**Exhibit 10.1**

 

**VERSATA, INC.**

**2000 STOCK INCENTIVE PLAN**

 

***Asproposed pursuant to California Department of Corporations permit application***

 

**ARTICLE ONE**

 

**GENERAL PROVISIONS**

 

**I. PURPOSE OF THEPLAN**

 

This 2000 Stock Incentive Plan is intended topromote the interests of Versata, Inc., a Delaware corporation, by providing eligible persons in the Corporation’s service with the opportunity to acquire a proprietary interest, or otherwise increase their proprietary interest, in theCorporation as an incentive for them to remain in such service. 

 

Capitalized terms shall have the meanings assigned to such terms in the attached Appendix. 

 

**II. STRUCTURE OF THE PLAN**

 

A. The Plan shall be divided into five separate equity incentive programs: 

 

– the Discretionary Option Grant Program under which eligible persons may, at the discretion of thePlan Administrator, be granted options to purchase shares of Common Stock, 

 

– the Salary Investment Option Grant Program under which eligible employees may elect to have a portion of their base salary invested each year in special option grants, 

 

– the Stock Issuance Program under which eligiblepersons may, at the discretion of the Plan Administrator, be issued shares of Common Stock directly, either through the immediate purchase of such shares or as a bonus for services rendered the Corporation (or any Parent or Subsidiary), 

 

– the Automatic Option Grant Program under whicheligible non-employee Board members shall automatically receive option grants at designated intervals over their period of continued Board service, and 

 

– the Director Fee Option Grant Program under which non-employee Board members may elect to have all or any portion of their annualretainer fee otherwise payable in cash applied to a special stock option grant. 

 

B. The provisions of Articles One and Seven shall apply to all equity programs under the Plan and shall govern the interests of all persons under the Plan. 

 

**III. ADMINISTRATION OF THE PLAN**

 

A. The Primary Committee shall have sole and exclusive authority to administer the Discretionary Option Grant and StockIssuance Programs with respect to Section 16 Insiders. Administration of the Discretionary Option Grant and Stock Issuance Programs with respect to all other persons eligible to participate in those programs may, at the Board’s discretion, bevested in the Primary Committee or a Secondary Committee, or 

 

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the Board may retain the power to administer those programs with respect to all such persons. However, any discretionary option grants or stock issuances formembers of the Primary Committee must be authorized by a disinterested majority of the Board. 

 

B. Members of the Primary Committee or any Secondary Committee shall serve for such period of time as the Board may determine and may be removed by the Board at any time. The Board may also at any time terminate thefunctions of any Secondary Committee and reassume all powers and authority previously delegated to such committee. 

 

C. Each Plan Administrator shall, within the scope of its administrative functions under the Plan, have full power and authority (subject to theprovisions of the Plan) to establish such rules and regulations as it may deem appropriate for proper administration of the Discretionary Option Grant and Stock Issuance Programs and to make such determinations under, and issue such interpretationsof, the provisions of those programs and any outstanding options or stock issuances thereunder as it may deem necessary or advisable. Decisions of the Plan Administrator within the scope of its administrative functions under the Plan shall be finaland binding on all parties who have an interest in the Discretionary Option Grant and Stock Issuance Programs under its jurisdiction or any stock option or stock issuance thereunder. 

 

D. The Primary Committee shall have the sole and exclusive authority to determine which Section 16 Insiders and other highlycompensated Employees shall be eligible for participation in the Salary Investment Option Grant Program for one or more calendar years. However, all option grants under the Salary Investment Option Grant Program shall be made in accordance with theexpress terms of that program, and the Primary Committee shall not exercise any discretionary functions with respect to the option grants made under that program. 

 

E. Service on the Primary Committee or the Secondary Committee shall constitute service as a Board member, and members ofeach such committee shall accordingly be entitled to full indemnification and reimbursement as Board members for their service on such committee. No member of the Primary Committee or the Secondary Committee shall be liable for any act or omissionmade in good faith with respect to the Plan or any option grants or stock issuances under the Plan. 

 

F. Administration of the Automatic Option Grant and Director Fee Option Grant Programs shall be self-executing in accordance with the terms of thoseprograms, and no Plan Administrator shall exercise any discretionary functions with respect to any option grants or stock issuances made under those programs. 

 

**IV. ELIGIBILITY**

 

A. The persons eligible to participate in the Discretionary Option Grant and Stock Issuance Programs are as follows: 

 

(i) Employees, 

 

(ii) non-employee members of the Board or the board ofdirectors of any Parent or Subsidiary, and 

 

(iii) consultants and other independent advisors who provide services to the Corporation (or any Parent or Subsidiary). 

 

B. Only Employees who are Section 16 Insiders or other highly compensated individuals shall be eligible to participate in the Salary Investment OptionGrant Program. 

 

C. Each Plan Administrator shall, within thescope of its administrative jurisdiction under the Plan, have full authority to determine, (i) with respect to the option grants under the Discretionary Option Grant Program and subject to Plan limitations, which eligible persons are to receive suchgrants, the time or times when those grants are to be made, the number of shares to be covered by each such grant, the status of the granted option 

 

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as either an Incentive Option or a Non-Statutory Option, the time or times when each option is to become exercisable, the vesting schedule (if any)applicable to the option shares and the maximum term for which the option is to remain outstanding and (ii) with respect to stock issuances under the Stock Issuance Program and subject to Plan limitations, which eligible persons are to receive suchissuances, the time or times when the issuances are to be made, the number of shares to be issued to each Participant, the vesting schedule (if any) applicable to the issued shares and the consideration for such shares. 

 

D. The Plan Administrator shall have the absolute discretion either to grantoptions in accordance with the Discretionary Option Grant Program or to effect stock issuances in accordance with the Stock Issuance Program. 

 

E. Only non-employee Board members shall be eligible to participate in Automatic Option Grant and the Director Fee Option Grant Programs. 

 

**V. STOCK SUBJECT TO THE PLAN**

 

The number of shares set forth in this section were adjusted to reflect thereverse 1 for 6 split that the Corporation implemented in May 2002. 

 

A. The stock issuable under the Plan shall be shares of authorized but unissued or reacquired Common Stock, including shares repurchased by the Corporation on the open market. The number of shares of Common Stock initially reserved forissuance over the term of the Plan shall not exceed 1,486,093 shares. The number of shares reserved under the Plan was increased by 416,666. The Board and shareholders approved such increase in October 2000 and July 2001, respectively. Such reserveshall consist of the number of shares estimated to remain available for issuance, as of the Plan Effective Date, under the Predecessor Plan as last approved by the Corporation’s stockholders, including the shares subject to outstanding optionsunder that Predecessor Plan. 

 

B. The number of shares of CommonStock available for issuance under the Plan shall automatically increase on the first trading day of the second fiscal quarter of each calendar year, beginning with the year 2000, by an amount equal to three percent (3%) of the total number ofshares of Common Stock outstanding on the last trading day of the immediately preceding fiscal quarter, but in no event shall any such annual increase exceed 500,000 shares. 

 

C. No one person participating in the Plan may receive stock options, separately exercisable stock appreciation rights anddirect stock issuances for more than 166,666 shares of Common Stock in the aggregate per calendar year. 

