exv10w26






Exhibit 10.26




SOLEXA, INC.




AMENDED AND RESTATED 1992 STOCK OPTION PLAN

Termination Date: March 11, 2006




1.    Purposes.




     (a) Eligible Option Recipients. The persons eligible to receive Options are the Employees,
Directors and Consultants of the Company and its Affiliates.



     (b) Available Options. The purpose of the Plan is to provide a means by which eligible
recipients of Options may be given an opportunity to benefit from increases in value of the Common
Stock through the granting of the following Options: (i) Incentive Stock Options, and (ii)
Nonstatutory Stock Options.



     (c) General Purpose. The Company, by means of the Plan, seeks to retain the services of the
group of persons eligible to receive Options, to secure and retain the services of new members of
this group and to provide incentives for such persons to exert maximum efforts for the success of
the Company and its Affiliates.



2.    Definitions.




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



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



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



     (d) “Committee” means a Committee appointed by the Board in accordance with subsection 3(c).



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



     (f) “Company” means Solexa, Inc., a Delaware corporation.



     (g) “Consultant” means any person, including an advisor, (1) engaged by the Company or an
Affiliate to render consulting or advisory services and who is compensated for such services or (2)
who is a member of the Board of Directors of an Affiliate. However, the term “Consultant” shall
not include either Directors of the Company who are not compensated by the Company for their
services as Directors or Directors of the Company who are merely paid a director’s fee by the
Company for their services as Directors.



     (h) “Continuous Service” means that the Optionholder’s service with the Company or an
Affiliate, whether as an Employee, Director or Consultant, is not interrupted or terminated. The
Optionholder’s Continuous Service shall not be deemed to have terminated merely because of a change
in the capacity in which the Optionholder renders service to the Company or an



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Affiliate as an
Employee, Consultant or Director or a change in the entity for which the Optionholder renders such
service, provided that there is no interruption or termination of the Optionholder’s Continuous
Service. For example, a change in status from an Employee of the Company to a Consultant of an
Affiliate or a Director of the Company will not constitute an interruption of Continuous Service.
The Board or the chief executive officer of the Company, in that party’s sole discretion, may
determine whether Continuous Service shall be considered interrupted in the case of any leave of
absence approved by that party, including sick leave, military leave or any other personal leave.



     (i) “Covered Employee” means the chief executive officer and the four (4) other highest
compensated officers of the Company for whom total compensation is required to be reported to
stockholders under the Exchange Act, as determined for purposes of Section 162(m) of the Code.



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



     (k) “Disability” means the permanent and total disability of a person with in the meaning of
Section 22(e)(3) of the Code; provided, however, that to the extent that Section 260.140.41 of
Title 10 of the California Code of Regulations applies to an Option, “Disability” shall mean the
inability of a person, in the opinion of a qualified physician acceptable to the Company, to
perform the major duties of that person’s position with the Company or an Affiliate because of the
sickness or injury of the person and such inability results in termination of employment by the
Company or an Affiliate.



     (l) “Employee” means any person employed by the Company or an Affiliate. Mere service as a
Director or payment of a director’s fee by the Company or an Affiliate shall not be sufficient to
constitute “employment” by the Company or an Affiliate.



     (m) “Exchange Act” means the Securities Exchange Act of 1934, as amended.



     (n) “Fair Market Value” means, as of any date, the value of the Common Stock determined as
follows and in each case in a manner consistent with Section 260.140.50 of Title 10 of the
California Code of Regulations:



          (i) If the Common Stock is listed on any established stock exchange or traded on the Nasdaq
National Market, Nasdaq SmallCap Market or Over The Counter Bulletin Board system the Fair Market
Value of a share of Common Stock shall be the closing sales price for such stock (or the closing
bid, if no sales were reported) as quoted on such exchange, market or system (or the exchange,
market or system with the greatest volume of trading the Common Stock) on the last market trading
day prior to determination, as reported in The Wall Street Journal or such other source as the
Board deems reliable.



          (ii) In the absence of an established market or system for the Common Stock, the Fair Market
Value shall be determined in good faith by the Board.



