of the relevant
facts.  Examples of measures that may be
used in Objectively Determinable Performance Conditions include achievement of
a Company goal, net order dollars, net profit dollars, net profit growth, net
revenue dollars, revenue growth, individual performance, earnings per share,
return on assets, return on equity, and other financial objectives, objective
customer satisfaction indicators and efficiency measures, each with respect to
the Company and/or an Affiliate or individual business unit.


 


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


 


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


 


3

















 


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


 


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


 


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


 


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


 


(ii)                                  “Reverse Vesting” means that an
Option is or was fully exercisable but that, subject to a “reverse” vesting
schedule, the Company has a right to repurchase the Option Shares as specified
in Section 16.2(a), with the Company’s right of repurchase expiring in
accordance with a “forward” vesting schedule that would otherwise have
applied to the Option under which the Option Shares were purchased or in
accordance with some other vesting schedule described in the Award
Agreement.


 


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


 


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


 


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


 


(mm)                      “Stock Award”  means
an offer by the Company to sell shares subject to certain restrictions pursuant
to the Award Agreement as described in Section 8.  A Stock Award does not include an option.


 


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


 


(oo)                          “Substitute Option” means
an Option granted in substitution for, or upon the conversion of, an option
granted by another entity to purchase equity securities in the granting entity.


 


(pp)                          “Substitute Stock Award” means
a Stock Award granted in substitution for, or upon the conversion of, a stock
award granted by another entity to purchase equity securities in the granting
entity.


 


(qq)                          “Ten Percent Shareholder”
means any person who, directly or by attribution under Section 424(d) of
the Code, owns stock possessing more than ten percent of the total combined
voting power of all classes of stock of the Company or of any Affiliate on the
Grant Date.


 


4

















 


(rr)                                “Termination” means
that the Awardee has ceased to be, with or without any cause or reason, an
Employee, Director or Consultant. 
However, unless so determined by the Administrator, or otherwise
provided in this Plan, “Termination” shall not include a change in status from
an Employee, Consultant or Director to another such status.  An event that causes an Affiliate to cease
being an Affiliate shall be treated as the “Termination” of that Affiliate’s
Employees, Directors, and Consultants.


 


2.2                                 Rules of
Interpretation.  Any reference to a “Section,” without
more, is to a Section of this Plan. 
Captions and titles are used for convenience in this Plan and shall not,
by themselves, determine the meaning of this Plan.  Except when otherwise indicated by the context, the singular
includes the plural and vice versa.  Any
reference to a statute is also a reference to the applicable rules and
regulations adopted under that statute. 
Any reference to a statute, rule or regulation, or to a section of
a statute, rule or regulation, is a reference to that statute, rule,
regulation, or section as amended from time to time, both before and after
the effective date of this Plan and including any successor provisions.


 


3.                                       Shares Subject to this Plan; Term of this
Plan


 


3.1                                 Number of Award
Shares.  The Shares
issuable under this Plan shall be authorized but unissued or reacquired Shares,
including but not limited to Shares repurchased by the Company on the open
market.  Subject to adjustment under
Section 10, the maximum number of Shares that may be issued under this Plan
is 3,500,000.  When an Award is granted,
the maximum number of Shares that may be issued under this Plan shall be
reduced by the number of Shares covered by that Award.  However, if an Award later terminates or
expires without having been exercised in full, the maximum number of shares
that may be issued under this Plan shall be increased by the number of Shares
that were covered by, but not purchased under, that Award.  By contrast, the repurchase of Shares by the
Company shall not increase the maximum number of Shares that may be issued
under this Plan.


 


3.2                                 Term of this Plan.


 


(a)                                  This
Plan shall be effective on, and Awards may be granted under this Plan after,
the date it has been both adopted by the Board and approved by the Company’s
shareholders (the “Effective
Date”).


 


(b)                                 Subject
to the provisions of Section 14, Awards may be granted under this Plan for
a period of ten years from the earlier of the date on which the Board approves
this Plan and the date the Company’s shareholders approve this Plan.  Accordingly, Awards may not be granted under
this Plan after ten years from the earlier of those dates.


 


4.                                       Administration


 


4.1                                 General.


 


(a)                                  The
Board shall have ultimate responsibility for administering this Plan.  The Board may delegate certain of its
responsibilities to a Committee, which shall consist of at least two members of
the Board.  The Board or the Committee
may further delegate its


 


5

















 


responsibilities to any
Employee of the Company or any Affiliate. 
Where this Plan specifies that an action is to be taken or a
determination made by the Board, only the Board may take that action or make
that determination.  Where this Plan
specifies that an action is to be taken or a determination made by the Committee,
only the Committee may take that action or make that determination.  Where this Plan references the
“Administrator,” the action may be taken or determination made by the Board,
the Committee, or other Administrator. 
However, only the Board or the Committee may approve grants of Awards to
Executives and such other participants as may be specifically designated by the
Board, and an Administrator other than the Board or the Committee may grant
Awards only within guidelines established by the Board or Committee.  Moreover, all actions and determinations by
any Administrator are subject to the provisions of this Plan.


 


(b)                                 So
long as the Company has registered and outstanding a class of equity securities
under Section 12 of the Exchange Act, the Committee shall consist of
Company Directors who are “Non-Employee Directors” as defined in
Rule 16b-3 and, after the expiration of any transition period permitted by
Treasury Regulations Section 1.162-27(h)(3), who are “outside directors”
as defined in Section 162(m) of the Code.


