**Exhibit 10.1**

 

**FAVRILLE, INC.**

 

**2005 NON-EMPLOYEE DIRECTORS’STOCK OPTION PLAN**

 

**ADOPTED BY BOARD OF DIRECTORSDECEMBER 31, 2004APPROVED BY STOCKHOLDERS DECEMBER 31, 2004EFFECTIVE DATE: FEBRUARY 7, 2005**

 

 

**1.            **PURPOSES.

** **

**(a)           Eligible Option Recipients**.  The personseligible to receive Options are the Non-Employee Directors of the Company.

 

**(b)           Available Options**.  The purposeof the Plan is to provide a means by which Non-Employee Directors may be givenan opportunity to benefit from increases in value of the Common Stock throughthe granting of Nonstatutory Stock Options.

 

**(c)           General Purpose**.  The Company,by means of the Plan, seeks to retain the services of its current Non-EmployeeDirectors, to secure and retain the services of new Non-Employee Directors andto provide incentives for such persons to exert maximum efforts for the successof the Company and its Affiliates.

 

**2.            **DEFINITIONS.

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**(a)           *“Affiliate”*** means any parent corporation orsubsidiary corporation of the Company, whether now or hereafter existing, asthose terms are defined in Sections 424(e) and (f), respectively, of the Code.

 

**(b)           *“Annual Grant”*** means an Option granted annually to allNon-Employee Directors who meet the specified criteria pursuant to Section6(b).

 

**(c)           *“Annual Meeting”*** means the annual meeting of thestockholders of the Company.

 

**(d)           *“Board”*** means the Board of Directors of theCompany.

 

**(e)          *****“CapitalizationAdjustment”***has the meaning ascribed to that term in Section 11(a).

 

**(f)           *****“Change in Control”*** means the occurrence, in a singletransaction or in a series of related transactions, of any one or more of thefollowing events:

 

**(i)           **any Exchange Act Person becomes the Owner, directly orindirectly, of securities of the Company representing more than fifty percent(50%) of the combined voting power of the Company’s then outstanding securitiesother than by virtue of a merger, consolidation or similar transaction.  Notwithstanding the foregoing, a Change inControl shall 

 

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not be deemed to occur (A) on account of theacquisition of securities of the Company by an investor, any affiliate thereofor any other Exchange Act Person from the Company in a transaction or series ofrelated transactions the primary purpose of which is to obtain financing forthe Company through the issuance of equity securities or (B) solely because thelevel of Ownership held by any Exchange Act Person (the “***Subject Person***”)exceeds the designated percentage threshold of the outstanding votingsecurities as a result of a repurchase or other acquisition of votingsecurities by the Company reducing the number of shares outstanding, providedthat if a Change in Control would occur (but for the operation of thissentence) as a result of the acquisition of voting securities by the Company,and after such share acquisition, the Subject Person becomes the Owner of anyadditional voting securities that, assuming the repurchase or other acquisitionhad not occurred, increases the percentage of the then outstanding voting securitiesOwned by the Subject Person over the designated percentage threshold, then aChange in Control shall be deemed to occur;

 

**(ii)          **there is consummated a merger, consolidation or similar transactioninvolving (directly or indirectly) the Company and, immediately after theconsummation of such merger, consolidation or similar transaction, thestockholders of the Company immediately prior thereto do not Own, directly orindirectly, either (A) outstanding voting securities representing more thanfifty percent (50%) of the combined outstanding voting power of the survivingEntity in such merger, consolidation or similar transaction or (B) more thanfifty percent (50%) of the combined outstanding voting power of the parent ofthe surviving Entity in such merger, consolidation or similar transaction, ineach case in substantially the same proportions as their Ownership of theoutstanding voting securities of the Company immediately prior to suchtransaction;

 

**(iii)        **thestockholders of the Company approve or the Board approves a plan of completedissolution or liquidation of the Company, or a complete dissolution orliquidation of the Company shall otherwise occur;