 

D. Shares of Common Stock subject to outstanding options (including options incorporated into this Plan from the Predecessor Plan) shall be available forsubsequent issuance under the Plan to the extent (i) those options expire or terminate for any reason prior to exercise in full or (ii) the options are cancelled in accordance with the cancellation-regrant provisions of Article Two. Unvested sharesissued under the Plan and subsequently cancelled or repurchased by the Corporation at the original issue price paid per share, pursuant to the Corporation’s repurchase rights under the Plan shall be added back to the number of shares of CommonStock reserved for issuance under the Plan and shall accordingly be available for reissuance through one or more subsequent option grants or direct stock issuances under the Plan. However, should the exercise price of an option under the Plan bepaid with shares of Common Stock or should shares of Common Stock otherwise issuable under the Plan be withheld by the Corporation in satisfaction of the withholding taxes incurred in connection with the exercise of an option or the vesting of astock issuance under the Plan, then the number of shares of Common Stock available for issuance under the Plan shall be reduced by the gross number of shares for which the option is exercised or which vest under the stock issuance, and not by thenet number of shares of Common Stock issued to the holder of such option or stock issuance. Shares of Common Stock underlying one or more stock appreciation rights exercised under Section IV of Article Two, Section III of Article Three, Section IIof Article Five or Section III of Article Six of the Plan shall **not** be available for subsequent issuance under the Plan. 

 

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E. If any change is made to the Common Stock by reason of any stock split, stock dividend,recapitalization, combination of shares, exchange of shares or other change affecting the outstanding Common Stock as a class without the Corporation’s receipt of consideration, appropriate adjustments shall be made by the Plan Administrator to(i) the maximum number and/or class of securities issuable under the Plan, (ii) the maximum number and/or class of securities for which any one person may be granted stock options, separately exercisable stock appreciation rights and direct stockissuances under the Plan per calendar year, (iii) the number and/or class of securities for which grants are subsequently to be made under the Automatic Option Grant Program to new and continuing non-employee Board members, (iv) the number and/orclass of securities and the exercise price per share in effect under each outstanding option under the Plan and under each installment of option shares scheduled to vest or become exercisable subsequently pursuant to such option, (v) the numberand/or class of securities and exercise price per share in effect under each outstanding option incorporated into this Plan from the Predecessor Plan and under each installment of option shares scheduled to vest or become exercisable subsequentlypursuant to such option and (vi) the maximum number and/or class of securities by which the share reserve is to increase automatically each calendar year pursuant to the provisions of Section V.B of this Article One. Such adjustments to theoutstanding options are to be effected in a manner which shall preclude the enlargement or dilution of rights and benefits under such options. The adjustments determined by the Plan Administrator shall be final, binding and conclusive. 

 

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**ARTICLE TWO**

 

**DISCRETIONARY OPTION GRANT PROGRAM**

 

**I. OPTION TERMS**

 

Each option shall be evidenced by one or more documents in the form approved by the Plan Administrator; provided, however, that each such documentshall comply with the terms specified below. Each document evidencing an Incentive Option shall, in addition, be subject to the provisions of the Plan applicable to such options. 

 

A. **Exercise Price**. 

 

1. The exercise price per share shall be fixed by the Plan Administrator but shall not be less than one hundred percent (100%) of the Fair MarketValue per share of Common Stock on the option grant date; provided, however, that an option granted hereunder to a person who, at the time of grant of such Option, owns stock representing more than ten percent (10%) of the voting power of allclasses of stock of the Company or any Parent or Subsidiary, the exercise price shall be no less than 110% of the Fair Market Value per share of Common Stock on the option grant date. 

 

2. The exercise price shall become immediately due upon exercise of the option and shall, subject to the provisions ofSection I of Article Seven and the documents evidencing the option, be payable in one or more of the forms specified below: 

 

(i) cash or check made payable to the Corporation, 

 

(ii) shares of Common Stock held for the requisite period necessary to avoid a charge to theCorporation’s earnings for financial reporting purposes and valued at Fair Market Value on the Exercise Date, or 

 

(iii) to the extent the option is exercised for vested shares, through a special sale and remittance procedure pursuant to which theOptionee shall concurrently provide irrevocable instructions to (a) a Corporation-designated brokerage firm to effect the immediate sale of the purchased shares and remit to the Corporation, out of the sale proceeds available on the settlement date,sufficient funds to cover the aggregate exercise price payable for the purchased shares plus all applicable Federal, state and local income and employment taxes required to be withheld by the Corporation by reason of such exercise and (b) theCorporation to deliver the certificates for the purchased shares directly to such brokerage firm in order to complete the sale. 

 

Except to the extent such sale and remittance procedure is utilized, payment of the exercise price for the purchased shares must be made on the ExerciseDate. 

 

B. **Exercise and Term of Options.**Eachoption shall be exercisable at such time or times, during such period and for such number of shares as shall be determined by the Plan Administrator and set forth in the documents evidencing the option. However, no option shall have a term in excessof ten (10) years measured from the option grant date. Except in the case of options granted to officers, members of the Board and consultants, options shall become exercisable at a rate of no less than 20% per year over five (5) years from the datethe options are granted. 

 

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C. **Effect of Termination of Service**. 

 

1. The following provisions shall govern the exercise of any options heldby the Optionee at the time of cessation of Service or death: 

 

(i) Any option outstanding at the time of the Optionee’s cessation of Service for any reason shall remain exercisable for such period of time thereafter as shall be determined by the Plan Administrator and setforth in the documents evidencing the option, but no such option shall be exercisable after the expiration of the option term. In the event of a cessation of Service other than upon Optionee’s death, Disability or for Misconduct, thepost-termination exercise period shall be at least 30 days long. In the event an Optionee’s Service ceases due to Optionee’s death or Disability, the post-termination exercise period shall be at least six months long. 

 

(ii) Any option held by the Optionee at the time of deathand exercisable in whole or in part at that time may be subsequently exercised by the personal representative of the Optionee’s estate or by the person or persons to whom the option is transferred pursuant to the Optionee’s will or thelaws of inheritance or by the Optionee’s designated beneficiary or beneficiaries of that option. 

 

(iii) Should the Optionee’s Service be terminated for Misconduct or should the Optionee otherwise engage in Misconduct while holdingone or more outstanding options under this Article Two, then all those options shall terminate immediately and cease to be outstanding. 

 

(iv) During the applicable post-Service exercise period, the option may not be exercised in the aggregate for more than the number ofvested shares for which the option is exercisable on the date of the Optionee’s cessation of Service. Upon the expiration of the applicable exercise period or (if earlier) upon the expiration of the option term, the option shall terminate andcease to be outstanding for any vested shares for which the option has not been exercised. However, the option shall, immediately upon the Optionee’s cessation of Service, terminate and cease to be outstanding to the extent the option is nototherwise at that time exercisable for vested shares. 

 

2. ThePlan Administrator shall have complete discretion, exercisable either at the time an option is granted or at any time while the option remains outstanding, to: 

 

(i) extend the period of time for which the option is to remain exercisable following the Optionee’s cessation of Service fromthe limited exercise period otherwise in effect for that option to such greater period of time as the Plan Administrator shall deem appropriate, but in no event beyond the expiration of the option term, and/or 

 

(ii) permit the option to be exercised, during theapplicable post-Service exercise period, not only with respect to the number of vested shares of Common Stock for which such option is exercisable at the time of the Optionee’s cessation of Service but also with respect to one or moreadditional installments in which the Optionee would have vested had the Optionee continued in Service. 

 

D. **Stockholder Rights.** The holder of an option shall have no stockholder rights with respect to the shares subject to the option until suchperson shall have exercised the option, paid the exercise price and become a holder of record of the purchased shares. 