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



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     (p) “Non-Employee Director” means a Director of the Company who either (i) is not a current
Employee or Officer of the Company or its parent or a subsidiary, does not receive compensation
(directly or indirectly) from the Company or its parent or a subsidiary for services rendered as a
consultant or in any capacity other than as a Director (except for an amount as to which disclosure
would not be required under Item 404(a) of Regulation S-K promulgated pursuant to the Securities
Act (“Regulation S-K”)), does not possess an interest in any other transaction as to which
disclosure would be required under Item 404(a) of Regulation S-K and is not engaged in a business
relationship as to which disclosure would be required under Item 404(b) of Regulation S-K; or (ii)
is otherwise considered a “non-employee director” for purposes of Rule 16b-3.



     (q) “Nonstatutory Stock Option” means an Option not intended to qualify as an Incentive Stock
Option.



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



     (s) “Option” means an Incentive Stock Option or a Nonstatutory Stock Option granted pursuant
to the Plan.



     (t) “Option Agreement” means a written agreement between the Company and an Optionholder
evidencing the terms and conditions of an individual Option grant. Each Option Agreement shall be
subject to the terms and conditions of the Plan.



     (u) “Optionholder” means a person to whom an Option is granted pursuant to the Plan or, if
applicable, such other person who holds an outstanding Option.



     (v) “Outside Director” means a Director of the Company who either (i) is not a current
employee of the Company or an “affiliated corporation” (within the meaning of Treasury Regulations
promulgated under Section 162(m) of the Code), is not a former employee of the Company or an
“affiliated corporation” receiving compensation for prior services (other than benefits under a tax
qualified pension plan), was not an officer of the Company or an “affiliated corporation” at any
time and is not currently receiving direct or indirect remuneration from the Company or an
“affiliated corporation” for services in any capacity other than as a Director or (ii) is otherwise
considered an “outside director” for purposes of Section 162(m) of the Code.



     (w) “Plan” means this SOLEXA, Inc. 1992 Stock Option Plan.



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



     (y) “Securities Act” means the Securities Act of 1933, as amended.



     (z) “Ten Percent Stockholder” means a person who owns (or is deemed to own pursuant to Section
424(d) of the Code) stock possessing more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or of any of its Affiliates.



3.    Administration.




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     (a) Administration by Board. The Board will administer the Plan unless and until the Board
delegates administration to a Committee, as provided in subsection 3(c).



     (b) Powers of Board. The board shall have the power, subject to, and within the limitations
of, the express provisions of the Plan:



          (i) To determine from time to time which of the persons eligible under the Plan shall be
granted Options; when and how each Option shall be granted; what type or combination of types of
Option shall be granted; the provisions of each Option granted (which need not be identical),
including the time or times when a person shall be permitted to receive stock pursuant to an
Option; and the number of shares with respect to which an Option shall be granted to each such
person.



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



          (iii) To amend the Plan or an Option as provided in Section 11.



          (iv) Generally, to exercise such powers and to perform such acts as the Board deems necessary
or expedient to promote the best interests of the Company which are not in conflict with the
provisions of the Plan.



     (c) Delegation to Committee.



          (i) General. The Board may delegate administration of the Plan to a Committee or Committees
of one or more members of the Board, and the term “Committee” shall apply to any person or persons
to whom such authority has been delegated. If administration is delegated to a Committee, the
Committee shall have, in connection with the administration of the Plan, the powers theretofore
possessed by the Board, including the power to delegate to a subcommittee any of the administrative
powers the Committee is authorized to exercise (and references in this Plan to the Board shall
thereafter be to the Committee or subcommittee), subject, however, to such resolutions, not
inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board.
The Board may abolish the Committee at any time and revest in the Board the administration of the
Plan.



          (ii) Committee Composition when Common Stock is Publicly Traded. At such time as the Common
Stock is publicly traded, in the discretion of the Board, a Committee may consist solely of two or
more Outside Directors, in accordance with Section 162(m) of the Code, and/or solely of two or more
Non-Employee Directors, in accordance with Rule 16b-3. Within the scope of such authority,
the Board or the Committee may (i) delegate to a committee
of one or more members of the Board who are not Outside Directors, the authority to grant Options
to eligible persons who are either (a) not then Covered Employees and are not expected to be
Covered Employees at the time of recognition of income resulting from such Option or (b) not
persons with respect to whom the Company wishes to comply with Section 162(m) of the Code and/or
(ii) delegate to a committee of one or more members of the Board who are not Non-



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Employee Directors
the authority to grant Options to eligible persons who are not then subject to Section 16 of the
Exchange Act.