 

**(iv)         **thereis consummated a sale, lease, license or other disposition of all orsubstantially all of the consolidated assets of the Company and itsSubsidiaries, other than a sale, lease, license or other disposition of all orsubstantially all of the consolidated assets of the Company and itsSubsidiaries to an Entity, more than fifty percent (50%) of the combined votingpower of the voting securities of which are Owned by stockholders of theCompany in substantially the same proportions as their Ownership of theoutstanding voting securities of the Company immediately prior to such sale,lease, license or other disposition; or

 

**(v)           **individuals who, on the date this Plan is adopted bythe Board, are members of the Board (the ***“Incumbent Board”***) cease for any reason toconstitute at least a majority of the members of the Board; *provided, however,* that if the appointmentor election (or nomination for election) of any new Board member was approvedor recommended by a majority vote of the members of the Incumbent Board thenstill in office, such new member shall, for purposes of this Plan, beconsidered as a member of the Incumbent Board.

 

Notwithstanding the foregoing or any other provision of this Plan, thedefinition of Change in Control (or any analogous term) in an individualwritten agreement between the Company or any Affiliate and the Participantshall supersede the foregoing definition with respect to Stock 

 

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Awards subject to such agreement (it being understood, however, that ifno definition of Change in Control or any analogous term is set forth in suchan individual written agreement, the foregoing definition shall apply).

 

**(g)           *“Code”*** means the Internal Revenue Code of 1986,as amended.

 

**(h)           *“Committee”*** means a committee of one (1) or moremembers of the Board appointed by the Board in accordance withSection 3(c).

 

**(i)            *“Common Stock”*** means the common stock of the Company.

 

**(j)            *“Company”*** means Favrille, Inc., a Delawarecorporation.

 

**(k)           *“Consultant”*** means any person, including an advisor,who (i) is engaged by the Company or an Affiliate to render consulting oradvisory services and is compensated for such services or (ii) is serving as amember of the Board of Directors of an Affiliate and is compensated for suchservices.  However, service solely as aDirector, or payment of a fee for such services, shall not cause a Director tobe considered a “Consultant” for purposes of the Plan.

 

**(l)            *“Continuous Service”*** means that the Optionholder’s servicewith the Company or an Affiliate, whether as an Employee, Director orConsultant, is not interrupted or terminated.   A change in the capacity in which the Optionholder renders service tothe Company or an Affiliate as an Employee, Consultant or Director or a changein the entity for which the Optionholder renders such service, provided thatthere is no interruption or termination of the Optionholder’s service with theCompany or an Affiliate, shall not terminate a Participant’s ContinuousService.  For example, a change in statusfrom a Non-Employee Director of the Company to a Consultant of an Affiliate or anEmployee of the Company will not constitute an interruption of ContinuousService.  The Board or the chiefexecutive officer of the Company, in that party’s sole discretion, maydetermine whether Continuous Service shall be considered interrupted in thecase of any leave of absence approved by that party, including sick leave,military leave or any other personal leave.  Notwithstanding the foregoing, a leave of absence shall be treated asContinuous Service for purposes of vesting in an Option only to such extent asmay be provided in the Company’s leave of absence policy or in the writtenterms of the Optionholder’s leave of absence.

 

**(m)         *****“CorporateTransaction”***means the occurrence, in a single transaction or in a series of relatedtransactions, of any one or more of the following events:

 

**(i)           **a sale or other disposition of all or substantially all, as determinedby the Board in its discretion, of the consolidated assets of the Company andits Subsidiaries;

 

**(ii)          **a sale or other disposition of at least ninety percent (90%) of theoutstanding securities of the Company;

 

**(iii)        **amerger, consolidation or similar transaction following which the Company is notthe surviving corporation; or

 

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**(iv)         **amerger, consolidation or similar transaction following which the Company is thesurviving corporation but the shares of Common Stock outstanding immediatelypreceding the merger, consolidation or similar transaction are converted orexchanged by virtue of the merger, consolidation or similar transaction intoother property, whether in the form of securities, cash or otherwise.

