nnpp_8k-ex401.htm


    
      

    

     

    Exhibit
      4.1

     

    

      


      NANO-PROPRIETARY,
        INC. AMENDED AND RESTATED 2002 EQUITY COMPENSATION PLAN

      


      


      ARTICLE
        I - GENERAL PROVISIONS

      


      1.1    The
        Plan is designed
        for the benefit of the Company to secure and retain the services of Eligible
        Participants.  The Board believes the Plan will promote and increase
        personal interests in the welfare of the Company by, and provide incentive
        to,
        those who are primarily responsible not only for its regular operations but
        also
        for shaping and carrying out the long-range plans of the Company and ordering
        its continued growth and financial success.

      


      1.2    Awards
        under the Plan
        may be made to Participants in the form of (i) Incentive Stock Options; (ii)
        Nonqualified Stock Options; or (iii) Stock Awards.

      


      1.3    The
        Plan
        shall be effective March 17, 2002 (the “Effective Date”).

      


      1.4     The
        Plan
        amendment is effective December 12, 2007 (the “Amendment Date”)

      


      


      ARTICLE
        II - DEFINITIONS

      


      Except
        where the context otherwise
        indicates, the following definitions apply:

      


      2.1           “Act”
        means the Securities Exchange Act of 1934, as now in effect or as hereafter
        amended.  All citations to sections of the Act or rules there under
        are to such sections or rules as they may from time to time be amended or
        renumbered.

      


      2.2           “Agreement”
        means the written agreement between the Company and the Participant evidencing
        each Award granted to a Participant under the Plan.

      


      2.3           “Award”
        means an award granted to a Participant under the Plan of a Stock Option
        or a
        Stock Award.

      


      2.4           “Board”
        means the Board of Directors of Nano-Proprietary, Inc.

      


      2.5           “Code”
        means the Internal Revenue Code of 1986, as now in effect or as hereafter
        amended.  All citations to sections of the Code are to such sections
        as they may from time to time be amended or renumbered.

      


      2.6           “Committee”
        means the Compensation Committee of the Board of Directors of Nano-Proprietary,
        Inc. or such other committee consisting of two or more members as may be
        appointed by the Board to administer this Plan pursuant to Article
        III.

      


      2.7           “Company”
        means Nano-Proprietary, Inc., a Texas corporation, and its successors and
        assigns. The term “Company” shall include any company during any period that it
        is a “parent corporation” or a “subsidiary corporation” of the Company within
        the meaning of Code section 424(d).  With respect to all purposes of
        the Plan, including, but not limited to, the establishment, amendment,
        termination, operation and administration of the Plan, Nano-Proprietary,
        Inc.
        shall be authorized to act on behalf of all other entities included within
        the
        definition of “Company.”


      
        
           

        

        
          
          

          
            

          

        

        
           

        

      


      


      2.8           “Disability,”
        with respect to any Incentive Stock Option, means disability as determined
        under
        section 22(e)(3) of the Code, and, with respect to any other Award, means
        (i)
        with respect to a Participant who is eligible to participate in the Company’s
        program of long-term disability insurance, if any, a condition with respect
        to
        which the Participant is entitled to commence benefits under such program
        of
        long-term disability insurance, and (ii) with respect to any Participant
        (including a Participant who is eligible to participate in the Company’s program
        of long-term disability insurance, if any), a disability as determined under
        procedures established by the Committee or in any Award.

      


      2.9           “Eligible
        Participant” means an active full-time employee of the Company (including
        officers), as shall be determined by the Committee, as well as any other
        person,
        including members of the Board and consultants who provide services to the
        Company, subject to limitations as may be provided by the Code, the Act or
        the
        Committee, as shall be determined by the Committee.

      


      2.10           “Fair
        Market Value” means the fair market value of a share of Stock, as determined in
        good faith by the Committee; provided, however, that

      


      (a)           if
        the Stock is listed on a national securities exchange, Fair Market Value
        on a
        date shall be the closing sale price reported for the Stock on such exchange
        on
        such date if at least 100 shares of Stock were sold on such date or, if fewer
        than 100 shares of stock were sold on such date, then Fair Market Value on
        such
        date shall be the closing sale price reported for the Stock on such exchange
        on
        the last prior date on which at least 100 shares were sold, all as reported
        in
The Wall Street Journal or such other source as the Committee deems
        reliable; and

      


      (b)           if
        the Stock is not listed on a national securities exchange but is admitted
        to
        quotation on the National Association of Securities Dealers Automated Quotation
        System or other comparable quotation system, Fair Market Value on a date
        shall
        be the last sale price reported for the Stock on such system on such date
        if at
        least 100 shares of Stock were sold on such date or, if fewer than 100 shares
        of
        Stock were sold on such date, then Fair Market Value on such date shall be
        the
        average of the high bid and low asked prices reported for the Stock on such
        system on such date or, if no shares of Stock were sold on such date, then
        Fair
        Market Value on such date shall be the last sale price reported for the Stock
        on
        such system on the last date on which at least 100 shares of Stock were sold,
        all as reported in The Wall Street Journal or such other source as the
        Committee deems reliable; and

      


      (c)           If
        the Stock is not traded on a national securities exchange or reported by
        a
        national quotation system, if any broker-dealer makes a market for the Stock,
        then the Fair Market Value of the Stock on a date shall be the average of
        the
        highest and lowest quoted selling prices of the Stock in such market on such
        date if at least 100 shares of Stock were sold on such date or, if fewer
        than
        100 shares of Stock were sold on such date, then Fair Market Value on such
        date
        shall be the average of the high bid and low asked prices for the Stock in
        such
        market on such date or, if no prices are quoted on such date, then Fair Market
        Value on such date shall be the average of the highest and lowest quoted
        selling
        prices of the Stock in such market on the last date on which at least 100
        shares
        of Stock were sold.