4.    Shares Subject to the Plan.




     (a) Share Reserve. Subject to the provisions of Section 10 relating to adjustments upon
changes in stock and Section 4(d) below, the stock that may be issued pursuant to Options shall not
exceed in the aggregate one million five hundred thirty-five thousand five hundred twenty-six
(1,535,526) shares of Common Stock less any shares of Common Stock remaining outstanding which were
originally issued to Employees, Officers or Directors of, or Consultants to, the Company pursuant
to stock purchase agreements or similar compensatory arrangements approved by the Board.



     (b) Reversion of Shares to the Share Reserve. If any Option shall for any reason expire or
otherwise terminate, in whole or in part, without having been exercised in full, the stock not
acquired under such Option shall revert to and again become available for issuance under the Plan.
If any Common Stock acquired pursuant to the exercise of an Option shall for any reason be
repurchased by the Company under an unvested share repurchase option provided under the Plan, the
stock repurchased by the Company under such repurchase option shall not revert to and again become
available for issuance under the Plan.



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



     (d) Reserve Limitation. Notwithstanding Section 4(a), if at the time of each grant of a Stock
Award under the Plan, the Company is subject to Section 260.140.45 of Title 10 of the California
Code of Regulations (“Section 260.140.45”), and to the extent required by Section 260.140.45 the
total number of securities issuable upon exercise of all outstanding options of the Company and the
total number of shares provided for under this Plan or any other equity incentive, stock bonus or
similar plan or agreement of the Company shall not exceed thirty percent (30%) of the then
outstanding capital stock of the Company (as measured as set forth in Section 260.140.45), unless
stockholder approval to exceed thirty percent (30%) has been obtained in compliance with Section
260.140.45, in which case the limit shall be such higher percentage as approved by the
stockholders.



5.    Eligibility.




     (a) Eligibility for Specific Options. Incentive Stock Options may be granted only to
Employees. Nonstatutory Stock Options may be granted to Employees, Directors and Consultants.



     (b) Ten Percent Stockholders.



          (i) So long as the Company is subject to Section 260.140.41 of Title 10 of the California Code
of Regulations, no Ten Percent Stockholder shall be eligible for the grant of a Nonstatutory Stock
Option unless the exercise price of such Option is at least one hundred ten percent (110%) of the
Fair Market Value of the Common Stock at the date of grant and the Option is not exercisable after
the expiration of five (5) years from the date of grant; provided,



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however, that a Nonstatutory
Stock Option may be granted at a lower exercise price and a longer term if a lower percentage of
the Fair Market Value of the Common Stock on the date of grant and a longer term is permitted by
Section 260.140.41 of Title 10 of the California Code of Regulations at the time of the grant of
the Nonstatutory Stock Option.



          (ii) No Ten Percent Stockholder shall be eligible for the grant of a Nonstatutory Stock Option
unless the exercise price of such Option is at least one hundred ten percent (110%) of the Fair
Market Value of the Common Stock at the date of grant and the Option is not exercisable after the
expiration of five (5) years from the date of grant.



          (iii) So long as the Company is subject to Section 260.140.42 of Title 10 of the California
Code of Regulations, a Ten Percent Stockholder shall not be granted a restricted stock award unless
the purchase price of the restricted stock is at least (A) one hundred percent (100%) of the Fair
Market Value of the Common Stock on the date of grant or (B) such lower percentage of the Fair
Market Value of the Common Stock on the date of grant as is permitted by Section 260.140.42 of
Title 10 of the California Code of Regulations at the time of the grant of the restricted stock
award.



     (c) Section 162(m) Limitation. Subject to the provisions of Section 10 relating to
adjustments upon changes in stock, no employee shall be eligible to be granted Options covering
more than one hundred forty two thousand eight hundred fifty seven (142,857) shares of the Common
Stock during any calendar year.



     (d) Consultants.