 

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

 

**(o)           *“Disability”*** means the inability of a person, in theopinion of a qualified physician acceptable to the Company, to perform themajor duties of that person’s position with the Company or an Affiliate of theCompany because of the sickness or injury of the person.

 

**(p)           *“Employee”*** means any person employed by the Companyor an Affiliate.  However, service solelyas a Director, or payment of a fee for such services, shall not cause aDirector to be considered an “Employee” for purposes of the Plan.

 

**(q)          *****“Entity”*** means a corporation, partnership orother entity.

 

**(r)           *“Exchange Act”*** means the Securities Exchange Act of1934, as amended.

 

**(s)          *****“Exchange ActPerson”*** meansany natural person, Entity or “group” (within the meaning of Section 13(d) or14(d) of the Exchange Act), except that “Exchange Act Person” shall not include(A) the Company or any Subsidiary of the Company, (B) any employee benefit planof the Company or any Subsidiary of the Company or any trustee or otherfiduciary holding securities under an employee benefit plan of the Company orany Subsidiary of the Company, (C) an underwriter temporarily holdingsecurities pursuant to an offering of such securities, or (D) an Entity Owned,directly or indirectly, by the stockholders of the Company in substantially thesame proportions as their Ownership of stock of the Company.

 

**(t)            *“Fair Market Value”*** means, as of any date, the value of theCommon Stock determined as follows:

 

**(i)           **If the Common Stock is listed on any established stock exchange ortraded on the Nasdaq National Market or the Nasdaq SmallCap Market, the FairMarket Value of a share of Common Stock shall be the closing sales price forsuch stock (or the closing bid, if no sales were reported) as quoted on suchexchange or market (or the exchange or market with the greatest volume oftrading in the Common Stock) on the last market trading day prior to the day ofdetermination, as reported in *The WallStreet Journal* or such other source as the Board deems reliable.

 

**(ii)          **In the absence of such markets for the Common Stock, the Fair MarketValue shall be determined by the Board in good faith.

 

**(u)           *“Initial Grant”*** means an Option granted to aNon-Employee Director who meets the specified criteria pursuant to Section6(a).

 

**(v)            *“IPO Date”*** means the effective date of the initialpublic offering of the Common Stock.

 

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**(w)           *“Non-Employee Director”*** means a Director who is not an Employee.

 

**(x)           *“Nonstatutory Stock Option”*** means an Option not intended to qualifyas an incentive stock option within the meaning of Section 422 of the Code andthe regulations promulgated thereunder.

 

**(y)           *“Officer”*** means a person who is an officer of theCompany within the meaning of Section 16 of the Exchange Act and the rules andregulations promulgated thereunder.

 

**(z)           *“Option”***means a Nonstatutory Stock Option grantedpursuant to the Plan.

 

**(aa)         *“Option Agreement”***means a written agreement between theCompany and an Optionholder evidencing the terms and conditions of anindividual Option grant.  Each OptionAgreement shall be subject to the terms and conditions of the Plan.

 

**(bb)         *“Optionholder”*** means a person to whom an Option isgranted pursuant to the Plan or, if applicable, such other person who holds anoutstanding Option.

 

**(cc)        *****“Own,” “Owned,” “Owner,” “Ownership”***  Aperson or Entity shall be deemed to “Own,” to have “Owned,” to be the “Owner”of, or to have acquired “Ownership” of securities if such person or Entity,directly or indirectly, through any contract, arrangement, understanding,relationship or otherwise, has or shares voting power, which includes the powerto vote or to direct the voting, with respect to such securities.