      


      2.11           “Incentive
        Stock Option” means a Stock Option granted to an Eligible Participant under
        Article IV of the Plan.

      


      2.12           “Nonqualified
        Stock Option” means a Stock Option granted to an Eligible Participant under
        Article V of the Plan.


      
        
           

        

        
          2

          
            

          

        

        
           

        

      


      


      2.13           “Option
        Grant Date” means, as to any Stock Option, the latest of:

      


      (a)the
        date on which the Committee takes action to grant the Stock Option to the
        Participant;

      


      (b)the
        date the Participant receiving the Stock Option becomes an employee of the
        Company, to the extent employment status is a condition of the grant or a
        requirement of the Code or the Act; or

      


      (c)such
        other date (later than the dates described in (a) and (b) above) as the
        Committee may designate.

      


      2.14           “Participant”
        means an Eligible Participant to whom an Award has been granted and who has
        entered into an Agreement evidencing the Award.

      


      2.15           “Plan”
        means the Nano-Proprietary, Inc. Amended and Restated 2002 Equity Compensation
        Plan, as amended from time to time.

      


      2.16           “Retirement”
        means retirement from active employment with the Company, as determined by
        the
        Committee.

      


      2.17           “Stock”
        means the common stock of Nano-Proprietary, Inc., as may be adjusted pursuant
        to
        the provisions of Plan Section 3.10.

      


      2.18           “Stock
        Award” means an Award of Stock granted in payment of compensation, as provided
        in Article VIII of the Plan.

      


      2.19           “Stock
        Option” means an Incentive Stock Option or a Nonqualified Stock
        Option.  Stock Options granted under the Plan shall be designated as
        either Incentive Stock Options or Nonqualified Stock Options, and in the
        absence
        of such designation shall be treated as Nonqualified Stock Options.

      


      2.20           “Termination
        of Employment” means the discontinuance of employment of a Participant with the
        Company for any reason or, if the Participant is a non-employee member of
        the
        Board, the termination of the Participant’s directorship, or, if the Participant
        is a consultant to the Company, the termination of the Participant’s
        relationship as a consultant. The determination of whether a Participant
        has
        incurred a Termination of Employment shall be made by the Committee in its
        discretion.  In determining whether a Termination of Employment has
        occurred, the Committee may provide that service as a consultant or service
        with
        a business enterprise in which the Company has a significant ownership interest
        shall be treated as employment with the Company.  With respect to any
        Incentive Stock Option, employment shall be interpreted in a manner consistent
        with section 422 of the Code. A Participant shall not be deemed to have incurred
        a Termination of Employment if the Participant is on military leave, sick
        leave,
        or other bona fide leave of absence approved by the Company of 90 days or
        fewer
        (or any longer period during which the Participant is guaranteed reemployment
        by
        statute or contract.)  In the event a Participant’s leave of absence
        exceeds this period, he will be deemed to have incurred a Termination of
        Employment on the day following the expiration date of such
        period.


      
        
           

        

        
          3

          
            

          

        

        
           

        

      


      


      ARTICLE
        III - ADMINISTRATION

      


      3.1           This
        Plan shall be administered by the Compensation Committee of the Board of
        Directors of Nano-Proprietary, Inc. The Committee, in its discretion, may
        delegate to one or more of its members such of its powers as it deems
        appropriate.  The Committee also may limit the power of any member to
        the extent necessary to comply with rule 16b-3 under the Act, Code section
        162(m) or any other law or for any other purpose.  Members of the
        Committee shall be appointed originally, and as vacancies occur, by the Board,
        to serve at the pleasure of the Board.  The Board may serve as the
        Committee, if by the terms of the Plan all Board members are otherwise eligible
        to serve on the Committee.

      


      3.2           The
        Committee shall meet at such times and places as it determines.  A
        majority of its members shall constitute a quorum, and the decision of a
        majority of those present at any meeting at which a quorum is present shall
        constitute the decision of the Committee.  A memorandum signed by all
        of its members shall constitute the decision of the Committee without necessity,
        in such event, for holding an actual meeting.

      


      3.3           The
        Committee shall have the exclusive right to interpret, construe and administer
        the Plan, to select the persons who are eligible to receive an Award, and
        to act
        in all matters pertaining to the granting of an Award and the contents of
        the
        Agreement evidencing the Award, including without limitation, the determination
        of the number of Stock Options subject to an Award and the form, terms,
        conditions and duration of each Award, and any amendment thereof consistent
        with
        the provisions of the Plan.  All acts, determinations and decisions of
        the Committee made or taken pursuant to grants of authority under the Plan
        or
        with respect to any questions arising in connection with the administration
        and
        interpretation of the Plan, including the severability of any and all of
        the
        provisions thereof, shall be conclusive, final and binding upon all
        Participants, Eligible Participants and their estates and
        beneficiaries.

      


      3.4           The
        Committee may adopt such rules, regulations and procedures of general
        application for the administration of this Plan, as it deems
        appropriate.