 

E. **Repurchase Rights.**The Plan Administrator shall have the discretion to grant options which are exercisable for unvested shares of CommonStock. Should the Optionee cease Service while holding such unvested shares, the Corporation shall have the right to repurchase, at the exercise price paid per share, any or all of those unvested shares. The terms upon which such repurchase rightshall be exercisable (including the period and procedure for exercise and the appropriate vesting schedule for the purchased shares) shall be established by the Plan Administrator and set forth in the document evidencing such repurchase right.Except in the case of options granted to officers, members of the Board and consultants, the repurchase right shall lapse at a rate of no less than 20% per year over five (5) years from the date the options are granted. 

 

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F. **Limited Transferability of Options**. During the lifetime of the Optionee, IncentiveOptions shall be exercisable only by the Optionee and shall not be assignable or transferable other than by will or the laws of inheritance following the Optionee’s death. Non-Statutory Options shall be subject to the same restrictions,provided, however, that a Non-Statutory Option may be assigned in whole or in part during the Optionee’s lifetime to one or more members of the Optionee’s family or to a trust established exclusively for one or more such family members orto Optionee’s former spouse, to the extent such assignment is in connection with the Optionee’s estate plan or pursuant to a domestic relations order. The assigned portion may only be exercised by the person or persons who acquire aproprietary interest in the option pursuant to the assignment. The terms applicable to the assigned portion shall be the same as those in effect for the option immediately prior to such assignment and shall be set forth in such documents issued tothe assignee as the Plan Administrator may deem appropriate. Notwithstanding the foregoing, the Optionee may also designate one or more persons as the beneficiary or beneficiaries of his or her outstanding Incentive or Non-Statutory Options underthis Article Two, and those options shall, in accordance with such designation, automatically be transferred to such beneficiary or beneficiaries upon the Optionee’s death while holding those options. Such beneficiary or beneficiaries shalltake the transferred options subject to all the terms and conditions of the applicable agreement evidencing each such transferred option, including (without limitation) the limited time period during which the option may be exercised following theOptionee’s death. 

 

**II. INCENTIVE OPTIONS**

 

The terms specified below shall be applicable to allIncentive Options. Except as modified by the provisions of this Section II, all the provisions of Articles One, Two and Seven shall be applicable to Incentive Options. Options which are specifically designated as Non-Statutory Options when issuedunder the Plan shall not be subject to the terms of this Section II. 

 

A. **Eligibility.** Incentive Options may only be granted to Employees. 

 

B. **Dollar Limitation.** The aggregate Fair Market Value of the shares of Common Stock (determined as of the respective date or dates of grant)for which one or more options granted to any Employee under the Plan (or any other option plan of the Corporation or any Parent or Subsidiary) may for the first time become exercisable as Incentive Options during any one calendar year shall notexceed the sum of One Hundred Thousand Dollars ($100,000). To the extent the Employee holds two (2) or more such options which become exercisable for the first time in the same calendar year, the foregoing limitation on the exercisability of suchoptions as Incentive Options shall be applied on the basis of the order in which such options are granted. 

 

C. **10% Stockholder.** If any Employee to whom an Incentive Option is granted is a 10% Stockholder, then the exercise price per share shall notbe less than one hundred ten percent (110%) of the Fair Market Value per share of Common Stock on the option grant date, and the option term shall not exceed five (5) years measured from the option grant date. 

 

**III. CORPORATE TRANSACTION/CHANGE IN CONTROL**

 

A. In the event of any Corporate Transaction, each outstanding option shallautomatically accelerate so that each such option shall, immediately prior to the effective date of the Corporate Transaction, become exercisable for all the shares of Common Stock at the time subject to such option and may be exercised for any orall of those shares as fully vested shares of Common Stock. However, an outstanding option shall **not** become exercisable on such an accelerated basis if and to the extent: (i) such option is, in connection with the Corporate Transaction, to beassumed by the successor corporation (or parent thereof) or (ii) such option is to be replaced with a cash incentive program of the successor corporation which preserves the spread existing at the time of the Corporate Transaction on any shares forwhich the option is not otherwise at that time exercisable and provides for subsequent payout in accordance with the same exercise/vesting schedule applicable to those option shares or (iii) the acceleration of such option is subject to otherlimitations imposed by the Plan Administrator at the time of the option grant. 

 

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B. All outstanding repurchase rights shall automatically terminate, and the shares of Common Stocksubject to those terminated rights shall immediately vest in full, in the event of any Corporate Transaction, except to the extent: (i) those repurchase rights are to be assigned to the successor corporation (or parent thereof) in connection withsuch Corporate Transaction or (ii) such accelerated vesting is precluded by other limitations imposed by the Plan Administrator at the time the repurchase right is issued. 

 

C. Immediately following the consummation of the Corporate Transaction, all outstanding options shall terminate and cease tobe outstanding, except to the extent assumed by the successor corporation (or parent thereof). 

 

D. Each option which is assumed in connection with a Corporate Transaction shall be appropriately adjusted, immediately after such Corporate Transaction, to apply to the number and class of securities which would havebeen issuable to the Optionee in consummation of such Corporate Transaction had the option been exercised immediately prior to such Corporate Transaction. Appropriate adjustments to reflect such Corporate Transaction shall also be made to (i) theexercise price payable per share under each outstanding option, provided the aggregate exercise price payable for such securities shall remain the same, (ii) the number and class of securities subject to each installment of option sharesscheduled to vest or become exercisable under each outstanding option after the consummation of the Corporate Transaction, (iii) the maximum number and/or class of securities available for issuance over the remaining term of the Plan, (iv) themaximum number and/or class of securities for which any one person may be granted stock options, separately exercisable stock appreciation rights and direct stock issuances under the Plan per calendar year and (v) the maximum number and/or class ofsecurities by which the share reserve is to increase automatically each calendar year. To the extent the actual holders of the Corporation’s outstanding Common Stock receive cash consideration for their Common Stock in consummation of theCorporate Transaction, the successor corporation may, in connection with the assumption of the outstanding options under this Plan, substitute one or more shares of its own common stock with a fair market value equivalent to the cash considerationpaid per share of Common Stock in such Corporate Transaction. 

 

E. The Plan Administrator shall have the discretionary authority to structure one or more outstanding options under the Discretionary Option Grant Program so that those options shall, immediately prior to the effective date of suchCorporate Transaction, become exercisable for all the shares of Common Stock at the time subject to those options and may be exercised for any or all of those shares as fully vested shares of Common Stock, whether or not those options are to beassumed in the Corporate Transaction. In addition, the Plan Administrator shall have the discretionary authority to structure one or more of the Corporation’s repurchase rights under the Discretionary Option Grant Program so that those rightsshall not be assignable in connection with such Corporate Transaction and shall accordingly terminate upon the consummation of such Corporate Transaction, and the shares subject to those terminated rights shall thereupon vest in full. 

 

F. The Plan Administrator shall have full power and authority to structureone or more outstanding options under the Discretionary Option Grant Program so that those options shall become exercisable for all the shares of Common Stock at the time subject to those options in the event the Optionee’s Service issubsequently terminated by reason of an Involuntary Termination within a designated period (not to exceed eighteen (18) months) following the effective date of any Corporate Transaction in which those options are assumed and do not otherwiseaccelerate. In addition, the Plan Administrator may structure one or more of the Corporation’s repurchase rights so that those rights shall immediately terminate with respect to any shares held by the Optionee at the time of his or herInvoluntary Termination, and the shares subject to those terminated repurchase rights shall accordingly vest in full at that time. 