 

**(dd)         *“Plan”*** means this Favrille, Inc. 2005Non-Employee Directors’ Stock Option Plan.

 

**(ee)         *“Rule 16b-3”*** means Rule 16b-3 promulgated under theExchange Act or any successor to Rule 16b-3, as in effect from time to time.

 

**(ff)           *“Securities Act”*** means the Securities Act of 1933, asamended.

 

**(gg)        *****“Subsidiary”*** means, with respect to the Company, (i)any corporation of which more than fifty percent (50%) of the outstandingcapital stock having ordinary voting power to elect a majority of the board ofdirectors of such corporation (irrespective of whether, at the time, stock ofany other class or classes of such corporation shall have or might have votingpower by reason of the happening of any contingency) is at the time, directlyor indirectly, Owned by the Company, and (ii) any partnership in which theCompany has a direct or indirect interest (whether in the form of voting orparticipation in profits or capital contribution) of more than fifty percent(50%).

 

**3.            **ADMINISTRATION.

** **

**(a)           Administration by Board**.  The Boardshall administer the Plan unless and until the Board delegates administrationof the Plan to a Committee, as provided in Section 3(c).

 

**(b)           Powers of Board**.  The Boardshall have the power, subject to, and within the limitations of, the expressprovisions of the Plan:

 

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**(i)           **To determine the provisions of each Option to the extent not specifiedin the Plan.

 

**(ii)          **To construe and interpret the Plan and Options granted under it, and toestablish, amend and revoke rules and regulations for its administration.  The Board, in the exercise of this power, maycorrect any defect, omission or inconsistency in the Plan or in any OptionAgreement, in a manner and to the extent it shall deem necessary or expedientto make the Plan fully effective.

 

**(iii)        **Toeffect, at any time and from time to time, with the consent of any adverselyaffected Optionholder, (1) the reduction of the exercise price of anyoutstanding Option under the Plan, (2) the cancellation of any outstandingOption under the Plan and the grant in substitution therefor of (A) a newOption under the Plan or another equity plan of the Company covering the sameor a different number of shares of Common Stock, (B) cash and/or (C) othervaluable consideration (as determined by the Board, in its sole discretion), or(3) any other action that is treated as a repricing under generally acceptedaccounting principles.

 

**(iv)         **Toamend the Plan or an Option as provided in Section 12.

 

**(v)           **To terminate or suspend the Plan as provided in Section 13.

 

**(vi)         **Generally,to exercise such powers and to perform such acts as the Board deems necessaryor expedient to promote the best interests of the Company and that are not inconflict with the provisions of the Plan.

 

**(c)           Delegation to Committee. **The Boardmay delegate some or all of the administration of the Plan to a Committee orCommittees of one (1) or more members of the Board, and the term ***“Committee”*** shallapply to any person or persons to whom such authority has been delegated.  If administration is delegated to aCommittee, the Committee shall have, in connection with the administration ofthe Plan, the powers theretofore possessed by the Board that have beendelegated to the Committee, including the power to delegate to a subcommitteeany of the administrative powers the Committee is authorized to exercise (andreferences in this Plan to the Board shall thereafter be to the Committee orsubcommittee), subject, however, to such resolutions, not inconsistent with theprovisions of the Plan, as may be adopted from time to time by the Board.  The Board may retain the authority toconcurrently administer the Plan with the Committee and may, at any time, revestin the Board some or all of the powers previously delegated.

 

**(d)           Effect of Board’sDecision**. All determinations, interpretations and constructions made by the Boardin good faith shall not be subject to review by any person and shall be final,binding and conclusive on all persons.

 

**4.            **SHARES SUBJECT TO THE PLAN.

** **

**(a)           Share Reserve**.  Subject tothe provisions of Section 11(a) relating to Capitalization Adjustments, theshares of Common Stock that may be issued pursuant to Options shall not exceedin the aggregate four hundred twenty thousand (420,000) shares of Common Stockplus an annual increase to be added on the first day of each Company fiscalyear, 

 

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beginning in 2006 and ending in (and including) 2014,equal to the lesser of the following amounts: (i) ninety thousand (90,000)shares of Common Stock, or (ii) an amount determined by the Board.