      


      3.5           Subject
        to adjustment as provided in Plan Section 3.10, the aggregate number of shares
        of Stock which are available for issuance pursuant to Awards under the Plan
        shall be Ten Million (10,000,000) shares of Stock.  Such shares of
        Stock shall be made available from authorized and unissued
        shares.  If, for any reason, any shares of Stock awarded or subject to
        purchase under the Plan are not delivered or purchased, or are reacquired
        by the
        Company, for reasons including, but not limited to, a forfeiture of Restricted
        Stock or termination, expiration or cancellation of a Stock Option, such
        shares
        of Stock shall not be charged against the aggregate number of shares of Stock
        available for issuance pursuant to Awards under the Plan and shall again
        be
        available for issuance pursuant to Award under the Plan.  If the
        exercise price and/or withholding obligation under a Stock Option is satisfied
        by tendering shares of Stock to the Company (either by actual delivery or
        attestation), only the number of shares of Stock issued net of the share
        of
        Stock so tendered shall be deemed delivered for purposes of determining the
        maximum number of shares of Stock available for issuance under the
        Plan.

      


      3.6           Each
        Award granted under the Plan shall be evidenced by a written Award
        Agreement.  Each Award Agreement shall be subject to and incorporate,
        by reference or otherwise, the applicable terms and conditions of the Plan,
        and
        any other terms and conditions, not inconsistent with the Plan, as may be
        imposed by the Committee.


      
        
           

        

        
          4

          
            

          

        

        
           

        

      


      


      3.7           The
        Company shall not be required to issue or deliver any certificates for shares
        of
        Stock prior to:

      


      (a)           the
        listing of such shares on any stock exchange on which the Stock may then
        be
        listed; and

      


      (b)           the
        completion of any registration or qualification of such shares of Stock under
        any federal or state law, or any ruling or regulation of any government body
        which the Company shall, in its discretion, determine to be necessary or
        advisable.

      


      The
        Company will from time to time, as is necessary to accomplish the purposes
        of
        this Plan, seek to obtain from any regulatory agency having jurisdiction
        any
        requisite authority in order to issue and sell shares of Stock
        hereunder.  The inability of the Company to obtain from any regulatory
        agency having jurisdiction the authority deemed by the Company’s counsel to be
        necessary to the lawful issuance and sale of any shares of the Stock hereunder
        shall relieve the Company of any liability in respect of the nonissuance
        or sale
        of the Stock as to which the requisite authority shall not have been
        obtained.

      


      3.8           All
        certificates for shares of Stock delivered under the Plan shall also be subject
        to such stop-transfer orders and other restrictions as the Committee may
        deem
        advisable under the rules, regulations, and other requirements of the Securities
        and Exchange Commission, any stock exchange upon which the Stock is then
        listed
        and any applicable federal or state laws, and the Committee may cause a legend
        or legends to be placed on any such certificates to make appropriate reference
        to such restrictions.  In making such determination, the Committee may
        rely upon an opinion of counsel for the Company.

      


      3.9           Except
        as provided otherwise in the Plan or in an Award Agreement, no Participant
        awarded a Stock Option or Stock Award shall have any right as a shareholder
        with
        respect to any shares of Stock covered by his or her Stock Option or Stock
        Award
        prior to the date of issuance to him or her of a certificate or certificates
        for
        such shares of Stock.

      


      3.10           If
        any reorganization, recapitalization, reclassification, stock split, stock
        dividend, or consolidation of shares of Stock, merger or consolidation or
        separation, including a spin-off, of the Company or sale or other disposition
        by
        the Company of all or a portion of its assets, any other change in the Company’s
        corporate structure, or any distribution to shareholders other than a cash
        dividend results in the outstanding shares of Stock, or any securities exchanged
        therefore or received in their place, being exchanged for a different number
        or
        class of shares of Stock or other securities of the Company, or for shares
        of
        Stock or other securities of any other corporation; or new, different or
        additional shares or other securities of the Company or of any other corporation
        being received by the holders of outstanding shares of Stock, then the Committee
        may make equitable adjustments in:

      


      (a)           the
        limitation on the aggregate number of shares of Stock that may be awarded
        as set
        forth in Plan Section 3.5;

      


      (b)           the
        number of shares and class of Stock that may be subject to an Award, and
        which
        have not been issued or transferred under an outstanding Award;

      


      (c)           the
        purchase price to be paid per share of Stock under outstanding Stock Options;
        and

      


      (d)           the
        terms, conditions or restrictions of any Award and Award Agreement, including
        the price payable for the acquisition of Stock;


      
        
           

        

        
          5

          
            

          

        

        
           

        

      


      


      provided,
        however, that all adjustments made as the result of the foregoing in respect
        of
        each Incentive Stock Option shall be made so that such Stock Option shall
        continue to be an incentive stock option within the meaning of Code section
        422,
        unless the Committee takes affirmative action to treat such Stock Option
        instead
        as a Nonqualified Stock Option.

      


      3.11           In
        addition to such other rights of indemnification as they may have as directors
        or as members of the Committee, the members of the Committee shall be
        indemnified by the Company against reasonable expenses, including attorney’s
        fees, actually and necessarily incurred in connection with the defense of
        any
        action, suit or proceeding, or in connection with any appeal therein, to
        which
        they or any of them may be a party by reason of any action taken or failure
        to
        act under or in connection with the Plan or any Award granted there under,
        and
        against all amounts paid by them in settlement thereof, provided such settlement
        is approved by independent legal counsel selected by the Company, or paid
        by
        them in satisfaction of a judgment or settlement in any such action, suit
        or
        proceeding, except as to matters as to which the Committee member has been
        negligent or engaged in misconduct in the performance of his duties; provided,
        that within 60 days after institution of any such action, suit or proceeding,
        a
        Committee member shall in writing offer the Company the opportunity, at its
        own
        expense, to handle and defend the same.