 

G. The Plan Administrator shall have the discretionary authority to structure one or more outstanding options under the Discretionary Option Grant Programso that those options shall, immediately prior to the effective date of a Change in Control, become exercisable for all the shares of Common Stock at the time subject to those options and may be exercised for any or all of those shares as fullyvested shares of Common Stock. In addition, the Plan Administrator shall have the discretionary authority to structure one or more of the Corporation’s repurchase rights under the Discretionary Option Grant Program so that those rights shallterminate automatically upon the consummation of such Change in Control, and the shares subject to those terminated rights shall thereupon vest in full. Alternatively, the Plan Administrator may condition the automatic acceleration of one or moreoutstanding options under the Discretionary Option Grant Program and the termination of one or more of the 

 

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Corporation’s outstanding repurchase rights under such program upon the subsequent termination of the Optionee’s Service by reason of anInvoluntary Termination within a designated period (not to exceed eighteen (18) months) following the effective date of such Change in Control. 

 

H. The portion of any Incentive Option accelerated in connection with a Corporate Transaction or Change in Control shall remain exercisable as anIncentive Option only to the extent the applicable One Hundred Thousand Dollar ($100,000) limitation is not exceeded. To the extent such dollar limitation is exceeded, the accelerated portion of such option shall be exercisable as a NonstatutoryOption under the Federal tax laws. 

 

I. The outstanding optionsshall in no way affect the right of the Corporation to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets.

 

**IV. CANCELLATION AND REGRANT OF OPTIONS**

 

The Plan Administrator shall have the authority to effect, at any time andfrom time to time, with the consent of the affected option holders, the cancellation of any or all outstanding options under the Discretionary Option Grant Program (including outstanding options incorporated from the Predecessor Plan) and to grantin substitution new options covering the same or a different number of shares of Common Stock but with an exercise price per share based on the Fair Market Value per share of Common Stock on the new grant date. 

 

**V. STOCK APPRECIATION RIGHTS**

 

A. The Plan Administrator shall have full power and authority to grant toselected Optionees tandem stock appreciation rights and/or limited stock appreciation rights. 

 

B. The following terms shall govern the grant and exercise of tandem stock appreciation rights: 

 

(i) One or more Optionees may be granted the right, exercisable upon such terms as the Plan Administrator may establish, to elect betweenthe exercise of the underlying option for shares of Common Stock and the surrender of that option in exchange for a distribution from the Corporation in an amount equal to the excess of (a) the Fair Market Value (on the option surrender date) of thenumber of shares in which the Optionee is at the time vested under the surrendered option (or surrendered portion thereof) over (b) the aggregate exercise price payable for such shares. 

 

(ii) No such option surrender shall be effective unless it is approved by the Plan Administrator, either atthe time of the actual option surrender or at any earlier time. If the surrender is so approved, then the distribution to which the Optionee shall be entitled may be made in shares of Common Stock valued at Fair Market Value on the option surrenderdate, in cash, or partly in shares and partly in cash, as the Plan Administrator shall in its sole discretion deem appropriate. 

 

(iii) If the surrender of an option is not approved by the Plan Administrator, then the Optionee shall retain whatever rights theOptionee had under the surrendered option (or surrendered portion thereof) on the option surrender date and may exercise such rights at any time prior to the later of (a) five (5) business days after the receipt of the rejection notice or (b)the last day on which the option is otherwise exercisable in accordance with the terms of the documents evidencing such option, but in no event may such rights be exercised more than ten (10) years after the option grant date. 

 

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C. The following terms shall govern the grant and exercise of limited stock appreciation rights:

 

(i) One or more Section 16 Insiders may begranted limited stock appreciation rights with respect to their outstanding options. 

 

(ii) Upon the occurrence of a Hostile Take-Over, each individual holding one or more options with such a limited stock appreciation rightshall have the unconditional right (exercisable for a thirty (30)-day period following such Hostile Take-Over) to surrender each such option to the Corporation. In return for the surrendered option, the Optionee shall receive a cash distributionfrom the Corporation in an amount equal to the excess of (A) the Take-Over Price of the shares of Common Stock at the time subject to such option (whether or not the option is otherwise exercisable for vested shares of Common Stock) over (B) theaggregate exercise price payable for those shares. Such cash distribution shall be paid within five (5) days following the option surrender date. 

 

(iii) At the time such limited stock appreciation right is granted, the Plan Administrator shall pre-approve any subsequent exercise ofthat right in accordance with the terms of this Paragraph C. Accordingly, no further approval of the Plan Administrator or the Board shall be required at the time of the actual option surrender and cash distribution. 

 

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**ARTICLE THREE**

 

**SALARY INVESTMENT OPTION GRANT PROGRAM**

 

**I. OPTION GRANTS**

 

The Primary Committee shall have the sole and exclusive authority to determine the calendar year or years (if any) for which the Salary Investment OptionGrant Program is to be in effect and to select the Section 16 Insiders and other highly compensated Employees eligible to participate in the Salary Investment Option Grant Program for such calendar year or years. Each selected individual who electsto participate in the Salary Investment Option Grant Program must, prior to the start of each calendar year of participation, file with the Plan Administrator (or its designate) an irrevocable authorization directing the Corporation to reduce his orher base salary for that calendar year by an amount not less than Ten Thousand Dollars ($10,000.00) nor more than Fifty Thousand Dollars ($50,000.00). Each individual who files such a timely authorization shall automatically be granted an optionunder the Salary Investment Grant Program on the first trading day in January of the calendar year for which the salary reduction is to be in effect. 

 

**II. OPTION TERMS**

 

Each option shall be a Non-Statutory Option evidenced by one or more documents in the form approved by the Plan Administrator; provided, however,that each such document shall comply with the terms specified below. 

 

A. **Exercise Price**. 

 

1. The exerciseprice per share shall be thirty-three and one-third percent (33 1/3%) of the Fair Market Value per share of Common Stock on the option grant date. 

 

2. The exercise price shall become immediately due upon exercise of the option and shall be payable in one or more of the alternative forms authorizedunder the Discretionary Option Grant Program. Except to the extent the sale and remittance procedure specified thereunder is utilized, payment of the exercise price for the purchased shares must be made on the Exercise Date. 

 

B. **Number of Option Shares.** The number of shares of CommonStock subject to the option shall be determined pursuant to the following formula (rounded down to the nearest whole number): 

 

X = A÷(B x 66 2/3%), where 

 

X is the number of optionshares, 

 

A is the dollar amount by which theOptionee’s base salary is to be reduced for the calendar year pursuant to his or her election under the Salary Investment Option Grant Program, and 

 

B is the Fair Market Value per share of Common Stock on the option grant date. 

 

C. **Exercise and Term of Options.**The option shall becomeexercisable in a series of twelve (12) successive equal monthly installments upon the Optionee’s completion of each calendar month of Service in the calendar year for which the salary reduction is in effect. Each option shall have a maximumterm of ten (10) years measured from the option grant date. 