 

**(b)           Reversion of Shares to the Share Reserve**. If any Option shall for any reason expire or otherwise terminate, inwhole or in part, without having been exercised in full, the shares of CommonStock not acquired under such Option shall revert to and again become availablefor issuance under the Plan.  If anyshares subject to an Option are not delivered to an Optionholder because suchshares are withheld for the payment of taxes or the Option is exercised througha reduction of shares subject to the Option (*i.e.*,“net exercised”), the number of shares that are not delivered to theOptionholder as a result thereof shall remain available for issuance under thePlan.  If the exercise price of an Optionis satisfied by tendering shares of Common Stock held by the Optionholder(either by actual delivery or attestation), then the number of shares sotendered shall remain available for issuance under the Plan.

 

**(c)           Source of Shares**.  The shares ofCommon Stock subject to the Plan may be unissued shares or reacquired shares,bought on the market or otherwise.

 

**5.            **ELIGIBILITY.

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The Options, as set forth in Section 6, automaticallyshall be granted under the Plan to all Non-Employee Directors who meet thecriteria specified in Section 6.

 

**6.            **NON-DISCRETIONARY GRANTS.

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**(a)           Initial Grants. **Without any further action of the Board,each person who after the IPO Date is elected or appointed for the first timeto be a Non-Employee Director automatically shall, upon the date of his or herinitial election or appointment to be a Non-Employee Director, be granted anInitial Grant to purchase thirty-five thousand (35,000) shares of Common Stockon the terms and conditions set forth herein.

 

**(b)          ****Annual Grants.**Without any further action of the Board,on the date of each Annual Meeting, commencing with the Annual Meeting in 2006,each person who is then a Non-Employee Director automatically shall be grantedan Annual Grant to purchase eight thousand (8,000) shares of Common Stock onthe terms and conditions set forth herein; *provided,however,*that if the person has not been serving as a Non-EmployeeDirector for the entire period since the preceding Annual Meeting, then thenumber of shares subject to such Annual Grant shall be reduced pro rata foreach full quarter prior to the date of grant during such period for which suchperson did not serve as a Non- Employee Director.

 

**7.            **OPTION PROVISIONS.

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Each Option shall be in such form and shall containsuch terms and conditions as required by the Plan.  Each Option shall contain such additionalterms and conditions, not inconsistent with the Plan, as the Board shall deemappropriate.  Each Option shall include(through incorporation of provisions hereof by reference in the Option orotherwise) the substance of each of the following provisions:

 

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**(a)           Term**.  No Option shall be exercisableafter the expiration of ten (10) years from the date on which it was granted.

 

**(b)           Exercise Price**.  The exerciseprice of each Option shall be one hundred percent (100%) of the Fair MarketValue of the Common Stock subject to the Option on the date the Option isgranted.

 

**(c)           Consideration**.  The purchaseprice of Common Stock acquired pursuant to an Option shall be paid, to theextent permitted by applicable law, either (i) in cash at the time the Optionis exercised or (ii) at the discretion of the Board either at the time of thegrant of the Option or subsequent thereto (1) by delivery to the Company ofother Common Stock at the time the Option is exercised, (2) by a “net exercise”of the Option (as further described below), (3) pursuant to a program developedunder Regulation T as promulgated by the Federal Reserve Board that, prior tothe issuance of Common Stock, results in either the receipt of cash (or check)by the Company or the receipt of irrevocable instructions to pay the aggregateexercise price to the Company from the sales proceeds or (4) in any other formof legal consideration that may be acceptable to the Board.  Unless otherwise specifically provided in theOption, the purchase price of Common Stock acquired pursuant to an Option thatis paid by delivery to the Company of other Common Stock acquired, directly orindirectly from the Company, shall be paid only by shares of the Common Stockof the Company that have been held for more than six (6) months (or such longeror shorter period of time required to avoid a charge to earnings for financialaccounting purposes).