 


4.2                                 Authority of
the Administrator. 
Subject to the other provisions of this Plan, the Administrator shall
have the authority to:


 


(a)                                  grant
Awards, including Substitute Awards;


 


(b)                                 determine
the Fair Market Value of Shares;


 


(c)                                  determine
the Option Price and the Purchase Price of Awards;


 


(d)                                 select
the Awardees;


 


(e)                                  determine
the times Awards are granted;


 


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


 


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


 


(h)                                 determine
the methods of payment that may be used to satisfy withholding tax obligations;


 


(i)                                     determine
the other terms of each Award, including but not limited to the time or times
at which Awards may be exercised, whether and under what conditions an Award is
assignable, and whether an Option is a Nonstatutory Option or an Incentive
Stock Option;


 


(j)                                     modify
or amend any Award;


 


(k)                                  authorize
any person to sign any Award Agreement or other document related to this Plan
on behalf of the Company;


 


6

















 


(l)                                     determine
the form of any Award Agreement or other document related to this Plan, and
whether that document, including signatures, may be in electronic form;


 


(m)                               interpret
this Plan and any Award Agreement or document related to this Plan;


 


(n)                                 correct
any defect, remedy any omission, or reconcile any inconsistency in this Plan,
any Award Agreement or any other document related to this Plan;


 


(o)                                 adopt,
amend, and revoke rules and regulations under this Plan, including rules and
regulations relating to sub-plans and Plan addenda;


 


(p)                                 adopt,
amend, and revoke special rules and procedures which may be inconsistent with
the terms of this Plan, set forth (if the Administrator so chooses) in sub-plans
regarding (for example) the operation and administration of this Plan and the
terms of Awards, if and to the extent necessary or useful to accommodate
non-U.S. Applicable Laws and practices as they apply to Awards and Award Shares
held by, or granted or issued to, persons working or resident outside of the
United States or employed by Affiliates incorporated outside the United States;


 


(q)                                 in
the case of the Board, determine whether a transaction or event should be
treated as a Change in Control, a Divestiture or neither;


 


(r)                                    determine
the effect of a Fundamental Transaction and, if the Board determines that a
transaction or event should be treated as a Change in Control or a Divestiture,
then the effect of that Change in Control or Divestiture; and


 


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


 


4.3                                 Scope of Discretion.  Subject to the last sentence of this
Section 4.3, on all matters for which this Plan confers the authority, right
or power on the Board, the Committee, or other Administrator to make decisions,
that body may make those decisions. 
Those decisions will be final, binding and conclusive.  Moreover, but again subject to the last
sentence of this Section 4.3, in making those decisions, the Board,
Committee or other Administrator need not treat all persons eligible to receive
Awards, all Awardees, all Awards or all Award Shares the same way.  However, except as provided in Section 14.3,
the discretion of the Board, Committee or other Administrator is subject to the
specific provisions and specific limitations of this Plan, as well as all
rights conferred on specific Awardees by Award Agreements and other agreements.


 


5.                                       Participants Eligible to Receive Awards


 


5.1                                 Eligible
Participants.  Awards
(including Substitute Awards) may be granted to, and only to, Employees,
Directors and Consultants, including to prospective Employees, Directors and
Consultants conditioned on the beginning of their service for the Company or an
Affiliate.  However, Incentive Stock
Options may only be granted to Employees, as provided in Section 7(g).


 


7

















 


5.2                                 Section 162(m)
Limitation.


 


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


 


(b)                                 Stock Awards.  Any Stock Award intended as “qualified
performance-based compensation” within the meaning of Section 162(m) of
the Code must vest or become exercisable contingent on the achievement of one
or more Objectively Determinable Performance Conditions.  The Committee shall have the discretion to
determine the time and manner of compliance with Section 162(m) of the
Code.


 


6.                                       Terms and Conditions of Options


 


The following rules apply
to all Options:


 


6.1           Price.  No Option intended as “qualified
incentive-based compensation” within the meaning of Section 162(m) of the
Code may have an Option Price less than 100% of the Fair Market Value of the
Shares on the Grant Date.  In no event
will the Option Price of any Option be less than the par value of the Shares
issuable under the Option if that is required by Applicable Law.  The Option Price of an Incentive Stock
Option shall be subject to Section 7(f).


 


6.2           Term.  No Option shall be exercisable after its
Expiration Date.  No Option may have an
Expiration Date that is more than ten years after its Grant Date.  Additional provisions regarding the term of
Incentive Stock Options are provided in Sections 7(a) and 7(e).


 


6.3                                 Vesting.  Options
shall be exercisable: (a) on the Grant Date, or (b) in accordance
with a schedule related to the Grant Date, the date the Awardee’s
directorship, employment or consultancy begins, or a different date specified
in the Award Agreement.  If so provided
in the Award Agreement, an Option may be exercisable subject to the application
of Reverse Vesting to the Option Shares. 
Additional provisions regarding the vesting of Incentive Stock Options
are provided in Section 7(c).  No
Option granted to an individual who is subject to the overtime pay provisions
of the Fair Labor Standards Act may be exercised before the expiration of six
months after the Grant Date.


 


8

















 


6.4                                 Form and
Method of Payment.


 


(a)                                  The
Administrator shall determine the acceptable form and method of payment for
exercising an Option.