          (i) A Consultant shall not be eligible for the grant of an Option if, at the time of grant, a
Form S-8 Registration Statement under the Securities Act (“Form S-8”) is not available to register
either the offer or the sale of the Company’s securities to such Consultant because of the nature
of the services that the Consultant is providing to the Company, or because the Consultant is not a
natural person, or as otherwise provided by the rules governing the use of Form S-8, unless the
Company determines both (i) that such grant (A) shall be registered in another manner under the
Securities Act (e.g., on a Form S-3 Registration Statement) or (B) does not require registration
under the Securities Act in order to comply with the requirements of the Securities Act, if
applicable, and (ii) that such grant complies with the securities laws of all other relevant
jurisdictions.



          (ii) Form S-8 generally is available to consultants and advisors only if (i) they are natural
persons; (ii) they provide bona fide services to the issuer, its parents, its majority-owned
subsidiaries or majority-owned subsidiaries of the issuer’s parent; and (iii) the services are not
in connection with the offer or sale of securities in a capital-raising transaction, and do not
directly or indirectly promote or maintain a market for the issuer’s securities.



6.    Option Provisions.




     Each Option shall be in such form and shall contain such terms and conditions as the Board
shall deem appropriate. All Options shall be separately designated Incentive Stock Options or
Nonstatutory Stock Options at the time of grant, and a separate certificate or certificates will be
issued for shares purchased on exercise of each type of Option. The



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provisions of separate Options
need not be identical, but each Option shall include (through incorporation of provisions hereof by
reference in the Option or otherwise) the substance of each of the following provisions:



     (a) Term. Subject to the provisions of subsection 5(b) regarding Ten Percent Stockholders, no
Option shall be exercisable after the expiration of ten (10) years from the date it was granted.



     (b) Exercise Price of an Incentive Stock Option. Subject to the provisions of subsection 5(b)
regarding Ten Percent Stockholders, the exercise price of each Incentive Stock Option shall be not
less than one hundred percent (100%) of the Fair Market Value of the stock subject to the Option on
the date the Option is granted. Notwithstanding the foregoing, an Incentive Stock Option may be
granted with an exercise price lower than that set forth in the preceding sentence if such Option
is granted pursuant to an assumption or substitution for another option in a manner satisfying the
provisions of Section 424(a) of the Code.



     (c) Exercise Price of a Nonstatutory Stock Option. Subject to the provisions of subsection
5(b) regarding Ten Percent Stockholders, the exercise price of each Nonstatutory Stock Option shall
be not less than eighty-five percent (85%) of the Fair Market Value of the stock subject to the
Option on the date the Option is granted. Notwithstanding the foregoing, a Nonstatutory Stock
Option may be granted with an exercise price lower than that set forth in the preceding sentence if
such Option is granted pursuant to an assumption or substitution for another option in a manner
satisfying the provisions of Section 424(a) of the Code.



     (d) Consideration. The purchase price of stock acquired pursuant to an Option shall be paid,
to the extent permitted by applicable statutes and regulations, either (i) in cash at the time the
Option is exercised or (ii) at the discretion of the Board at the time of the grant of the Option
(or subsequently in the case of a Nonstatutory Stock Option) by delivery to the Company of other
Common Stock, according to a deferred payment or other arrangement (which may include, without
limiting the generality of the foregoing, the use of other Common Stock) with the Optionholder or
in any other form of legal consideration that may be acceptable to the Board; provided, however,
that at any time that the Company is incorporated in Delaware, payment of the Common Stock’s “par
value,” as defined in the Delaware General Corporation Law, shall not be made by deferred payment.



     In the case of any deferred payment arrangement, interest shall be compounded at least
annually and shall be charged at the minimum rate of interest necessary to avoid the treatment as
interest, under any applicable provisions of the Code, of any amounts other than amounts stated to
be interest under the deferred payment arrangement or at such higher rate of interest necessary in
order to avoid variable award treatment for financial accounting purposes.



     (e) Transferability of an Incentive Stock Option. An Incentive Stock Option shall not be
transferable except by will or by the laws of descent and distribution and shall be exercisable
during the lifetime of the Optionholder only by the Optionholder. Notwithstanding the foregoing
provisions of this subsection 6(e), the Optionholder may, by delivering written notice to the
Company, in a form satisfactory to the Company, designate a third party who, in the event of the
death of the Optionholder, shall thereafter be entitled to exercise the Option.