 

In the case of a “net exercise” of an Option, theCompany will not require a payment of the exercise price of the Option from theParticipant but will reduce the number of shares of Common Stock issued uponthe exercise by the largest number of whole shares that has a Fair Market Valuethat does not exceed the aggregate exercise price.  With respect to any remaining balance of theaggregate exercise price, the Company shall accept a cash payment from theParticipant.  Shares of Common Stock willno longer be outstanding under an Option (and will therefore not thereafter beexercisable) following the exercise of such Option to the extent of (i) sharesused to pay the exercise price of an Option under a “net exercise”, (ii) sharesactually delivered to the Participant as a result of such exercise and (iii)shares withheld for purposes of tax withholding.

 

**(d)           Transferability**.  An Option is transferable by will or by thelaws of descent and distribution.  AnOption also may be transferable upon written consent of the Company if, at thetime of transfer, a Form S-8 registration statement under the Securities Act isavailable for the exercise of the Option and the subsequent resale of the underlyingsecurities.  In addition, anOptionholder may, by delivering written notice to the Company, in a formprovided by or otherwise satisfactory to the Company, designate a third partywho, in the event of the death of the Optionholder, shall thereafter beentitled to exercise the Option.

 

**(e)           Vesting**.  Options shallvest as follows:

 

**(i)           **Initial Grants:  1/36th of theshares of Common Stock subject to an Initial Grant shall vest monthly overthree (3) years.

 

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**(ii)          **Annual Grants:  1/12th of theshares of Common Stock subject to an Annual Grant shall vest monthly over one(1) year.

 

**(f)            Termination of Continuous Service**. In the event that an Optionholder’s Continuous Service terminates forany reason, the Optionholder may exercise his or her Option (to the extent thatthe Optionholder was entitled to exercise such Option as of the date oftermination of Continuous Service) but only within such period of time endingon the expiration of the term of the Option as set forth in the OptionAgreement.  If, after termination ofContinuous Service, the Optionholder does not exercise his or her Option withinthe time specified in the Option Agreement, the Option shall terminate.

 

**8.            **SECURITIES LAWCOMPLIANCE.

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The Company shall seek to obtain from each regulatorycommission or agency having jurisdiction over the Plan such authority as may berequired to grant Options and to issue and sell shares of Common Stock uponexercise of the Options; *provided, however,*thatthis undertaking shall not require the Company to register under the SecuritiesAct the Plan, any Option or any Common Stock issued or issuable pursuant to anysuch Option.  If, after reasonableefforts, the Company is unable to obtain from any such regulatory commission oragency the authority which counsel for the Company deems necessary for thelawful issuance and sale of Common Stock under the Plan, the Company shall berelieved from any liability for failure to issue and sell Common Stock uponexercise of such Options unless and until such authority is obtained.

 

**9.            **USE OF PROCEEDS FROM STOCK.

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Proceeds from the sale of Common Stock pursuant toOptions shall constitute general funds of the Company.

 

**10.         **MISCELLANEOUS.

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**(a)           Acceleration of Exercisability and Vesting.** The Board shall have the power to accelerate the time at which an Optionmay first be exercised or the time during which an Option or any part thereofwill vest in accordance with the Plan, notwithstanding the provisions in thePlan or the Option stating the time at which it may first be exercised or thetime during which it will vest.

 

**(b)           Stockholder Rights**.  NoOptionholder shall be deemed to be the holder of, or to have any of the rightsof a holder with respect to, any shares of Common Stock subject to such Optionunless and until such Optionholder has satisfied all requirements for exerciseof the Option pursuant to its terms.