 


(b)                                 Acceptable
forms of payment for all Option Shares are cash, check or wire transfer,
denominated in U.S. dollars except as specified by the Administrator for
non-U.S. Employees or non-U.S. sub-plans.


 


(c)                                  In
addition, the Administrator may permit payment to be made by any of the
following methods:


 


(i)                                     other
Shares, or the designation of other Shares, which (A) are “mature” shares
for purposes of avoiding variable accounting treatment under generally accepted
accounting principles (generally mature shares are those that have been owned
by the Awardee for more than six months on the date of surrender), and (B) have
a Fair Market Value on the date of surrender equal to the Option Price of the
Shares as to which the Option is being exercised;


 


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


 


(iii)                               subject to Section 6.4(e), one or more
promissory notes meeting the requirements of Section 6.4(e) provided,
however, that promissory notes may not be used for any portion of an Award
which is not vested at the time of exercise;


 


(iv)                              cancellation
of any debt owed by the Company or any Affiliate to the Awardee including
without limitation waiver of compensation due or accrued for services
previously rendered to the Company or an Affiliate; and


 


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


 


(d)                                 The
Administrator may also permit any other form or method of payment for Option
Shares permitted by Applicable Law.


 


(e)                                  The
promissory notes referred to in Section 6.4(c)(iii) shall be full
recourse.  Unless the Administrator
specifies otherwise after taking into account any relevant accounting issues,
the promissory notes shall bear interest at a fair market value rate when the
Option is exercised.  Interest on the
promissory notes shall also be at least sufficient to avoid imputation of
interest under Sections 483, 1274, and 7872 of the Code.  The promissory notes and their
administration shall at all times comply with any applicable margin rules of
the Federal Reserve.  The promissory
notes may also include such other terms as the Administrator specifies.  Payment may not be made by promissory note
by Officers or Directors if Shares are registered under Section 12 of the
Exchange Act.


 


9

















 


6.5                                 Assignability of
Options.  Except as determined
by the Administrator, no Option shall be assignable or otherwise transferable
by the Awardee except by will or by the laws of descent and distribution.  However, Options may be transferred and
exercised in accordance with a Domestic Relations Order and may be exercised by
a guardian or conservator appointed to act for the Awardee.  Incentive Stock Options may only be assigned
in compliance with Section 7(h).


 


6.6                                 Substitute Options.  The
Board may cause the Company to grant Substitute Options in connection with the
acquisition by the Company or an Affiliate of equity securities of any entity
(including by merger, tender offer, or other similar transaction) or of all or
a portion of the assets of any entity. 
Any such substitution shall be effective on the effective date of the
acquisition.  Substitute Options may be
Nonstatutory Options or Incentive Stock Options.  Unless and to the extent specified otherwise by the Board, Substitute
Options shall have the same terms and conditions as the options they replace,
except that (subject to the provisions of Section 10) Substitute Options
shall be Options to purchase Shares rather than equity securities of the
granting entity and shall have an Option Price determined by the Board.


 


7.                                       Incentive
Stock Options


 


The following rules apply
only to Incentive Stock Options and only to the extent these rules are more
restrictive than the rules that would otherwise apply under this Plan.  With the consent of the Awardee, or where this
Plan provides that an action may be taken notwithstanding any other provision
of this Plan, the Administrator may deviate from the requirements of this
Section, notwithstanding that any Incentive Stock Option modified by the
Administrator will thereafter be treated as a Nonstatutory Option.


 


(a)                                  The
Expiration Date of an Incentive Stock Option shall not be later than ten years
from its Grant Date, with the result that no Incentive Stock Option may be
exercised after the expiration of ten years from its Grant Date.


 


(b)                                 No
Incentive Stock Option may be granted more than ten years from the date this
Plan was approved by the Board.


 


(c)                                  Options
intended to be incentive stock options under Section 422 of the Code that
are granted to any single Awardee under all incentive stock option plans of the
Company and its Affiliates, including incentive stock options granted under
this Plan, may not vest at a rate of more than $100,000 (or such other amount
that may be hereafter specified in the applicable section of the Code) in
Fair Market Value of stock (measured on the grant dates of the options) during
any calendar year.  For this purpose, an
option vests with respect to a given share of stock the first time its holder
may purchase that share, notwithstanding any right of the Company to repurchase
that share.  Unless the administrator of
that option plan specifies otherwise in the related agreement governing the
option, this vesting limitation shall be applied by, to the extent necessary to
satisfy this $100,000 (or other amount) rule, by treating certain stock options
that were intended to be incentive stock options under Section 422 of the
Code as Nonstatutory Options.  The stock
options or portions of stock options to be reclassified as Nonstatutory Options
are those with the highest option prices, whether granted under this Plan or
any other equity compensation plan of the Company or any Affiliate that permits
that treatment.


 


10

















 


This Section 7(c)
shall not cause an Incentive Stock Option to vest before its original vesting
date or cause an Incentive Stock Option that has already vested to cease to be
vested.


 


(d)                                 In
order for an Incentive Stock Option to be exercised for any form of payment
other than those described in Section 6.4(b), that form of payment must be
stated at the time of grant in the Award Agreement relating to that Incentive
Stock Option.