 

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D. **Effect of Termination of Service.** Should the Optionee cease Service for any reason whileholding one or more options under this Article Three, then each such option shall remain exercisable, for any or all of the shares for which the option is exercisable at the time of such cessation of Service, until the earlier of (i) theexpiration of the ten (10)-year option term or (ii) the expiration of the three (3)-year period measured from the date of such cessation of Service. Should the Optionee die while holding one or more options under this Article Three, then each suchoption may be exercised, for any or all of the shares for which the option is exercisable at the time of the Optionee’s cessation of Service (less any shares subsequently purchased by Optionee prior to death), by the personal representative ofthe Optionee’s estate or by the person or persons to whom the option is transferred pursuant to the Optionee’s will or the laws of inheritance or by the designated beneficiary or beneficiaries of the option. Such right of exercise shalllapse, and the option shall terminate, upon the earlier of (i) the expiration of the ten (10)-year option term or (ii) the three (3)-year period measured from the date of the Optionee’s cessation of Service. However, the option shall,immediately upon the Optionee’s cessation of Service for any reason, terminate and cease to remain outstanding with respect to any and all shares of Common Stock for which the option is not otherwise at that time exercisable. 

 

**III. CORPORATE TRANSACTION/CHANGE IN CONTROL/ HOSTILE TAKE-OVER**

 

A. In the event of any Corporate Transaction while theOptionee remains in Service, each outstanding option held by such Optionee under this Salary Investment Option Grant Program shall automatically accelerate so that each such option shall, immediately prior to the effective date of the CorporateTransaction, become exercisable for all the shares of Common Stock at the time subject to such option and may be exercised for any or all of those shares as fully-vested shares of Common Stock. Each such outstanding option shall terminateimmediately following the Corporate Transaction, except to the extent assumed by the successor corporation (or parent thereof) in such Corporate Transaction. Any option so assumed and shall remain exercisable for the fully-vested shares until theearlier of (i) the expiration of the ten (10)-year option term or (ii) the expiration of the three (3)-year period measured from the date of the Optionee’s cessation of Service. 

 

B. In the event of a Change in Control while the Optionee remains in Service,each outstanding option held by such Optionee under this Salary Investment Option Grant Program shall automatically accelerate so that each such option shall, immediately prior to the effective date of the Change in Control, become exercisable forall the shares of Common Stock at the time subject to such option and may be exercised for any or all of those shares as fully-vested shares of Common Stock. The option shall remain so exercisable until the earliest to occur of (i) theexpiration of the ten (10)-year option term, (ii) the expiration of the three (3)-year period measured from the date of the Optionee’s cessation of Service, (iii) the termination of the option in connection with a Corporate Transaction or (iv)the surrender of the option in connection with a Hostile Take-Over. 

 

C. Upon the occurrence of a Hostile Take-Over while the Optionee remains in Service, the Optionee shall have a thirty (30)-day period in which to surrender to the Corporation each outstanding option granted him or her under the SalaryInvestment Option Grant Program. The Optionee shall in return be entitled to a cash distribution from the Corporation in an amount equal to the excess of (i) the Take-Over Price of the shares of Common Stock at the time subject to the surrenderedoption (whether or not the option is otherwise at the time exercisable for those shares) over (ii) the aggregate exercise price payable for such shares. Such cash distribution shall be paid within five (5) days following the surrender of the optionto the Corporation. The Primary Committee shall, at the time the option with such limited stock appreciation right is granted under the Salary Investment Option Grant Program, pre-approve any subsequent exercise of that right in accordance with theterms of this Paragraph C. Accordingly, no further approval of the Primary Committee or the Board shall be required at the time of the actual option surrender and cash distribution. 

 

D. Each option which is assumed in connection with a Corporate Transaction shall be appropriately adjusted, immediatelyafter such Corporate Transaction, to apply to the number and class of securities which would have been issuable to the Optionee in consummation of such Corporate Transaction had the option been exercised immediately prior to such CorporateTransaction. Appropriate adjustments shall also be made to the exercise price payable per share under each outstanding option, provided the aggregate exercise price payable for such securities shall remain the same. To the extent the actualholders of the Corporation’s outstanding Common Stock receive cash consideration for their Common Stock in consummation of the Corporate Transaction, the successor corporation may, in connection with the assumption of the outstanding optionsunder this Plan, substitute one or more shares of its own common stock with a fair market value equivalent to the cash consideration paid per share of Common Stock in such Corporate Transaction. 

 

8**.**

E. The grant of options under the Salary Investment Option Grant Program shall in no way affect the rightof the Corporation to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets. 

 

**IV. REMAINING TERMS**

 

The remaining terms of each option granted under the Salary InvestmentOption Grant Program shall be the same as the terms in effect for option grants made under the Discretionary Option Grant Program. 

 

9**.**

**ARTICLE FOUR**

 

**STOCK ISSUANCE PROGRAM**

 

**I. STOCK ISSUANCE TERMS**

 

Shares of Common Stock may be issued under the Stock Issuance Program through direct and immediate issuances without any intervening option grants. Eachsuch stock issuance shall be evidenced by a Stock Issuance Agreement which complies with the terms specified below. Shares of Common Stock may also be issued under the Stock Issuance Program pursuant to share right awards which entitle therecipients to receive those shares upon the attainment of designated performance goals. 

 

A. **Purchase Price**. 

 

1. The purchase price per share shall be fixed by the Plan Administrator, but shall not be less than one hundred percent (100%) of the Fair Market Value per share of Common Stock on the issuance date. 

 

2. Subject to the provisions of Section I of Article Seven, shares of CommonStock may be issued under the Stock Issuance Program for any of the following items of consideration which the Plan Administrator may deem appropriate in each individual instance: 

 

(i) cash or check made payable to the Corporation, or 

 

(ii) past services rendered to the Corporation (or anyParent or Subsidiary). 

 

B. **Vesting Provisions**.

 

1. Shares of Common Stock issued under the Stock IssuanceProgram may, in the discretion of the Plan Administrator, be fully and immediately vested upon issuance or may vest in one or more installments over the Participant’s period of Service or upon attainment of specified performance objectives. Theelements of the vesting schedule applicable to any unvested shares of Common Stock issued under the Stock Issuance Program shall be determined by the Plan Administrator and incorporated into the Stock Issuance Agreement. Shares of Common Stock mayalso be issued under the Stock Issuance Program pursuant to share right awards which entitle the recipients to receive those shares upon the attainment of designated performance goals. 

 

2. Any new, substituted or additional securities or other property (including money paid other than as a regular cashdividend) which the Participant may have the right to receive with respect to the Participant’s unvested shares of Common Stock by reason of any stock dividend, stock split, recapitalization, combination of shares, exchange of shares or otherchange affecting the outstanding Common Stock as a class without the Corporation’s receipt of consideration shall be issued subject to (i) the same vesting requirements applicable to the Participant’s unvested shares of Common Stock and(ii) such escrow arrangements as the Plan Administrator shall deem appropriate. 

 

3. The Participant shall have full stockholder rights with respect to any shares of Common Stock issued to the Participant under the Stock Issuance Program, whether or not the Participant’s interest in thoseshares is vested. Accordingly, the Participant shall have the right to vote such shares and to receive any regular cash dividends paid on such shares. 

 

4. Should the Participant cease to remain in Service while holding one or more unvested shares of Common Stock issued under the Stock Issuance Program orshould the performance objectives not be attained with respect to one or more such unvested shares of Common Stock, then those shares shall be 

 

10**.**

immediately surrendered to the Corporation for cancellation, and the Participant shall have no further stockholder rights with respect to those shares. Tothe extent the surrendered shares were previously issued to the Participant for consideration paid in cash or cash equivalent (including the Participant’s purchase-money indebtedness), the Corporation shall repay to the Participant the cashconsideration paid for the surrendered shares and shall cancel the unpaid principal balance of any outstanding purchase-money note of the Participant attributable to the surrendered shares. 