      


      3.12           The
        Committee may require each person purchasing shares of Stock pursuant to
        a Stock
        Option or other Award under the Plan to represent to and agree with the Company
        in writing that he is acquiring the shares of Stock without a view to
        distribution thereof.  The certificates for such shares of Stock may
        include any legend that the Committee deems appropriate to reflect any
        restrictions on transfer.

      


      3.13           The
        Committee shall be authorized to make adjustments in performance based criteria
        or in the terms and conditions of other Awards in recognition of unusual
        or
        nonrecurring events affecting the Company or its financial statements or
        changes
        in applicable laws, regulations or accounting principles.  The
        Committee may correct any defect, supply any omission or reconcile any
        inconsistency in the Plan or any Award Agreement in the manner and to the
        extent
        it shall deem desirable to carry it into effect.  In the event the
        Company shall assume outstanding employee benefit awards or the right or
        obligation to make future such awards in connection with the acquisition
        of
        another corporation or business entity, the Committee may, in its discretion,
        make such adjustments in the terms of Awards under the Plan as it shall deem
        appropriate.

      


      3.14           All
        outstanding Awards to any Participant may be canceled if (a) the Participant,
        without the consent of the Committee, while employed by the Company or after
        termination of such employment, becomes associated with, employed by, renders
        services to, or owns any interest in, other than any insubstantial interest,
        as
        determined by the Committee, any business that is in competition with the
        Company or with any business in which the Company has a substantial interest
        as
        determined by the Committee; or (b) is terminated for cause as determined
        by the
        Committee.

      


      3.15           In
        connection with any underwritten public offering by the Company of its equity
        securities pursuant to an effective registration statement filed under the
        Securities Act of 1933, a Participant shall not sell, make any short sale
        of,
        loan, hypothecate, pledge, grant any option for the purchase of, or otherwise
        dispose or transfer for value or otherwise agree to engage in any of the
        foregoing transactions with respect to, any Stock acquired under the Plan
        without the prior written consent of the Company or its
        underwriters.  Such restriction (the “Market Stand-Off”) shall be in
        effect for such period of time from and after the effective date of the final
        prospectus for the offering as may be requested by the Company or such
        underwriters.  In no event, however, shall such period exceed the
        period for which securities owned by the Chief Executive Officer of the Company
        are subject to the same restrictions.  Any new, substituted or
        additional securities that are by reason of any recapitalization or
        reorganization distributed with respect to Stock acquired under the Plan
        shall
        be immediately subject to the Market Stand-Off, to the same extent the Stock
        acquired under the Plan is at such time covered by such
        provisions.  In order to enforce the Market Stand-Off, the Company may
        impose stop-transfer restrictions with respect to the Stock acquired under
        the
        Plan until the end of the applicable stand-off period.


      
        
           

        

        
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      ARTICLE
        IV - INCENTIVE STOCK OPTIONS

      


      4.1           Each
        provision of this Article IV and of each Incentive Stock Option granted under
        the Plan shall be construed in accordance with the provisions of Code section
        422, and any provision hereof that cannot be so construed shall be
        disregarded.

      


      4.2           Incentive
        Stock Options shall be granted only to Eligible Participants who are in the
        active employment of the Company, and to individuals to whom grants are
        conditioned upon active employment, each of whom may be granted one or more
        such
        Incentive Stock Options for a reason related to his employment at such time
        or
        times determined by the Committee following the Effective Date through the
        date
        which is ten (10) years following the Effective Date, subject to the following
        conditions:

      


      (a)           The
        Incentive Stock Option exercise price per share of Stock shall be set in
        the
        Agreement, but shall not be less than 100% of the Fair Market Value of the
        Stock
        on the Option Grant Date.  If the Eligible Participant owns more than
        10% of the outstanding Stock (as determined pursuant to Code section 424(d))
        on
        the Option Grant Date, the Incentive Stock Option exercise price per share
        shall
        not be less than 110% of the Fair Market Value of the Stock on the Option
        Grant
        Date; provided, however, that if an Incentive Stock Option is granted to
        such an
        Eligible Participant at an exercise price per share that is less than 110%
        of
        Fair Market Value of the stock on the Option Grant Date, such Option shall
        be
        deemed a Nonqualified Stock Option.

      


      (b)           The
        Incentive Stock Option may be exercised in whole or in part from time to
        time
        within ten (10) years from the Option Grant Date (five (5) years if the Eligible
        Participant owns more than 10% of the Stock on the Option Grant Date), or
        such
        shorter period as may be specified by the Committee in the Award; provided,
        that
        in any event, the Incentive Stock Option and related Stock Right shall lapse
        and
        cease to be exercisable upon a Termination of Employment or within such period
        following a Termination of Employment as shall have been specified in the
        Incentive Stock Option Award Agreement, which period shall in no event exceed
        three months unless:

      


      (i)           employment
        shall have terminated as a result of death or Disability, in which event
        such
        period shall not exceed one year after the date of death or Disability;
        or

      


      (ii)           death
        shall have occurred following a Termination of Employment and while the
        Incentive Stock Option or Stock Right was still exercisable, in which event
        such
        period shall not exceed one year after the date of death; provided, further,
        that such period following a Termination of Employment shall in no event
        extend
        the original exercise period of the Incentive Stock Option.