 


(e)                                  Any
Incentive Stock Option granted to a Ten Percent Shareholder, must have an
Expiration Date that is not later than five years from its Grant Date, with the
result that no such Option may be exercised after the expiration of five years
from the Grant Date.


 


(f)                                    The
Option Price of an Incentive Stock Option shall never be less than the Fair
Market Value of the Shares at the Grant Date. 
The Option Price for the Shares covered by an Incentive Stock Option
granted to a Ten Percent Shareholder shall never be less than 110% of the Fair
Market Value of the Shares at the Grant Date.


 


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


 


(h)                                 No
rights under an Incentive Stock Option may be transferred by the Awardee, other
than by will or the laws of descent and distribution.  During the life of the Awardee, an Incentive Stock Option may be
exercised only by the Awardee.  The
Company’s compliance with a Domestic Relations Order, or the exercise of an
Incentive Stock Option by a guardian or conservator appointed to act for the
Awardee, shall not violate this Section 7(h).


 


(i)                                     An
Incentive Stock Option shall be treated as a Nonstatutory Option if it remains
exercisable after, and is not exercised within, the three-month period
beginning with the Awardee’s Termination for any reason other than the
Awardee’s death or disability (as defined in Section 22(e) of the
Code).  In the case of Termination due
to death, an Incentive Stock Option shall continue to be treated as an
Incentive Stock Option if it remains exercisable after, and is not exercised
within, the three-month period after the Awardee’s Termination provided it is
exercised before the Expiration Date. 
In the case of Termination due to disability, an Incentive Stock Option
shall be treated as a Nonstatutory Option if it remains exercisable after, and
is not exercised within, one year after the Awardee’s Termination.


 


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


 


8.                                       Stock Awards


 


8.1                                 General.  The
specific terms and conditions of a Stock Award applicable to the Awardee shall
be provided for in the Award Agreement. The Award Agreement shall state the
number of Shares that the Awardee shall be entitled to receive or purchase, the
terms and conditions on which the Shares shall vest, the price to be paid and,
if applicable, the time within


 


11

















 


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


 


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


 


8.3                                 Form of Payment for Stock Awards.  The Administrator shall determine the
acceptable form and method of payment for exercising a Stock Award.  Acceptable forms of payment for all Award
Shares are cash, check or wire transfer, denominated in U.S. dollars except as
specified by the Administrator for non-U.S. Employees or non-U.S.
sub-plans.  In addition, the
Administrator may permit payment to be made by any of the methods permitted
with respect to the exercise of Options pursuant to Section 6.4.


 


8.4                                 Nonassignability of Stock Awards.  Except as determined by the Administrator,
no Stock Award shall be assignable or otherwise transferable by the Awardee
except by will or by the laws of descent and distribution (including without
limitation Section 17). 
Notwithstanding anything to the contrary herein, Stock Awards may be
transferred and exercised in accordance with a Domestic Relations Order.


 


8.5                                 Substitute Stock Award.  The Board may cause the Company to grant
Substitute Stock Awards in connection with the acquisition by the Company or an
Affiliate of equity securities of any entity (including by merger, tender
offer, or other similar transaction) or of all or a portion of the assets of
any entity.  Any such substitution shall
be effective on the effective date of the acquisition.  Unless and to the extent specified otherwise
by the Board, Substitute Stock Awards shall have the same terms and conditions
as the stock awards they replace, except that (subject to the provisions of
Section 10) Substitute Stock Awards shall be Stock Awards to purchase
Shares rather than equity securities of the granting entity and shall have a
Purchase Price that, as determined by the Board in its sole and absolute
discretion, properly reflects the substitution.


 


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


 


9.                                       Exercise of Awards


 


9.1                                 In General. 
An Award shall be exercisable in accordance with this Plan and the Award
Agreement under which it is granted.


 


9.2                                 Time of Exercise.  Options and Stock Awards shall be
considered exercised when the Company receives: (a) written notice of
exercise from the person entitled to exercise the Option or Stock Award, (b)
full payment, or provision for payment, in a form and method approved by the
Administrator, for the Shares for which the Option or Stock Award is being


 


12

















 


exercised, and (c) with
respect to Nonstatutory Options, payment, or provision for payment, in a form
approved by the Administrator, of all applicable withholding taxes due upon
exercise.  An Award may not be exercised
for a fraction of a Share.


 


9.3                                 Issuance of Award Shares.  The
Company shall issue Award Shares in the name of the person properly exercising
the Award.  If the Awardee is that
person and so requests, the Award Shares shall be issued in the name of the
Awardee and the Awardee’s spouse.  The
Company shall endeavor to issue Award Shares promptly after an Award is
exercised.  Until Award Shares are
actually issued, as evidenced by the appropriate entry on the stock register of
the Company or its transfer agent, the Awardee will not have the rights of a
shareholder with respect to those Award Shares, even though the Awardee has
completed all the steps necessary to exercise the Award.  No adjustment shall be made for any
dividend, distribution, or other right for which the record date precedes the
date the Award Shares are issued, except as provided in Section 10.


 


9.4                                 Termination.


 


(a)                                  In General.  Except
as provided in an Award Agreement or in writing by the Administrator, and as
otherwise provided in Sections 9.4(b), (c), (d) and (e) after an Awardee’s
Termination, the Awardee’s Awards shall be exercisable to the extent (but only
to the extent) they are vested on the date of that Termination and only during
the three months after the Termination, but in no event after the Expiration
Date.  To the extent the Awardee does
not exercise an Award within the time specified for exercise, the Award shall
automatically terminate.