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     (f) Transferability of a Nonstatutory Stock Option. A Nonstatutory Stock Option shall be
transferable to the extent provided in the Option Agreement; provided however, to the extent that
the Company is subject to Section 260.140.41(d) of Title 10 of the California Code of Regulations
at the time of the grant of the Nonstatutory Stock Option, the Nonstatutory Stock Option shall not
be transferable except by will or by the laws of descent and distribution and shall be exercisable
during the lifetime of the Optionholder only by the Optionholder. If the Nonstatutory Stock Option
does not provide for transferability, then the Nonstatutory Stock Option shall not be transferable
except by will or by the laws of descent and distribution and shall be exercisable during the
lifetime of the Optionholder only by the Optionholder. Notwithstanding the foregoing provisions of
this subsection 6(f), the Optionholder may, by delivering written notice to the Company, in a form
satisfactory to the Company, designate a third party who, in the event of the death of the
Optionholder, shall thereafter be entitled to exercise the Option.



     (g) Vesting Generally. The total number of shares of Common Stock subject to an Option may,
but need not, vest and therefore become exercisable in periodic installments which may, but need
not, be equal. The Option may be subject to such other terms and conditions on the time or times
when it may be exercised (which may be based on performance or other criteria) as the Board may
deem appropriate. The vesting provisions of individual Options may vary. The provisions of this
subsection 6(g) are subject to any Option provisions governing the minimum number of shares as to
which an Option may be exercised. Notwithstanding the foregoing, to the extent that the Company is
subject to the following restrictions on vesting under Section 260.140.41(f) of Title 10 of the
California Code of Regulations at the time of the grant of the Option, then an Option granted to an
Employee who is not an Officer or Director on the date of grant shall provide for vesting of the
total number of shares of Common Stock at a rate of at least twenty percent (20%) per year over
five (5) years from the date the Option was granted, subject to reasonable conditions such as
continued employment.



     (h) Termination of Continuous Service. In the event an Optionholder’s Continuous Service
terminates (other than upon the Optionholder’s death or Disability), the Optionholder may exercise
his or her Option (to the extent that the Optionholder was entitled to exercise it as of the date
of termination) but only within such period of time ending on the earlier of (i) the date three (3)
months following the termination of the Optionholder’s Continuous Service (or such longer or
shorter period specified in the Option Agreement), which period, for so long as the Company is
subject to Section 260.140.41(g) of Title 10 of the California Code of Regulations, shall not be
less than thirty (30) days unless such termination is for cause), or (ii) the expiration of the
term of the Option as set forth in the Option Agreement. If, after termination, the Optionholder
does not exercise his or her Option within the time specified in the Option Agreement, the Option
shall terminate.



     (i) Extension of Termination Date. An Optionholder’s Option Agreement may also provide that
if the exercise of the Option following the termination of the Optionholder’s Continuous Service
(other than upon the Optionholder’s death or Disability) would be prohibited at any time solely
because the issuance of shares would violate the registration requirements under the Securities
Act, then the Option shall terminate on the earlier of (i) the expiration of the term of the Option
set forth in subsection 6(a) or (ii) the expiration of a period of three (3)



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months after the
termination of the Optionholder’s Continuous Service during which the exercise of the Option would
not be in violation of such registration requirements.



     (j) Disability of Optionholder. In the event an Optionholder’s Continuous Service terminates
as a result of the Optionholder’s Disability, the Optionholder may exercise his or her Option (to
the extent that the Optionholder was entitled to exercise it as of the date of termination), but
only within such period of time ending on the earlier of (i) the date twelve (12) months following
such termination (or such longer or shorter period specified in the Option Agreement, which period,
for so long as the Company is subject to Section 260.140.41(g) of Title 10 of the California Code
of Regulations, shall not be less than six (6) months) or (ii) the expiration of the term of the
Option as set forth in the Option Agreement. If, after termination, the Optionholder does not
exercise his or her Option within the time specified herein, the Option shall terminate.