      


      (c)           To
        the extent the aggregate Fair Market Value, determined as of the Option Grant
        Date, of the shares of Stock with respect to which incentive stock options
        (determined without regard to this subsection) are first exercisable during
        any
        calendar year (under this Plan or any other plan of the Company and its parent
        and subsidiary corporations (within the meaning of Code sections 424(e) and
        424(f), respectively)), by Participant exceeds $100,000, such Incentive Stock
        Options granted under the Plan shall be treated as Nonqualified Stock Options
        granted under Article V.


      
        
           

        

        
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      (d)           The
        Committee may adopt any other terms and conditions which it determines should
        be
        imposed for the Incentive Stock Option to qualify under Code section 422,
        as
        well as any other terms and conditions not inconsistent with this Article
        IV as
        determined by the Committee.

      


      (e)           All
        or any portion of the shares of Stock authorized for issuance pursuant to
        Section 3.5 herein shall be available for issuance pursuant to Incentive
        Stock
        Options granted under this Plan.

      


      4.3           To
        the extent an Incentive Stock Option fails to meet the requirements of Code
        section 422, it shall be deemed a Nonqualified Stock Option.

      


      4.4           The
        Committee may at any time offer to buy out for a payment in cash, Stock,
        Deferred Stock or Restricted Stock an Incentive Stock Option previously granted,
        based on such terms and conditions as the Committee shall establish and
        communicate to the Participant at the time that such offer is made.

      


      4.5           If
        the Incentive Stock Option Award Agreement so provides, the Committee may
        require that all or part of the shares of Stock to be issued upon the exercise
        of an Incentive Stock Option shall take the form of Deferred or Restricted
        Stock, which shall be valued on the date of exercise, as determined by the
        Committee, on the basis of the Fair Market Value of such Deferred Stock or
        Restricted Stock determined without regard to the deferral limitations and/or
        forfeiture restrictions involved.

      


      4.6           Any
        Incentive Stock Option that fails to qualify under section 422 of the Code
        shall
        be treated as a Nonqualified Stock Option granted under Article V.

      


      ARTICLE
        V - NONQUALIFIED STOCK OPTIONS

      


      5.1           Nonqualified
        Stock Options may be granted to Eligible Participants to purchase shares
        of
        Stock at such time or times determined by the Committee, following the Effective
        Date, subject to the terms and conditions set forth in this Article
        V.

      


      5.2           The
        Nonqualified Stock Option exercise price per share of Stock shall be established
        in the Agreement and may be more than, equal to or less than 100% of the
        Fair
        Market Value at the time of the grant, but may not be less than par value
        of the
        Stock.

      


      5.3           A
        Nonqualified Stock Option may be exercised in full or in part from time to
        time
        within such period as may be specified by the Committee in the Agreement;
        provided, that, in any event, the Nonqualified Stock Option shall lapse and
        cease to be exercisable 30 days after Termination of Employment for any
        termination other than as a result of retirement, death, disability or a
        change
        in control of the Company, or within such period following a Termination
        of
        Employment as shall have been specified in the Nonqualified Stock Option
        Award
        Agreement, provided, that such period following a Termination of Employment
        shall in no event extend the original exercise period of the Nonqualified
        Stock
        Option. The time period for which an option may be exercised following the
        termination of employment may be extended at the discretion of the committee,
        providing that in no circumstance may the period be extended past the original
        expiration date of the option.


      
        
           

        

        
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      5.4  If
        termination of employment is as a result of either death or disability, the
        participant shall have one year from the date of termination of employment
        to
        exercise vested non qualified stock options. If termination of employment
        is as
        a result of retirement at normal retirement age and as approved by the
        Committee, the participant shall have the lesser of:

      


      (i)
        Four
        years from the date of such retirement, or

      


      (ii)
        The
        remainder of the term of such option grants

      


       to
        exercise  vested non-qualified options.

      


      5.5             Options
        granted under the plan shall be accelerated and become fully exercisable
        upon a
        Change in Control (as hereinafter defined) of the Company. For purposes of
        this
        plan, a “Change in Control” shall be conclusively deemed to have occurred if
        (and only if) any of the following events shall have occurred:

      


      
        	
                (i)  

              	
                there
                  shall have occurred an event required to be reported in response
                  to Item
                  6(e) of Schedule 14A of Regulation 14A (or in response to any similar
                  item
                  on any similar schedule or form) promulgated under the Securities
                  Exchange
                  Act of 1934 (the “Exchange Act”), whether or not the Company is then
                  subject to such reporting
                  requirement.

              


      

      


      
        	
                (ii)  

              	
                Any
                  “person” (as such term is used in Section 13(d) and 14(d) of the Exchange
                  Act) shall have become the “beneficial owner” (as defined in Rule 13d-3
                  under the Exchange Act), directly or indirectly, of securities
                  of the
                  Company representing 20% or more of the combined voting power of
                  the
                  Company’s then outstanding voting securities without prior approval of
                  at
                  least two-thirds of the members of the Board in office immediately
                  prior
                  to such person’s attaining such
                  interest.