 


(b)                                 Leaves of Absence. 
Unless otherwise provided in the Award Agreement or in writing by the
Administrator, no Award may be exercised more than three months after the
beginning of a leave of absence, other than a personal or medical leave
approved by an authorized representative of the Company with employment
guaranteed upon return.  Awards shall
not continue to vest during a leave of absence, unless otherwise determined in
writing by the Administrator with respect to an approved personal or medical
leave with employment guaranteed upon return.


 


(c)                                  Death or Disability.  Unless otherwise provided in the Award
Agreement or in writing by the Administrator, if an Awardee’s Termination is
due to death or disability (as determined by the Administrator with respect to
all Awards other than Incentive Stock Options and as defined by
Section 22(e) of the Code with respect to Incentive Stock Options), all
Awards of that Awardee to the extent exercisable at the date of that
Termination may be exercised for one year after that Termination, but in no
event after the Expiration Date.  In the
case of Termination due to death, an Award may be exercised as provided in
Section 17.  In the case of
Termination due to disability, if a guardian or conservator has been appointed
to act for the Awardee and been granted this authority as part of that
appointment, that guardian or conservator may exercise the Award on behalf of
the Awardee.  Death or disability
occurring after an Awardee’s Termination shall not cause the Termination to be
treated as having occurred due to death or disability.  To the extent an Award is not so exercised
within the time specified for its exercise, the Award shall automatically
terminate.


 


13

















 


(d)                                 Divestiture.  If an
Awardee’s Termination is due to a Divestiture, the Board may take any one or
more of the actions described in Section 10.3 or 10.4 with respect to the
Awardee’s Awards.


 


(e)                                  Termination for Cause. 
In the discretion of the Administrator, which may be exercised on the
date of grant, or at a date later in time, if an Awardee’s Termination is due
to Cause, all of the Awardee’s Awards shall automatically terminate and cease
to be exercisable at the time of Termination. 
“Cause”
means employment-related dishonesty, fraud, misconduct or disclosure or misuse
of confidential information, or other employment-related conduct that is likely
to cause significant injury to the Company, an Affiliate, or any of their
respective employees, officers or directors (including, without limitation,
commission of a felony or similar offense whether or not employment-related),
in each case as determined by the Administrator.  “Cause” shall not require that a civil judgment or criminal
conviction have been entered against or guilty plea shall have been made by the
Awardee regarding any of the matters referred to in the previous sentence.  Accordingly, the Administrator shall be entitled
to determine “Cause” based on the Administrator’s good faith belief.  If the Awardee is criminally charged with a
felony or similar offense, that shall be a sufficient, but not a necessary,
basis for such a belief.


 


(f)                                    Administrator Discretion.  Notwithstanding the provisions of Section 9.4
(a)-(e), the Administrator shall have complete discretion, exercisable either
at the time an Award is granted or at any time while the Award remains
outstanding, to:


 


(i)                                     Extend
the period of time for which the Award is to remain exercisable, following the
Awardee’s Termination, from the limited exercise period otherwise in effect for
that Award to such greater period of time as the Administrator shall deem
appropriate, but in no event beyond the Expiration Date; and/or


 


(ii)                                  Permit
the Award to be exercised, during the applicable post-Termination exercise
period, not only with respect to the number of vested Shares for which such
Award may be exercisable at the time of the Awardee’s Termination but also with
respect to one or more additional installments in which the Awardee would have
vested had the Awardee not been subject to Termination.


 


(g)                                 Consulting or Employment Relationship. Nothing in this Plan
or in any Award Agreement, and no Award or the fact that Award Shares remain
subject to repurchase rights, shall: 
(A) interfere with or limit the right of the Company or any
Affiliate to terminate the employment or consultancy of any Awardee at any
time, whether with or without cause or reason, and with or without the payment
of severance or any other compensation or payment, (B) interfere with the
application of any provision in any of the Company’s or any Affiliate’s charter
documents or Applicable Law relating to the election, appointment, term of
office, or removal of a Director or (C) interfere with the Company’s right to
terminate any consultancy.


 


10.                                 Certain Transactions and Events


 


10.1                           In General.  Except as provided in this Section 10, no change in the
capital structure of the Company, merger, sale or other disposition of assets
or a subsidiary, change in


 


14

















 


control, issuance by the
Company of shares of any class of securities or securities convertible into
shares of any class of securities, exchange or conversion of securities, or
other transaction or event shall require or be the occasion for any adjustments
of the type described in this Section 10. 
Additional provisions with respect to the foregoing transactions are set
forth in Section 14.3.


 


10.2                           Changes in Capital Structure.  In the event of any stock split, reverse
stock split, recapitalization, combination or reclassification of stock, stock
dividend, spin-off, or similar change to the capital structure of the Company
(not including a Fundamental Transaction or Change in Control), the Board shall
make whatever adjustments it concludes are appropriate to: (a) the number
and type of Awards that may be granted under this Plan, (b) the number and
type of Options that may be granted to any participant under this Plan,
(c) the Purchase Price and number and class of securities issuable under
each outstanding Stock Award, (d) the Option Price and number and class of
securities issuable under each outstanding Option, and (e) the repurchase price
of any securities substituted for Award Shares that are subject to repurchase
rights.  The specific adjustments shall
be determined by the Board.  Unless the
Board specifies otherwise, any securities issuable as a result of any such
adjustment shall be rounded down to the next lower whole security.  The Board need not adopt the same rules for
each Award or each Awardee.