 

5. The Plan Administrator may in its discretion waive the surrender andcancellation of one or more unvested shares of Common Stock which would otherwise occur upon the cessation of the Participant’s Service or the non-attainment of the performance objectives applicable to those shares. Such waiver shall result inthe immediate vesting of the Participant’s interest in the shares of Common Stock as to which the waiver applies. Such waiver may be effected at any time, whether before or after the Participant’s cessation of Service or the attainment ornon-attainment of the applicable performance objectives. 

 

6.Outstanding share right awards under the Stock Issuance Program shall automatically terminate, and no shares of Common Stock shall actually be issued in satisfaction of those awards, if the performance goals established for such awards are notattained. The Plan Administrator, however, shall have the discretionary authority to issue shares of Common Stock under one or more outstanding share right awards as to which the designated performance goals have not been attained. 

 

**II. CORPORATE TRANSACTION/CHANGE IN CONTROL**

 

A. All of the Corporation’s outstanding repurchase rights under theStock Issuance Program shall terminate automatically, and all the shares of Common Stock subject to those terminated rights shall immediately vest in full, in the event of any Corporate Transaction, except to the extent (i) those repurchase rightsare to be assigned to the successor corporation (or parent thereof) in connection with such Corporate Transaction or (ii) such accelerated vesting is precluded by other limitations imposed in the Stock Issuance Agreement. 

 

B. The Plan Administrator shall have the discretionary authority to structureone or more of the Corporation’s repurchase rights under the Stock Issuance Program so that those rights shall automatically terminate in whole or in part, and the shares of Common Stock subject to those terminated rights shall immediatelyvest, in the event the Participant’s Service should subsequently terminate by reason of an Involuntary Termination within a designated period (not to exceed eighteen (18) months) following the effective date of any Corporate Transaction inwhich those repurchase rights are assigned to the successor corporation (or parent thereof). 

 

C. The Plan Administrator shall also have the discretionary authority to structure one or more of the Corporation’s repurchase rights under the Stock Issuance Program so that those rights shall automaticallyterminate in whole or in part, and the shares of Common Stock subject to those terminated rights shall immediately vest, in the event the Participant’s Service should subsequently terminate by reason of an Involuntary Termination within adesignated period (not to exceed eighteen (18) months) following the effective date of any Change in Control. 

 

**III. SHARE ESCROW/LEGENDS**

 

Unvested shares may, in the Plan Administrator’s discretion, be held in escrow by the Corporation until the Participant’s interest in suchshares vests or may be issued directly to the Participant with restrictive legends on the certificates evidencing those unvested shares. 

 

11**.**

**ARTICLE FIVE**

 

**AUTOMATIC OPTION GRANT PROGRAM**

**I. OPTION TERMS**

 

Thenumber of shares set forth in this section were adjusted to reflect the reverse 1 for 6 split that the Corporation implemented in May 2002. 

 

A. **Grant Dates.** Option grants shall be made on the dates specified below: 

 

1. Each individual who is first elected or appointed as a non-employee Board member at any time on or after theUnderwriting Date shall automatically be granted, on the date of such initial election or appointment, a Non-Statutory Option to purchase 6,000 shares of Common Stock, provided that individual has not previously been in the employ of the Corporationor any Parent or Subsidiary. 

 

2. On the date of each AnnualStockholders Meeting, beginning with the 2001 Annual Stockholders Meeting, each individual who is to continue to serve as a non-employee Board member, whether or not that individual is standing for re-election to the Board at that particular AnnualMeeting, shall automatically be granted a Non-Statutory Option to purchase 2,000 shares of Common Stock, provided such individual has served as a non-employee Board member for at least six (6) months. There shall be no limit on the number of such2,000-share option grants any one non-employee Board member may receive over his or her period of Board service, and non-employee Board members who have previously been in the employ of the Corporation (or any Parent or Subsidiary) or who haveotherwise received one or more stock option grants from the Corporation prior to the Underwriting Date shall be eligible to receive one or more such annual option grants over their period of continued Board service. 

 

B. **Exercise Price**.

 

1. The exercise price per share shall be equal to one hundred percent(100%) of the Fair Market Value per share of Common Stock on the option grant date. 

 

2. The exercise price shall be payable in one or more of the alternative forms authorized under the Discretionary Option Grant Program. Except to the extent the sale and remittance procedure specified thereunder isutilized, payment of the exercise price for the purchased shares must be made on the Exercise Date. 

 

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

 

D. **Exercise and Vesting of Options.** Each option shall beimmediately exercisable for any or all of the option shares. However, any unvested shares purchased under the option shall be subject to repurchase by the Corporation, at the exercise price paid per share, upon the Optionee’s cessation of Boardservice prior to vesting in those shares. The shares subject to each initial 6,000-share grant shall vest, and the Corporation’s repurchase right shall lapse, in a series of thirty-six (36) successive equal monthly installments upon theOptionee’s completion of each month of service as a Board member over the thirty-six (36) month period measured from the option grant date. The shares subject to each annual 2,000-share option grant shall vest in a series of twelve (12) equalmonthly installments, upon the Optionee’s completion of each month of service as a Board member over the twelve (12)-month period of Board service measured from the grant date. 

 

E. **Limited Transferability of Options.** Each option under this Article Five may be assigned in whole or in partduring the Optionee’s lifetime to one or more members of the Optionee’s family or to a trust established exclusively for one or more such family members or to Optionee’s former spouse, to the extent 

 

12**.**

such assignment is in connection with the Optionee’s estate plan or pursuant to domestic relations order. The assigned portion may only be exercised bythe person or persons who acquire a proprietary interest in the option pursuant to the assignment. The terms applicable to the assigned portion shall be the same as those in effect for the option immediately prior to such assignment and shall be setforth in such documents issued to the assignee as the Plan Administrator may deem appropriate. The Optionee may also designate one or more persons as the beneficiary or beneficiaries of his or her outstanding options under this Article Five, andthose options shall, in accordance with such designation, automatically be transferred to such beneficiary or beneficiaries upon the Optionee’s death while holding those options. Such beneficiary or beneficiaries shall take the transferredoptions subject to all the terms and conditions of the applicable agreement evidencing each such transferred option, including (without limitation) the limited time period during which the option may be exercised following the Optionee’s death.

 

F. **Termination of Board Service.** The followingprovisions shall govern the exercise of any options held by the Optionee at the time the Optionee ceases to serve as a Board member: 

 

(i) The Optionee (or, in the event of Optionee’s death, the personal representative of the Optionee’s estate or the person orpersons to whom the option is transferred pursuant to the Optionee’s will or the laws of inheritance or the designated beneficiary or beneficiaries of such option) shall have a twelve (12)-month period following the date of such cessation ofBoard service in which to exercise each such option. 

 

(ii) During the twelve (12)-month exercise period, the option may not be exercised in the aggregate for more than the number of vested shares of Common Stock for which the option is exercisable at the time of the Optionee’s cessationof Board service. 

 

(iii) Should the Optioneecease to serve as a Board member by reason of death or Permanent Disability, then all shares at the time subject to the option shall immediately vest so that such option may, during the twelve (12)-month exercise period following such cessation ofBoard service, be exercised for all or any portion of those shares as fully-vested shares of Common Stock. 