              


      

      


      
        	
                (iii)  

              	
                The
                  company is party to a merger, consolidation, sale of assets, or
                  other
                  reorganization, or a proxy contest as a consequence of which members
                  of
                  the Board in office immediately prior to such transaction or event
                  constitute less than a majority of the Board
                  thereafter

              


      

      


      
        	
                (iv)  

              	
                During
                  any period of two consecutive  years, individuals who at the
                  beginning of such period constituted the Board (including for this
                  purpose
                  any new Director whose election or nomination for election by the
                  Company’s stockholders was approved by a vote of at least two-thirds of
                  the Directors then still in office who were Directors at the beginning
                  of
                  such period) cease for any reason to constitute at least a majority
                  of the
                  Board.

              


      

      


      5.4  The
        Nonqualified Stock Option Award Agreement may include any other terms and
        conditions not inconsistent with this Article V or Article VIII, as determined
        by the Committee.

      


      ARTICLE
        VI – RESERVED

      


      


      ARTICLE
        VII - INCIDENTS OF STOCK OPTIONS

      


      7.1           Each
        Stock Option shall be granted subject to such terms and conditions, if any,
        not
        inconsistent with this Plan, as shall be determined by the Committee, including
        any provisions as to continued employment as consideration for the grant
        or
        exercise of such Stock Option and any provisions that may be advisable to
        comply
        with applicable laws, regulations or rulings of any governmental
        authority.


      
        
           

        

        
          9

          
            

          

        

        
           

        

      


      


      


      7.2           [Reserved]

       

      7.3           Except
        as provided below, a Stock Option shall not be transferable by the Participant
        other than by will or by the laws of descent and distribution, or, to the
        extent
        otherwise allowed by applicable law, pursuant to a qualified domestic relations
        order as defined by the Code or the Employee Retirement Income Security Act
        of
        1974, as amended, or the rules there under, and shall be exercisable during
        the
        lifetime of the Participant only by him or in the event of his death or
        Disability, by his guardian or legal representative; provided, however, that
        a
        Nonqualified Stock Option  may be transferred and exercised by the
        transferee to the extent determined by the Committee to be consistent with
        securities and other applicable laws, rules and regulations and with Company
        policy.  Notwithstanding any language herein or in any Agreement to
        the contrary, any restrictions on transfer of a Stock Option in the Plan
        or an
        Agreement shall be void and of no effect if the Committee determines that
        a
        transfer can be made consistent with securities and other applicable laws,
        rules
        and regulations.

      


      7.4           Shares
        of Stock purchased upon exercise of a Stock Option shall be paid for at the
        time
        of exercise (or, in case of an exercise pursuant to a cashless exercise
        mechanism described below, as soon as practicable after such exercise) in
        cash.
        The Committee may establish a cashless exercise mechanism by which a Participant
        may pay the exercise price under a Stock Option by irrevocably authorizing
        a
        third party to sell shares of Stock (or a sufficient portion of the shares)
        acquired upon exercise of the Stock Option and remit to the Company a sufficient
        portion of the sales proceeds to pay the entire exercise price and/or any
        tax
        withholding resulting from such exercise. Without limiting the foregoing,
        the
        Committee may establish payment terms for the exercise of Stock Options which
        permit the Participant pay for shares received pursuant to the plan through
        a
        payment plan approved by the committee.

      


      7.5           No
        cash dividends shall be paid on shares of Stock subject to unexercised Stock
        Options.  The Committee may at their discretion provide, however, that
        a Participant to whom a Stock Option has been granted which is exercisable
        in
        whole or in part at a future time for shares of Stock shall be entitled to
        receive an amount per share equal in value to the cash dividends, if any,
        paid
        per share on issued and outstanding Stock, as of the dividend record dates
        occurring during the period between the date of the grant and the time each
        such
        share of Stock is delivered pursuant to exercise of such Stock Option or
        Stock
        Right.  Such a decision by the committee is to be made on a case by
        case basis and is not binding on either all options outstanding at the time
        of
        such dividend payment, or on future dividend payments. Such amounts (herein
        called “dividend equivalents”) may, in the discretion of the Committee,
        be:

      


      
        	
                 

              	
                (a)

              	
                paid
                  in cash or Stock either from time to time prior to, or at the time
                  of the
                  delivery of, such Stock, or upon expiration of the Stock Option
                  or Stock
                  Right if it shall not have been fully exercised;
                  or

              


      

      


      
        	
                 

              	
                (b)

              	
                converted
                  into contingently credited shares of Stock, with respect to which
                  dividend
                  equivalents may accrue, in such manner, at such value, and deliverable
                  at
                  such time or times, as may be determined by the
                  Committee.

              


      

      


      
        	
                 

              	
                Such
                  Stock, whether delivered or contingently credited, shall be charged
                  against the limitations set forth in Plan Section
                  3.5.

              


      

      


      7.6           The
        Committee, in its sole discretion, may authorize payment of interest equivalents
        on dividend equivalents which are payable in cash at a future
        time.


      
        
           

        

        
          10

          
            

          

        

        
           

        

      


      


      7.7           In
        the event of Disability or death, the Committee, with the consent of the
        Participant or his legal representative, may authorize payment, in cash or
        in
        Stock, or partly in cash and partly in Stock, as the Committee may direct,
        of an
        amount equal to the difference at the time between the Fair Market Value
        of the
        Stock subject to a Stock Option and the option price in consideration of
        the
        surrender of the Stock Option.