 


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


 


15

















 


provide that the vesting
of any or all Award Shares subject to vesting or a right of repurchase shall
accelerate or lapse, as the case may be, upon a transaction described in this
Section 10.3. If the Board exercises such discretion with respect to
Options, such Options shall become exercisable in full prior to the
consummation of such event at such time and on such conditions as the Board
determines, and if such Options are not exercised prior to the consummation of
the Fundamental Transaction, they shall terminate at such time as determined by
the Board.  The Board need not adopt the
same rules for each Award or each Awardee. 
Subject to any greater rights granted to participants under the
foregoing provisions of this Section 10.3, in the event of the occurrence
of any Fundamental Transaction, any outstanding Awards shall be treated as
provided in the applicable agreement or plan of merger, consolidation,
dissolution, liquidation, or sale of assets.


 


10.4                           Changes in Control.  The Board may also, but need not, specify
that other transactions or events constitute a “Change in Control”.  The Board may do that either before or after
the transaction or event occurs. 
Examples of transactions or events that the Board may treat as Changes
in Control are: (a) any person or entity, including a “group” as
contemplated by Section 13(d)(3) of the Exchange Act, acquires securities
holding 50% or more of the total combined voting power or value of the Company,
or (b) as a result of or in connection with a contested election of
Company Directors, the persons who were Company Directors immediately before
the election cease to constitute a majority of the Board.  In connection with a Change in Control,
notwithstanding any other provision of this Plan, the Board may, but need not,
take any one or more of the actions described in Section 10.3.  In addition, the Board may extend the date
for the exercise of Awards (but not beyond their original Expiration
Date).  The Board need not adopt the
same rules for each Award or each Awardee.


 


10.5                           Divestiture.  If the Company or an Affiliate sells or otherwise transfers
equity securities of an Affiliate to a person or entity other than the Company
or an Affiliate, or leases, exchanges or transfers all or any portion of its
assets to such a person or entity, then the Board may specify that such
transaction or event constitutes a “Divestiture”.  In
connection with a Divestiture, notwithstanding any other provision of this
Plan, the Board may, but need not,  take one or more of the actions described
in Section 10.3 or 10.4 with respect to Awards or Award Shares held by,
for example, Employees, Directors or Consultants for whom that transaction or
event results in a Termination.  The
Board need not adopt the same rules for each Award or each Awardee.


 


10.6                           Dissolution.  If
the Company adopts a plan of dissolution, the Board may cause Awards to be
fully vested and exercisable (but not after their Expiration Date) before the
dissolution is completed but contingent on its completion and may cause the
Company’s repurchase rights on Award Shares to lapse upon completion of the
dissolution.  The Board need not adopt
the same rules for each Award or each Awardee. 
However, to the extent not exercised before the earlier of the
completion of the dissolution, Awards shall terminate immediately prior to the
dissolution.


 


16

















 


11.                                 Automatic Option Grants to Non-Employee Directors


 


11.1                           Automatic
Option Grants to Non-Employee
Directors.


 


(a)                                  Annual Grant.  On the date of the last regular meeting of directors during each
calendar year each individual who is serving as a Non-Employee Director shall
automatically be granted a Nonstatutory Option to purchase 10,000 Shares (the “Annual Grant”),
provided, however, that such individual has served as a Non-Employee Director
for at least six months.


 


(b)                                 Initial Grant.  Upon the first appointment or election of an individual as a
Non-Employee Director, such individual shall automatically be granted a
Nonstatutory Option to purchase 15,000 Shares (the “Initial Grant”).


 


(c)                                  Exercise Price.


 


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


 


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


 


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


 


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


 


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


 


(i)                                     In General.  Except as otherwise provided in
Section 11.3, after cessation of service as a Director (the “Cessation Date”), the
Awardee’s Options shall be exercisable to the extent (but only to the extent)
they are vested on the Cessation Date and only during the three months after
such Cessation Date, but in no event after the Expiration Date.  To the extent the Awardee does not exercise
an Option within the time specified for exercise, the Option shall
automatically terminate.


 


(ii)                                  Death or Disability.  If an Awardee’s cessation of service on the
Board is due to death or disability (as determined by the Board), all
Non-Employee Director Options of that Awardee, whether or not exercisable upon
such Cessation Date, may be exercised at any time on or prior to the Expiration
Date.  In the case of a cessation of
service due to death, an Option may be exercised as provided in
Section 17.  In the case of a
cessation of service due


 


17

















 


to disability, if a
guardian or conservator has been appointed to act for the Awardee and been
granted this authority as part of that appointment, that guardian or
conservator may exercise the Option on behalf of the Awardee.  Death or disability occurring after an
Awardee’s cessation of service shall not cause the cessation of service to be
treated as having occurred due to death or disability.  To the extent an Option is not so exercised
within the time specified for its exercise, the Option shall automatically
terminate.


 


11.2                           Certain
Transactions and Events.


 


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


 


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


 


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


 


(d)                                 The
grant of Options pursuant to Section 11 shall in no way affect the right
of the Company to adjust, reclassify, reorganize or otherwise change its
capital or business structure or to merge, consolidate, dissolve, liquidate or
sell or transfer all or any part of its business or assets.