     (k) Death of Optionholder. In the event (i) an Optionholder’s Continuous Service terminates
as a result of the Optionholder’s death or (ii) the Optionholder dies within the period (if any)
specified in the Option Agreement after the termination of the Optionholder’s Continuous Service
for a reason other than death, then the Option may be exercised (to the extent the Optionholder was
entitled to exercise the Option as of the date of death) by the Optionholder’s estate, by a person
who acquired the right to exercise the Option by bequest or inheritance or by a person designated
to exercise the option upon the Optionholder’s death pursuant to subsection 6(e) or 6(f), but only
within the period ending on the earlier of (1) the date twelve (12) months following the date of
death (or such longer or shorter period specified in the Option Agreement, which period, for so
long as the Company is subject to Section 260.140.41(g) of Title 10 of the California Code of
Regulations, shall not be less than six (6) months) or (2) the expiration of the term of such
Option as set forth in the Option Agreement. If, after death, the Option is not exercised within
the time specified herein, the Option shall terminate.



     (l) Early Exercise. The Option may, but need not, include a provision whereby the
Optionholder may elect at any time before the Optionholder’s Continuous Service terminates to
exercise the Option as to any part or all of the shares subject to the Option prior to the full
vesting of the Option. Subject to the “Repurchase
Limitation” of Section 9(h) (for so long as the Company is
subject to Sections 260.140.41 and 260.140.42 of Title 10 of the
California Code of Regulations), any unvested shares so purchased may be subject to an unvested share
repurchase option in favor of the Company or to any other restriction the Board determines to be
appropriate. Provided
that the “Repurchase Limitation” in Section 9(h) is not
violated (for so long as the Company is subject to Section 260.140.41
and 260.140.42 of Title 10 of the California Code of Regulations),
the Company will not exercise its repurchase option until at least
six (6) months (or such longer or shorter period of time required to
avoid a charge to earnings for financial accounting purposes) have
elapsed following exercise of the Option unless the Board otherwise
specifically provides in the Option.




7.    Covenants of the Company.




     (a) Availability of Shares. During the terms of the Options, the Company shall keep available
at all times the number of shares of Common Stock required to satisfy such Options.



     (b) Securities Law Compliance. The Company shall seek to obtain from each regulatory
commission or agency having jurisdiction over the Plan such authority as may be required to grant
Options and to issue and sell shares of Common Stock upon exercise of the Options; provided,
however, that this undertaking shall not require the Company to register under the Securities Act
the Plan, any Option or any stock issued or issuable pursuant to any such Option. If, after
reasonable efforts, the Company is unable to obtain from any such regulatory commission or agency
the authority which counsel for the Company deems necessary



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for the lawful issuance and sale of
stock under the Plan, the Company shall be relieved from any liability for failure to issue and
sell stock upon exercise of such Options unless and until such authority is obtained.



8.    Use of Proceeds from Stock.




     Proceeds from the sale of stock pursuant to Options shall constitute general funds of the
Company.



9.    Miscellaneous.




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



     (b) Stockholder Rights. No Optionholder shall be deemed to be the holder of, or to have any
of the rights of a holder with respect to, any shares subject to such Option unless and until such
Optionholder has satisfied all requirements for exercise of the Option pursuant to its terms.



     (c) No Employment or other Service Rights. Nothing in the Plan or any instrument executed or
Option granted pursuant thereto shall confer upon any Optionholder or other holder of Options any
right to continue to serve the Company or an Affiliate in the capacity in effect at the time the
Option was granted or shall affect the right of the Company or an Affiliate to terminate (i) the
employment of an Employee with or without notice and with or without cause, (ii) the service of a
Consultant pursuant to the terms of such Consultant’s agreement with the Company or an Affiliate or
(iii) the service of a Director pursuant to the Bylaws of the Company or an Affiliate, and any
applicable provisions of the corporate law of the state in which the Company or the Affiliate is
incorporated, as the case may be.



     (d) Incentive Stock Option $100,000 Limitation. To the extent that the aggregate Fair Market
Value (determined at the time of grant) of stock with respect to which Incentive Stock Options are
exercisable for the first time by any Optionholder during any calendar year (under all plans of the
Company and its Affiliates) exceeds one hundred thousand dollars ($100,000), the Options or
portions thereof which exceed such limit (according to the order in which they were granted) shall
be treated as Nonstatutory Stock Options.