 

**(c)           No Service Rights**.  Nothing inthe Plan, any Option Agreement or other instrument executed thereunder or anyOption granted pursuant thereto shall confer upon any Optionholder any right tocontinue to serve the Company as a Non-Employee Director or shall affect theright of the Company or an Affiliate to terminate (i) the employment of anEmployee with or without notice and with or without cause, (ii) the service ofa Consultant pursuant to the terms of such Consultant’s agreement with theCompany or an Affiliate or (iii) the service of a Director pursuant to theBylaws of the Company or an Affiliate, and any applicable provisions of 

 

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the corporate law of the state in which the Company orthe Affiliate is incorporated, as the case may be.

 

**(d)           Investment Assurances**.  The Companymay require an Optionholder, as a condition of exercising or acquiring CommonStock under any Option, (i) to give written assurances satisfactory to theCompany as to the Optionholder’s knowledge and experience in financial andbusiness matters and/or to employ a purchaser representative reasonablysatisfactory to the Company who is knowledgeable and experienced in financialand business matters and that he or she is capable of evaluating, alone ortogether with the purchaser representative, the merits and risks of exercisingthe Option; and (ii) to give written assurances satisfactory to the Companystating that the Optionholder is acquiring the Common Stock subject to theOption for the Optionholder’s own account and not with any present intention ofselling or otherwise distributing the Common Stock.  The foregoing requirements, and anyassurances given pursuant to such requirements, shall be inoperative if (1) theissuance of the shares of Common Stock upon the exercise or acquisition ofCommon Stock under the Option has been registered under a then currentlyeffective registration statement under the Securities Act or (2) as to anyparticular requirement, a determination is made by counsel for the Company thatsuch requirement need not be met in the circumstances under the then applicablesecurities laws.  The Company may, uponadvice of counsel to the Company, place legends on stock certificates issuedunder the Plan as such counsel deems necessary or appropriate in order tocomply with applicable securities laws, including, but not limited to, legendsrestricting the transfer of the Common Stock.

 

**(e)           Withholding Obligations**.  To the extentprovided by the terms of an Option Agreement, the Company may in its solediscretion, satisfy any federal, state or local tax withholding obligation relatingto an Option by any of the following means (in addition to the Company’s rightto withhold from any compensation paid to the Participant by the Company) or bya combination of such means:  (i) causingthe Optionholder to tender a cash payment; (ii) withholding shares of CommonStock from the shares of Common Stock issued or otherwise issuable to theOptionholder in connection with the Option; or (iii) via such other method asmay be set forth in the Option Agreement.

 

**11.         **ADJUSTMENTS UPON CHANGES IN COMMON STOCK.

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**(a)           Capitalization Adjustments**.  If any changeis made in, or other event occurs with respect to, the Common Stock subject tothe Plan, or subject to any Option, without the receipt of consideration by theCompany (through merger, consolidation, reorganization, recapitalization,reincorporation, stock dividend, dividend in property other than cash, stocksplit, liquidating dividend, combination of shares, exchange of shares, changein corporate structure or other transaction not involving the receipt ofconsideration by the Company (each a “***Capitalization Adjustment***”)), the Plan willbe appropriately adjusted in the class(es) and maximum number of securitiessubject both to the Plan pursuant to Section 4 and to the nondiscretionaryOptions specified in Section 6, and the outstanding Options will beappropriately adjusted in the class(es) and number of securities and price pershare of Common Stock subject to such outstanding Options.  The Board shall make such adjustments, andits determination shall be final, binding and conclusive.  (Notwithstanding the foregoing, the 

 

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conversion of any convertible securities of theCompany shall not be treated as a transaction “without receipt of consideration”by the Company.)

 

**(b)           Dissolution or Liquidation**.  In the eventof a dissolution or liquidation of the Company, then all outstanding Optionsshall terminate immediately prior to the completion of such dissolution orliquidation.