 

(iv) In no event shall the option remain exercisable after the expiration of the option term. Upon the expiration of the twelve(12)-month exercise period or (if earlier) upon the expiration of the option term, the option shall terminate and cease to be outstanding for any vested shares for which the option has not been exercised. However, the option shall, immediately uponthe Optionee’s cessation of Board service for any reason other than death or Permanent Disability, terminate and cease to be outstanding to the extent the option is not otherwise at that time exercisable for vested shares. 

 

**II. CORPORATE TRANSACTION / CHANGE IN CONTROL / HOSTILE TAKE-OVER**

 

A. In the event of any Corporate Transaction while theOptionee remains a Board member, the shares of Common Stock at the time subject to each outstanding option but not otherwise vested shall automatically vest in full so that each such option shall, immediately prior to the effective date of theCorporate Transaction, become exercisable for all the option shares as fully-vested shares of Common Stock and may be exercised for any or all of those vested shares. Immediately following the consummation of the Corporate Transaction, eachautomatic option grant shall terminate and cease to be outstanding, except to the extent assumed by the successor corporation (or parent thereof). 

 

B. In connection with any Change in Control while the Optionee remains a Board member, the shares of Common Stock at the time subject to each outstandingoption but not otherwise vested shall automatically vest in full so that each such option shall, immediately prior to the effective date of the Change in Control, become exercisable for all the option shares as fully-vested shares of Common Stockand may be exercised for any or all of those vested shares. Each such option shall remain exercisable for such fully-vested option shares until the expiration or sooner termination of the option term or the surrender of the option in connection witha Hostile Take-Over. 

 

13**.**

C. All outstanding repurchase rights shall automatically terminate, and the shares of Common Stocksubject to those terminated rights shall immediately vest in full, in the event of any Corporate Transaction or Change in Control. 

 

D. Upon the occurrence of a Hostile Take-Over while the Optionee remains a Board member, the Optionee shall have a thirty (30)-day period in which tosurrender to the Corporation each of his or her outstanding automatic option grants. The Optionee shall in return be entitled to a cash distribution from the Corporation in an amount equal to the excess of (i) the Take-Over Price of the shares ofCommon Stock at the time subject to each surrendered option (whether or not the Optionee is otherwise at the time vested in those shares) over (ii) the aggregate exercise price payable for such shares. Such cash distribution shall be paid withinfive (5) days following the surrender of the option to the Corporation. No approval or consent of the Board or any Plan Administrator shall be required at the time of the actual option surrender and cash distribution. 

 

E. Each option which is assumed in connection with a Corporate Transactionshall be appropriately adjusted, immediately after such Corporate Transaction, to apply to the number and class of securities which would have been issuable to the Optionee in consummation of such Corporate Transaction had the option been exercisedimmediately prior to such Corporate Transaction. Appropriate adjustments shall also be made to the exercise price payable per share under each outstanding option, provided the aggregate exercise price payable for such securities shall remainthe same. To the extent the actual holders of the Corporation’s outstanding Common Stock receive cash consideration for their Common Stock in consummation of the Corporate Transaction, the successor corporation may, in connection with theassumption of the outstanding options under this Plan, substitute one or more shares of its own common stock with a fair market value equivalent to the cash consideration paid per share of Common Stock in such Corporate Transaction. 

 

F. The grant of options under the Automatic Option Grant Program shall in noway affect the right of the Corporation to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets. 

 

**III. REMAINING TERMS**

 

The remaining terms of each option granted under the Automatic Option GrantProgram shall be the same as the terms in effect for option grants made under the Discretionary Option Grant Program. 

 

14**.**

**ARTICLE SIX**

 

**DIRECTOR FEE OPTION GRANT PROGRAM**

 

**I. OPTION GRANTS**

 

The Primary Committee shall have the sole and exclusive authority to determine the calendar year or years for which the Director Fee Option Grant Programis to be in effect. For each such calendar year the program is in effect, each non-employee Board member may irrevocably elect to apply all or any portion of the annual retainer fee otherwise payable in cash for his or her service on the Board forthat year to the acquisition of a special option grant under this Director Fee Option Grant Program. Such election must be filed with the Corporation’s Chief Financial Officer prior to the first day of the calendar year for which the annualretainer fee which is the subject of that election is otherwise payable. Each non-employee Board member who files such a timely election shall automatically be granted an option under this Director Fee Option Grant Program on the first trading dayin January in the calendar year for which the annual retainer fee which is the subject of that election would otherwise be payable in cash. 

 

**II. OPTION TERMS**

 

Each option shall be a Non-Statutory Option governed by the terms and conditions specified below. 

 

A. **Exercise Price**. 

 

1. The exercise price per share shall be thirty-three and one-third percent(33  1/3%) of the Fair Market Value per share of Common Stock on the option grant date. 

 

2. The exercise price shall become immediately due upon exercise of theoption and shall be payable in one or more of the alternative forms authorized under the Discretionary Option Grant Program. Except to the extent the sale and remittance procedure specified thereunder is utilized, payment of the exercise price forthe purchased shares must be made on the Exercise Date. 

 

B.**Number of Option Shares.** The number of shares of Common Stock subject to the option shall be determined pursuant to the following formula (rounded down to the nearest whole number): 

 

X = A÷(B x 66 2/3%), where 

 

X is the number of option shares, 

 

A is the portion of the annual retainer fee subject to the non-employee Board member’s election under this Director Fee Option GrantProgram, and 

 

B is the Fair Market Value pershare of Common Stock on the option grant date. 

 

C.**Exercise and Term of Options.**The option shall become exercisable in a series of twelve (12) equal monthly installments upon the Optionee’s completion of each calendar month of Board service during the calendar year for which theretainer fee election is in effect. Each option shall have a maximum term of ten (10) years measured from the option grant date. 

 

D. **Limited Transferability of Options.** Each option under this Article Six may be assigned in whole or in part during the Optionee’slifetime to one or more members of the Optionee’s family or to a trust established exclusively for one or more such family members or to Optionee’s former spouse, to the extent 

 

15**.**

such assignment is in connection with Optionee’s estate plan or pursuant to a domestic relations order. The assigned portion may only be exercised bythe person or persons who acquire a proprietary interest in the option pursuant to the assignment. The terms applicable to the assigned portion shall be the same as those in effect for the option immediately prior to such assignment and shall be setforth in such documents issued to the assignee as the Plan Administrator may deem appropriate. The Optionee may also designate one or more persons as the beneficiary or beneficiaries of his or her outstanding options under this Article Six, andthose options shall, in accordance with such designation, automatically be transferred to such beneficiary or beneficiaries upon the Optionee’s death while holding those options. Such beneficiary or beneficiaries shall take the transferredoptions subject to all the terms and conditions of the applicable agreement evidencing each such transferred option, including (without limitation) the limited time period during which the option may be exercised following the Optionee’s death.

 

E. **Termination of Board Service.** Should theOptionee cease Board service for any reason (other than death or Permanent Disability) while holding one or more options under this Director Fee Option Grant Program, then each such option shall remain exercisable, for any or all of the shares forwhich the option is exercisable at the time of such cessation of Board service, until the earlier of (i) the expiration of the ten (10)-year option term or (ii) the expiration of the three (3)-year period measured from the date of suchcessation of Board service. However, each option held by the Optionee under this Director Fee Option Grant Program at the time of his or her cessation of Board service shall immediately terminate and cease to remain outstanding with respect to anyand all shares of Common Stock for which the option is not otherwise at that time exercisable. 