     (e) Investment Assurances. The Company may require an Optionholder, as a condition of
exercising or acquiring stock under any Option, (i) to give written assurances satisfactory to the
Company as to the Optionholder’s knowledge and experience in financial and
business matters and/or to employ a purchaser representative reasonably satisfactory to the
Company who is knowledgeable and experienced in financial and business matters and that he or she
is capable of evaluating, alone or together with the purchaser representative, the merits and risks
of exercising the Option; and (ii) to give written assurances satisfactory to the Company stating
that the Optionholder is acquiring the stock subject to the Option for the Optionholder’s own
account and not with any present intention of selling or otherwise distributing the stock. The
foregoing requirements, and any assurances given pursuant to such requirements, shall be



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inoperative if (iii) the issuance of the shares upon the exercise or acquisition of stock under the
Option has been registered under a then currently effective registration statement under the
Securities Act or (iv) as to any particular requirement, a determination is made by counsel for the
Company that such requirement need not be met in the circumstances under the then applicable
securities laws. The Company may, upon advice of counsel to the Company, place legends on stock
certificates issued under the Plan as such counsel deems necessary or appropriate in order to
comply with applicable securities laws, including, but not limited to, legends restricting the
transfer of the stock.



     (f) Withholding Obligations. To the extent provided by the terms of an Option Agreement, the
Optionholder may satisfy any federal, state or local tax withholding obligation relating to the
exercise or acquisition of stock under an Option by any of the following means (in addition to the
Company’s right to withhold from any compensation paid to the Optionholder by the Company) or by a
combination of such means: (i) tendering a cash payment; (ii) authorizing the Company to withhold
shares from the shares of the Common Stock otherwise issuable to the Optionholder as a result of
the exercise or acquisition of stock under the Option; or (iii) delivering to the Company owned and
unencumbered shares of the Common Stock.



     (g) Information Obligation. To the extent required by Section 260.140.46 of Title 10 of the
California Code of Regulations, the Company shall deliver financial statements to Participants at
least annually. This Section 9(g) shall not apply to key Employees whose duties in connection with
the Company assure them access to equivalent information.




     (h) [Deleted
and Reserved]



     (i) Fair Market Value. If the repurchase option gives the Company the right to repurchase the
shares of Common Stock upon termination of Continuous Service at not less than the Fair
Market Value of the shares of Common Stock to be purchased on the date of termination of
Continuous Service, then (i) the right to repurchase shall be exercised for cash or
cancellation of purchase money indebtedness for the shares of Common Stock within ninety
(90) days of termination of Continuous Service (or in the case of shares of Common Stock
issued upon exercise of Stock Awards after such date of termination, within ninety (90) days
after the date of the exercise) or such longer period as may be agreed to by the Company and
the Participant (for example, for purposes of satisfying the requirements of Section
1202(c)(3) of the Code regarding “qualified small business stock”) and (ii) the right
terminates when the shares of Common Stock become publicly traded.



     (j) Original Purchase Price. If the repurchase option gives the Company the right to repurchase
the shares of Common Stock upon termination of Continuous Service at the lower of (i) the
Fair Market Value of the shares of Common Stock on the date of repurchase or (ii) their
original purchase price, then (x) the right to repurchase at the original purchase price
shall lapse at the rate of at least twenty percent (20%) of the shares of Common Stock per
year over five (5) years from the date the Stock Award is granted (without respect to the
date the Stock Award was exercised or became exercisable) and (y) the right to repurchase
shall be exercised for cash or cancellation of purchase money indebtedness for the shares of
Common Stock within ninety (90) days of termination of Continuous Service (or in the case of
shares of Common Stock issued upon exercise of Options after such date of termination,
within ninety (90) days after the date of the exercise) or such longer period as may be
agreed to by the Company and the Participant (for example, for purposes of satisfying the
requirements of Section 1202(c)(3) of the Code regarding “qualified small business stock”).