 


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


 


11.3                           Limited Transferability of Options.  Each Option granted pursuant to
Section 11 may be assigned in whole or in part during the Awardee’s
lifetime to one or more members of the Awardee’s family or to a trust
established exclusively for one or more such family members


 


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


 


12.                                 Withholding and Tax Reporting


 


12.1                           Tax Withholding
Alternatives.


 


(a)                                  General.  Whenever
Award Shares are issued or become free of restrictions, the Company may require
the Awardee to remit to the Company an amount sufficient to satisfy any
applicable tax withholding requirement, whether the related tax is imposed on
the Awardee or the Company.  The Company
shall have no obligation to deliver Award Shares or release Award Shares from
an escrow or permit a transfer of Award Shares until the Awardee has satisfied
those tax withholding obligations.


 


(b)                                 Method of Payment. 
The Awardee shall pay any required withholding using the forms of
consideration described in Section 6.4(b), except that, in the discretion
of the Administrator, the Company may also permit the Awardee to use any of the
forms of payment described in Section 6.4(c).  The Administrator, in its sole discretion, may also permit Award
Shares to be withheld to pay required withholding.  If the Administrator permits Award Shares to be withheld, the
Fair Market Value of the Award Shares withheld, as determined as of the date of
withholding, shall not exceed the amount determined by the applicable minimum
statutory withholding rates.


 


12.2                           Reporting of Dispositions.  Any holder of Option
Shares acquired under an Incentive Stock Option shall promptly notify the
Administrator, following such procedures as the Administrator may require, of
the sale or other disposition of any of those Option Shares if the disposition
occurs during:  (a) the longer of
two years after the Grant Date of the Incentive Stock Option and one year after
the date the Incentive Stock Option was exercised, or (b) such other
period as the Administrator has established.


 


13.                                 Compliance with Law


 


The grant of Awards and
the issuance and subsequent transfer of Award Shares shall be subject to
compliance with all Applicable Law, including all applicable securities
laws.  Awards may not be exercised, and
Award Shares may not be transferred, in violation of Applicable Law.


 


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Thus, for example, Awards
may not be exercised unless:  (a) a
registration statement under the Securities Act is then in effect with respect
to the related Award Shares, or (b) in the opinion of legal counsel to the
Company, those Award Shares may be issued in accordance with an applicable
exemption from the registration requirements of the Securities Act and any
other applicable securities laws.  The
failure or inability of the Company to obtain from any regulatory body the
authority considered by the Company’s legal counsel to be necessary or useful
for the lawful issuance of any Award Shares or their subsequent transfer shall
relieve the Company of any liability for failing to issue those Award Shares or
permitting their transfer.  As a
condition to the exercise of any Award or the transfer of any Award Shares, the
Company may require the Awardee to satisfy any requirements or qualifications
that may be necessary or appropriate to comply with or evidence compliance with
any Applicable Law.


 


14.                                 Amendment or Termination of this Plan or Outstanding Awards


 


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


 


14.2                           Shareholder Approval.  The Company shall obtain the approval of the Company’s
shareholders for any amendment to this Plan if shareholder approval is
necessary or desirable to comply with any Applicable Law or with the
requirements applicable to the grant of Awards intended to be Incentive Stock
Options.  The Board may also, but need
not, require that the Company’s shareholders approve any other amendments to
this Plan.


 


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


 


15.                                 Reserved Rights


 


15.1                           Nonexclusivity of this Plan.  This
Plan shall not limit the power of the Company or any Affiliate to adopt other
incentive arrangements including, for example, the grant or issuance of stock
options, stock, or other equity-based rights under other plans.


 


15.2                           Unfunded Plan.  This Plan shall be unfunded.  Although bookkeeping accounts may be
established with respect to Awardees, any such accounts will be used merely as
a


 


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convenience.  The Company shall not be required to segregate
any assets on account of this Plan, the grant of Awards, or the issuance of
Award Shares.  The Company and the
Administrator shall not be deemed to be a trustee of stock or cash to be
awarded under this Plan.  Any
obligations of the Company to any Awardee shall be based solely upon contracts
entered into under this Plan, such as Award Agreements.  No such obligations shall be deemed to be
secured by any pledge or other encumbrance on any assets of the Company.  Neither the Company nor the Administrator
shall be required to give any security or bond for the performance of any such
obligations.


 


16.                                 Special Arrangements Regarding Award Shares


 


16.1                           Escrow of Stock Certificates.  To enforce any restrictions on Award Shares,
the Administrator may require their holder to deposit the certificates
representing Award Shares, with stock powers or other transfer instruments
approved by the Administrator endorsed in blank, with the Company or an agent
of the Company to hold in escrow until the restrictions have lapsed or
terminated.  The Administrator may also
cause a legend or legends referencing the restrictions to be placed on the
certificates.  Any Awardee who delivers
a promissory note as partial or full consideration for the purchase of Award
Shares will be required to pledge and deposit with the Company some or all of
the Award Shares as collateral to secure the payment of the note.  However, the Administrator may require or
accept other or additional forms of collateral to secure the note and, in any
event, the Company will have full recourse against the maker of the note,
notwithstanding any pledge or other collateral.