      


      7.8           If
        a Participant is required to pay to the Company an amount with respect to
        income
        and employment tax withholding obligations in connection with exercise of
        a
        Nonqualified Stock Option, and/or with respect to certain dispositions of
        Stock
        acquired upon the exercise of an Incentive Stock Option, the Committee, in
        its
        discretion and subject to such rules as it may adopt, may permit the Participant
        to satisfy the obligation, in whole or in part, by surrendering shares of
        Stock
        which the Participant already owns or by making an irrevocable election that,
        in
        lieu of the issuance of Stock, a portion of the total Fair Market Value of
        the
        shares of Stock subject to the Nonqualified Stock Option or Stock Right and/or
        with respect to certain dispositions of Stock acquired upon the exercise
        of an
        Incentive Stock Option, be surrendered for cash and that such cash payment
        be
        applied to the satisfaction of the withholding obligations.  The
        amount to be withheld shall not exceed the statutory minimum federal and
        state
        income and employment tax liability arising from the Stock Option exercise
        transaction.

      


      7.9           The
        Committee may permit the voluntary surrender of all or a portion of any Stock
        Option granted under the Plan to be conditioned upon the granting to the
        Participant of a new Stock Option for the same or a different number of shares
        of Stock as the Stock Option surrendered, or may require such surrender as
        a
        condition precedent to a grant of a new Stock Option to such
        Participant.  Subject to the provisions of the Plan, such new Stock
        Option shall be exercisable at such price, during such period and on such
        other
        terms and conditions as are specified by the Committee at the time the new
        Stock
        Option is granted.  Upon surrender, the Stock Options surrendered
        shall be canceled and the shares of Stock previously subject to them shall
        be
        available for the grant of other Stock Options.

       

      7.10           The
        Committee may provide in any Stock Option Agreement entered into pursuant
        to the
        Plan, or by separate agreement, that if a Participant makes payment upon
        the
        exercise of any Stock Option granted hereunder in whole or in part through
        the
        surrender of shares of Stock, such Participant shall automatically receive
        a new
        Stock Option for the number of shares of Stock so surrendered by him at a
        price
        equal to the Fair Market Value of the shares of Stock at the time of surrender,
        exercisable on the same basis and having the same terms as the underlying
        Stock
        Option or on such other basis as the Committee shall determine and provide
        in
        the Stock Option Agreement.

      


      


      


      


      


      ARTICLE
        VIII - STOCK AWARDS

      


      8.1           A
        Stock Award shall be granted only in payment of compensation that has been
        earned or as compensation to be earned, including without limitation,
        compensation awarded concurrently with or prior to the grant of the Stock
        Award.

      


      8.2           For
        the purposes of this Plan, in determining the value of a Stock Award, all
        shares
        of Stock subject to such Stock Award shall be valued at not less than 100%
        of
        the Fair Market Value of such shares of Stock on the date such Stock Award
        is
        granted, regardless of whether or when such shares of Stock are issued or
        transferred to the Participant and whether or not such shares of Stock are
        subject to restrictions which affect their value.


      
        
           

        

        
          11

          
            

          

        

        
           

        

      


      


      8.3           Shares
        of Stock subject to a Stock Award may be issued or transferred to the
        Participant at the time the Stock Award is granted, or at any time subsequent
        thereto, or in installments from time to time, as the Committee shall
        determine.  If any such issuance or transfer shall not be made to the
        Participant at the time the Stock Award is granted, the Committee may provide
        for payment to such Participant, either in cash or shares of Stock, from
        time to
        time or at the time or times such shares of Stock shall be issued or transferred
        to such Participant, of amounts not exceeding the dividends which would have
        been payable to such Participant in respect of such shares of Stock, as adjusted
        under Section 3.10, if such shares of Stock had been issued or transferred
        to
        such Participant at the time such Stock Award was granted.  Any
        issuance payable in shares of Stock under the terms of a Stock Award, at
        the
        discretion of the Committee, may be paid in cash on each date on which delivery
        of shares of Stock would otherwise have been made, in an amount equal to
        the
        Fair Market Value on such date of the shares of Stock which would otherwise
        have
        been delivered.

      


      8.4           A
        Stock Award shall be subject to such terms and conditions, including without
        limitation, restrictions on the sale or other disposition of the Stock Award
        or
        of the shares of Stock issued or transferred pursuant to such Stock Award,
        as
        the Committee shall determine; provided, however, that upon the issuance
        or
        transfer of shares pursuant to a Stock Award, the Participant, with respect
        to
        such shares of Stock, shall be and become a shareholder of the Company fully
        entitled to receive dividends, to vote to the extent, if any, such shares
        possess voting rights and to exercise all other rights of a shareholder except
        to the extent otherwise provided in the Stock Award.  Each Stock Award
        shall be evidenced by a written Award Agreement in such form as the Committee
        shall determine.

      


      


      ARTICLE
        IX - AMENDMENT AND TERMINATION

      


      9.1           The
        Board at any time and from time to time, may amend or terminate the Plan.
        To the
        extent required by Code section 422 and/or the rules of the exchange upon
        which
        the Stock is traded, no amendment, without approval by the Company’s
        shareholders, shall:

      


      (a)           alter
        the group of persons eligible to participate in the Plan;

      


      (b)           except
        as provided in  Plan Section 3.5, increase the maximum number of
        shares of Stock which are available for issuance pursuant to Awards granted
        under the Plan;

      


      (c)           extend
        the period during which Incentive Stock Options may be granted beyond the
        date
        which is ten (10) years following the Effective Date.