10.    Adjustments upon Changes in Stock.




     (a) Capitalization Adjustments. If any change is made in the stock subject to the Plan, or
subject to any Option, without the receipt of consideration by the Company (through merger,
consolidation, reorganization, recapitalization, reincorporation, stock dividend, dividend in
property other than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the receipt of
consideration by the Company), the Plan will be appropriately adjusted in the class(es) and maximum
number of securities subject to the Plan pursuant to subsection 4(a) and the maximum number of
securities subject to award to any person pursuant to subsection 5(c), and the outstanding Options
will be appropriately adjusted in the class(es) and number of securities and price per share of
stock subject to such outstanding Options. Such adjustments shall be made by the Board, the
determination of which shall be final, binding and conclusive. (The conversion of any convertible
securities of the Company shall not be treated as a transaction “without receipt of consideration”
by the Company.)



     (b) Dissolution or Liquidation. In the event of a dissolution or liquidation of the Company,
then such Options shall be terminated if not exercised (if applicable) prior to such event.



     (c) Asset Sale, Merger, Consolidation or Reverse Merger. In the event of (1) a sale of
substantially all of the assets of the Company, (2) a merger or consolidation in which the Company
is not the surviving corporation or (3) a reverse merger in which the Company is the surviving
corporation but the shares of Common Stock outstanding immediately preceding the



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merger are
converted by virtue of the merger into other property, whether in the form of securities, cash or
otherwise, then any surviving corporation or acquiring corporation shall assume any Options
outstanding under the Plan or shall substitute similar Options (including an award to acquire the
same consideration paid to the stockholders in the transaction described in this subsection) for
those outstanding under the Plan. In the event any surviving corporation or acquiring corporation
refuses to assume such Options or to substitute similar Options for those outstanding under the
Plan, then with respect to Options held by Optionholders whose Continuous Service has not
terminated, the vesting shall be accelerated in full, and the Options shall terminate if not
exercised at or prior to such event. With respect to any other Options outstanding under the Plan,
such Options shall terminate if not exercised prior to such event.



11.    Amendment of the Plan and Options.




     (a) Amendment of Plan. The Board at any time, and from time to time, may amend the Plan.
However, except as provided in Section 10 relating to adjustments upon changes in stock, no
amendment shall be effective unless approved by the stockholders of the Company to the extent
stockholder approval is necessary to satisfy the requirements of Section 422 of the Code, Rule
16b-3 or any Nasdaq or securities exchange listing requirements.



     (b) Stockholder Approval. The Board may, in its sole discretion, submit any other amendment
to the Plan for stockholder approval, including, but not limited to, amendments to the Plan
intended to satisfy the requirements of Section 162(m) of the Code and the regulations thereunder
regarding the exclusion of performance-based compensation from the limit on corporate deductibility
of compensation paid to certain executive officers.



     (c) Contemplated Amendments. It is expressly contemplated that the Board may amend the Plan
in any respect the Board deems necessary or advisable to provide eligible Employees with the
maximum benefits provided or to be provided under the provisions of the Code and the regulations
promulgated thereunder relating to Incentive Stock Options and/or to bring the Plan and/or
Incentive Stock Options granted under it into compliance therewith.



     (d) No Impairment of Rights. Rights under any Option granted before amendment of the Plan
shall not be impaired by any amendment of the Plan unless (i) the Company requests the consent of
the Optionholder and (ii) the Optionholder consents in writing.



     (e) Amendment of Options. The Board at any time, and from time to time, may amend the terms
of any one or more Options; provided, however, that the rights under any Option shall not be
impaired by any such amendment unless (i) the Company requests the consent of the Optionholder and
(ii) the Optionholder consents in writing.



12.    Termination or Suspension of the Plan.




     (a) Plan Term. The Board may suspend or terminate the Plan at any time. Unless sooner
terminated, the Plan shall terminate on March 11, 2006. No Options may be granted under the Plan
while the Plan is suspended or after it is terminated.



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     (b) No Impairment of Rights. Rights and obligations under any Option granted while the Plan
is in effect shall not be impaired by suspension or termination of the Plan, except with the
written consent of the Optionholder.



13.    Effective Date of Plan.




     The Plan shall become effective as determined by the Board, but no Option shall be exercised
unless and until the Plan has been approved by the stockholders of the Company, which approval
shall be within twelve (12) months before or after the date the Plan is adopted by the Board.




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