 


16.2                           Repurchase Rights.


 


(a)                                  General.  If
an Option is subject to Reverse Vesting or a Stock Award is subject to vesting
conditions, the Company shall have the right, during the seven months after the
Awardee’s Termination, to repurchase any or all of the Award Shares that were
unvested as of the date of that Termination. 
If the Award Shares were purchased with a promissory note, the repurchase
price shall be the lower of:  (a) the
Purchase Price for the Award Shares (minus the amount of any cash dividends
paid or payable with respect to the Award Shares for which the record date
precedes the repurchase) and (b) the Fair Market Value at the date of
Termination.  In all other cases, the
repurchase price shall be determined by the Administrator in accordance with
this Section 16.2 which shall be either (i) the Purchase Price for
the Award Shares (minus the amount of any cash dividends paid or payable with
respect to the Award Shares for which the record date precedes the repurchase)
or (ii) the lower of (A) the Option Price or Purchase Price for the
Award Shares or (B) the Fair Market Value of those Award Shares as of the
date of the Termination.  The repurchase
price shall be paid in cash or if the Award Shares were purchased in whole or
in part with a promissory note, cancellation in whole or in part of
indebtedness under that note, or a combination of those means.  The Company may assign this right of
repurchase.


 


(b)                                 Procedure.  The
Company or its assignee may choose to give the Awardee a written notice of
exercise of its repurchase rights under this Section 16.2.  However, the Company’s failure to give such
a notice shall not affect its rights to repurchase Award Shares.  The Company must, however, tender the
repurchase price during the period specified in this Section 16.2 for
exercising its repurchase rights in order to exercise such rights.


 


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


 


17.                                 Beneficiaries


 


An Awardee may file a
written designation of one or more beneficiaries who are to receive the
Awardee’s rights under the Awardee’s Awards after the Awardee’s death.  Such designation shall be accompanied by a
signed acknowledgment from the Awardee’s spouse, if any, consenting to such
designation.  An Awardee may change such
a designation at any time by written notice. 
If an Awardee designates a beneficiary, the beneficiary may exercise the
Awardee’s Awards after the Awardee’s death. 
If an Awardee dies when the Awardee has no living beneficiary designated
under this Plan, the Company shall allow the executor or administrator of the
Awardee’s estate to exercise the Award or, if there is none, the person
entitled to exercise the Option under the Awardee’s will or the laws of descent
and distribution.  In any case, no Award
may be exercised after its Expiration Date.


 


18.                                 Miscellaneous


 


18.1                           Governing Law.  This Plan, the Award Agreements and
all other agreements entered into under this Plan, and all actions taken under
this Plan or in connection with Awards or Award Shares, shall be governed by
the laws of the State of California.


 


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


 


(a)                                  Listed Stock.  If the
Shares are traded on any established stock exchange or quoted on a national
market system, Fair Market Value shall be the closing sales price for the
Shares as quoted on that stock exchange or system for the date the value is to
be determined (the “Value Date”)
as reported by such stock exchange or national market system, or, if not
reported by such stock exchange or national market system, as reported in The
Wall
Street Journal or a similar publication.  If no sales are reported as having occurred on the Value Date,
Fair Market Value shall be that closing sales price for the last preceding
trading day on which sales of Shares are reported as having occurred.  If no sales are reported as having occurred
during the five trading days before the Value Date, Fair Market Value shall be
the closing bid for Shares on the Value Date. 
If Shares are listed on multiple exchanges or systems, Fair Market Value
shall be based on sales or bid prices on the primary exchange or system on
which Shares are traded or quoted.


 


(b)                                 Stock Quoted by Securities Dealer.  If Shares are regularly quoted by a recognized securities dealer
but selling prices are not reported on any established stock exchange or quoted
on a national market system, Fair Market Value shall be the mean between the
high bid and low asked prices on the Value Date.  If no prices are quoted for the Value Date, Fair Market Value
shall be the mean between the high bid and low asked prices on the last
preceding trading day on which any bid and asked prices were quoted.


 


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(c)                                  No Established Market. 
If Shares are not traded on any established stock exchange or quoted on
a national market system and are not quoted by a recognized securities dealer,
the Board or Committee will determine Fair Market Value in good faith.  The Board or Committee will consider the
following factors, and any others it considers significant, in determining Fair
Market Value: (i) the price at which other securities of the Company have
been issued to purchasers other than Employees, Directors, or Consultants,
(ii) the Company’s shareholder’s equity, prospective earning power,
dividend-paying capacity, and non-operating assets, if any, and (iii) any
other relevant factors, including the economic outlook for the Company and the
Company’s industry, the Company’s position in that industry, the Company’s
goodwill and other intellectual property, and the values of securities of other
businesses in the same industry.


 


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


 


18.4                           Electronic Communications.  Any Award Agreement,
notice of exercise of an Award, or other document required or permitted by this
Plan may be delivered in writing or, to the extent determined by the
Administrator, electronically. 
Signatures may also be electronic if permitted by the Administrator.


 


18.5                           Notices.  Unless the Administrator
specifies otherwise, any notice to the Company under any Award Agreement or
with respect to any Awards or Award Shares shall be in writing (or, if so
authorized by Section 18.4, communicated electronically), shall be
addressed to the Company, and shall only be effective when received by the
Company.


 


Adopted by the Board
on:  March 19, 2004


 


Approved by the
shareholders on:  May 27, 2004


 


Effective date of this
Plan:  May 27, 2004


 


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