      


      (d)           limit
        or restrict the powers of the Committee with respect to the administration
        of
        this Plan;

      


      (e)           change
        the definition of an Eligible Participant for the purpose of Incentive Stock
        Options or increase the limit or the value of shares of Stock for which an
        Eligible Participant may be granted an Incentive Stock Option;

      


      (f)           materially
        increase the benefits accruing to Participants under this Plan;

      


      (g)           materially
        modify the requirements as to eligibility for participation in this Plan;
        or

      


      (h)           change
        any of the provisions of this Article IX.


      
        
           

        

        
          12

          
            

          

        

        
           

        

      


      


      9.2           No
        amendment to or discontinuance of this Plan or any provision thereof by the
        Board or the shareholders of the Company shall, without the written consent
        of
        the Participant, adversely affect, as shall be determined by the Committee,
        any
        Award previously granted to such Participant under this Plan; provided, however,
        the Committee retains the right and power to treat any outstanding Incentive
        Stock Option as a Nonqualified Stock Option in accordance with Plan Section
        4.3.

      


      9.3           Notwithstanding
        anything herein to the contrary, if the right to receive or benefit from
        any
        Award, either alone or together with payments that a Participant has the
        right
        to receive from the Company, would constitute a “parachute payment” under Code
        section 280G, all such payments may be reduced, in the discretion of the
        Committee, to the largest amount that will avoid an excise tax to the
        Participant under Code section 280G.

      


      


      ARTICLE
        X - MISCELLANEOUS PROVISIONS

      


      10.1           Nothing
        in the Plan or any Award granted under the Plan shall confer upon any
        Participant any right to continue in the employ of the Company, or to serve
        as a
        director thereof, or interfere in any way with the right of the Company to
        terminate his or her employment at any time.  Unless agreed by the
        Board, no Award granted under the Plan shall be deemed salary or compensation
        for the purpose of computing benefits under any employee benefit plan or
        other
        arrangement of the Company for the benefit of its employees.  No
        Participant shall have any claim to an Award until it is actually granted
        under
        the Plan.  To the extent that any person acquires a right to receive
        payments from the Company under the Plan, such right shall, except as otherwise
        provided by the Committee, be no greater than the right of an unsecured general
        creditor of the Company.  All payments to be made under the Plan shall
        be paid from the general funds of the company, and no special or separate
        fund
        shall be established and no segregation of assets shall be made to assure
        payment of such amounts, except as otherwise provided by the
        Committee.

      


      10.2           The
        Committee may make such provisions and take such steps as it may deem necessary
        or appropriate for the withholding of any taxes which the Company is required
        by
        any law or regulation of any governmental authority, whether federal, state
        or
        local, domestic or foreign, to withhold in connection with any Award or the
        exercise thereof, including, but not limited to, withholding the payment
        of all
        or any portion of such Award or another Award under this Plan until the
        Participant reimburses the Company for the amount the Company is required
        to
        withhold with respect to such taxes, or canceling any portion of such Award
        or
        another Award under this Plan in an amount sufficient to reimburse itself
        for
        the amount it is required to so withhold, or selling any property contingently
        credited by the Company for the purpose of paying such Award or another Award
        under this Plan in order to withhold or reimburse itself for the amount it
        is
        required to so withhold.  The amount to be withheld shall not exceed
        the statutory minimum federal and state income and employment tax liability
        arising from the exercise transaction.

      


      10.3           The
        Plan and the grant of Awards shall be subject to all applicable federal and
        state laws, rules, and regulations and to such approvals by any United States
        government or regulatory agency as may be required.

      


      10.4           The
        terms of the Plan shall be binding upon the Company, and its successors and
        assigns.

      


      10.5           The
        Plan is intended to constitute an “unfunded” plan for incentive and deferred
        compensation.  With respect to any payments not yet made to a
        Participant by the Company, nothing contained herein shall give any such
        Participant any rights that are greater than those of a general creditor
        of the
        Company.  In its sole discretion, the Committee may authorize the
        creation of trusts or other arrangements to meet the obligations created
        under
        the Plan to deliver shares of Stock or payments in lieu of or with respect
        to
        Awards under the Plan; provided, however, that, unless the Committee otherwise
        determines with the consent of the affected Participant, the existence of
        such
        trusts or other arrangements is consistent with the “unfunded” status of the
        Plan.


      
        
           

        

        
          13

          
            

          

        

        
           

        

      


      


      10.6           Each
        Participant exercising an Award under the Plan agrees to give the Committee
        prompt written notice of any election made by such Participant under Code
        section 83(b) or any similar provision thereof.

      


      10.7           If
        any provision of this Plan or an Award Agreement is or becomes or is deemed
        invalid, illegal or unenforceable in any jurisdiction, or would disqualify
        the
        Plan or any Award Agreement under any law deemed applicable by the Committee,
        such provision shall be construed or deemed amended to conform to applicable
        laws or if it cannot be construed or deemed amended without, in the
        determination of the Committee, materially altering the intent of the Plan
        or
        the Award Agreement, it shall be stricken and the remainder of the Plan or
        the
        Award Agreement shall remain in full force and effect.

      


      


      IN
        WITNESS WHEREOF, this Plan is
        executed this the 12th day of
        December ,
        2007.

      


      
        	 	
                NANO-PROPRIETARY,
                  INC

              
	 	 
	 	 
	 	
                By:________________________________

              
	 	
                Name:

              
	 	
                Title:

              


      

      
 

       

       

      14