 

**(c)          ****Corporate Transaction**.  In the eventof a Corporate Transaction, any surviving corporation or acquiring corporationmay assume or continue any or all Options outstanding under the Plan or maysubstitute similar stock options for Options outstanding under the Plan(including options to acquire the same consideration paid to the stockholdersof the Company, as the case may be, pursuant to the CorporateTransaction).  In the event that anysurviving corporation or acquiring corporation does not assume or continue allsuch outstanding Options or substitute similar stock options for all suchoutstanding Options, then with respect to Options that have been not assumed,continued or substituted and that are held by Optionholders whose ContinuousService has not terminated prior to the effective time of the CorporateTransaction, the vesting of such Options (and, if applicable, the time at whichsuch Options may be exercised) shall (contingent upon the effectiveness of theCorporate Transaction) be accelerated in full to a date prior to the effectivetime of such Corporate Transaction as the Board shall determine (or, if theBoard shall not determine such a date, to the date that is five (5) days priorto the effective time of the Corporate Transaction), and such Options shallterminate on the effective time of the Corporate Transaction if not exercised(if applicable) at or prior to such effective time.  With respect to any other Options outstandingunder the Plan that have not been assumed, continued or substituted, thevesting of such Options (and, if applicable, the time at which such Options maybe exercised) shall not be accelerated, unless otherwise provided in a writtenagreement between the Company or any Affiliate and the Optionholder, and suchOptions shall terminate if not exercised (if applicable) prior to the effectivetime of the Corporate Transaction.

 

**(d)          ****Change in Control.**  An Option maybe subject to additional acceleration of vesting and exercisability upon orafter a Change in Control as may be provided in the Option Agreement for suchOption or as may be provided in any other written agreement between the Companyor any Affiliate and the Optionholder, but in the absence of such provision, nosuch acceleration shall occur.

 

**12.         **AMENDMENT OF THE PLAN AND OPTIONS.

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**(a)           Amendment of Plan**.  Subject tothe limitations, if any, of applicable law, the Board, at any time and fromtime to time, may amend the Plan. However, except as provided in Section 11(a) relating to CapitalizationAdjustments, no amendment shall be effective unless approved by thestockholders of the Company to the extent stockholder approval is necessary tosatisfy applicable law.

 

**(b)           Stockholder Approval**.  The Board, inits sole discretion, may submit any other amendment to the Plan for stockholderapproval.

 

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**(c)           No Impairment of Rights**.  Rights underany Option granted before amendment of the Plan shall not be impaired by anyamendment of the Plan unless (i) the Company requests the consent of the Optionholderand (ii) the Optionholder consents in writing.

 

**(d)           Amendment of Options**.  The Board, atany time, and from time to time, may amend the terms of any one or moreOptions, including, but not limited to, amendments to provide terms morefavorable than previously provided in the agreement evidencing an Option,subject to any specified limits in the Plan that are not subject to Boarddiscretion; *provided, however,*thatthe rights under any Option shall not be impaired by any such amendment unless(i) the Company requests the consent of the Optionholder and (ii) theOptionholder consents in writing.

 

**13.         **TERMINATION OR SUSPENSION OF THE PLAN.

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**(a)           Plan Term**.  The Board maysuspend or terminate the Plan at any time. No Options may be granted under thePlan while the Plan is suspended or after it is terminated.

 

**(b)           No Impairment of Rights**.  Suspension ortermination of the Plan shall not impair rights and obligations under anyOption granted while the Plan is in effect except with the written consent ofthe Optionholder.

 

**14.         **EFFECTIVE DATE OF PLAN.

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                The Plan shallbecome effective on the IPO Date, but no Option shall be exercised unless anduntil the Plan has been approved by the stockholders of the Company, whichapproval shall be within twelve (12) months before or after the date the Planis adopted by the Board.

 

**15.         **CHOICE OF LAW.

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The law of the state of California shall govern all questionsconcerning the construction, validity and interpretation of this Plan, withoutregard to such state’s conflict of laws rules.

 

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