 

F. **Death or Permanent Disability.** Should the Optionee’s service as a Board member cease by reason of death or Permanent Disability, then each option held by such Optionee under this Director FeeOption Grant Program shall immediately become exercisable for all the shares of Common Stock at the time subject to that option, and the option may be exercised for any or all of those shares as fully-vested shares until the earlier of (i)the expiration of the ten (10)-year option term or (ii) the expiration of the three (3)-year period measured from the date of such cessation of Board service. In the event of the Optionee’s death while holding such option, the option may beexercised by the personal representative of the Optionee’s estate or by the person or persons to whom the option is transferred pursuant to the Optionee’s will or the laws of inheritance or by the designated beneficiary or beneficiaries ofsuch option. 

 

Should the Optionee die after cessation of Boardservice but while holding one or more options under this Director Fee Option Grant Program, then each such option may be exercised, for any or all of the shares for which the option is exercisable at the time of the Optionee’s cessation ofBoard service (less any shares subsequently purchased by Optionee prior to death), by the personal representative of the Optionee’s estate or by the person or persons to whom the option is transferred pursuant to the Optionee’s will or thelaws of inheritance or by the designated beneficiary or beneficiaries of such option. Such right of exercise shall lapse, and the option shall terminate, upon the earlier of (i) the expiration of the ten (10)-year option term or (ii) thethree (3)-year period measured from the date of the Optionee’s cessation of Board service. 

 

**III. CORPORATE TRANSACTION/CHANGE IN CONTROL/ HOSTILE TAKE-OVER**

 

A. In the event of any Corporate Transaction while the Optionee remains a Board member, each outstanding option held by suchOptionee under this Director Fee Option Grant Program shall automatically accelerate so that each such option shall, immediately prior to the effective date of the Corporate Transaction, become exercisable for all the shares of Common Stock at thetime subject to such option and may be exercised for any or all of those shares as fully-vested shares of Common Stock. Each such outstanding option shall terminate immediately following the Corporate Transaction, except to the extent assumed by thesuccessor corporation (or parent thereof) in such Corporate Transaction. Any option so assumed and shall remain exercisable for the fully-vested shares until the earlier of (i) the expiration of the ten (10)-year option term or (ii) theexpiration of the three (3)-year period measured from the date of the Optionee’s cessation of Board service. 

 

B. In the event of a Change in Control while the Optionee remains in Service, each outstanding option held by such Optionee under this Director Fee OptionGrant Program shall automatically accelerate so that each such option shall, immediately prior to the effective date of the Change in Control, become exercisable for all the shares of Common Stock at the time subject to such option and may beexercised for any or all of those shares as fully-vested shares of Common Stock. The option shall remain so exercisable until the earliest to 

 

16**.**

occur of (i) the expiration of the ten (10)-year option term, (ii) the expiration of the three (3)-year period measured from the date of the Optionee’scessation of Board service, (iii) the termination of the option in connection with a Corporate Transaction or (iv) the surrender of the option in connection with a Hostile Take-Over. 

 

C. Upon the occurrence of a Hostile Take-Over while the Optionee remains a Board member, the Optionee shall have a thirty(30)-day period in which to surrender to the Corporation each outstanding option granted him or her under the Director Fee Option Grant Program. The Optionee shall in return be entitled to a cash distribution from the Corporation in an amount equalto the excess of (i) the Take-Over Price of the shares of Common Stock at the time subject to each surrendered option (whether or not the option is otherwise at the time exercisable for those shares) over (ii) the aggregate exercise price payablefor such shares. Such cash distribution shall be paid within five (5) days following the surrender of the option to the Corporation. No approval or consent of the Board or any Plan Administrator shall be required at the time of the actual optionsurrender and cash distribution. 

 

D. Each option which isassumed in connection with a Corporate Transaction shall be appropriately adjusted, immediately after such Corporate Transaction, to apply to the number and class of securities which would have been issuable to the Optionee in consummation of suchCorporate Transaction had the option been exercised immediately prior to such Corporate Transaction. Appropriate adjustments shall also be made to the exercise price payable per share under each outstanding option, provided the aggregateexercise price payable for such securities shall remain the same. To the extent the actual holders of the Corporation’s outstanding Common Stock receive cash consideration for their Common Stock in consummation of the Corporate Transaction, thesuccessor corporation may, in connection with the assumption of the outstanding options under this Plan, substitute one or more shares of its own common stock with a fair market value equivalent to the cash consideration paid per share of CommonStock in such Corporate Transaction. 

 

E. The grant of optionsunder the Director Fee Option Grant Program shall in no way affect the right of the Corporation to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transferall or any part of its business or assets. 

 

**IV. REMAININGTERMS**

 

The remaining terms of each option granted underthis Director Fee Option Grant Program shall be the same as the terms in effect for option grants made under the Discretionary Option Grant Program. 

 

17**.**

**ARTICLE SEVEN**

 

**MISCELLANEOUS**

 

**I. FINANCING**

 

The Plan Administrator may permit any Optionee or Participant to pay the option exercise price under the Discretionary Option Grant Program or thepurchase price of shares issued under the Stock Issuance Program by delivering a full-recourse, interest bearing promissory note payable in one or more installments. The terms of any such promissory note (including the interest rate and the terms ofrepayment) shall be established by the Plan Administrator in its sole discretion. In no event may the maximum credit available to the Optionee or Participant exceed the sum of (i) the aggregate option exercise price or purchase price payable for thepurchased shares (less the par value of such shares) plus (ii) any Federal, state and local income and employment tax liability incurred by the Optionee or the Participant in connection with the option exercise or share purchase. 

 

**II. TAX WITHHOLDING**

 

A. The Corporation’s obligation to deliver shares of Common Stock uponthe exercise of options or the issuance or vesting of such shares under the Plan shall be subject to the satisfaction of all applicable Federal, state and local income and employment tax withholding requirements. 

 

B. The Plan Administrator may, in its discretion, provide any or all holdersof Non-Statutory Options or unvested shares of Common Stock under the Plan (other than the options granted or the shares issued under the Automatic Option Grant or Director Fee Option Grant Program) with the right to use shares of Common Stock insatisfaction of all or part of the Withholding Taxes to which such holders may become subject in connection with the exercise of their options or the vesting of their shares. Such right may be provided to any such holder in either or both of thefollowing formats: 

 

Stock Withholding: The election tohave the Corporation withhold, from the shares of Common Stock otherwise issuable upon the exercise of such Non-Statutory Option or the vesting of such shares, a portion of those shares with an aggregate Fair Market Value equal to the percentage ofthe Withholding Taxes (not to exceed one hundred percent (100%)) designated by the holder. 

 

Stock Delivery: The election to deliver to the Corporation, at the time the Non-Statutory Option is exercised or the shares vest, one or more shares of Common Stock previously acquired by such holder (otherthan in connection with the option exercise or share vesting triggering the Withholding Taxes) with an aggregate Fair Market Value equal to the percentage of the Withholding Taxes (not to exceed one hundred percent (100%)) designated by the holder.

 

**III. EFFECTIVE DATE AND TERM OF THE PLAN**

 

A. The Plan shall become effective immediately on the Plan Effective Date.However, the Salary Investment Option Grant Program and the Director Fee Option Grant Program shall not be implemented until such time as the Primary Committee may deem appropriate. Options may be granted under the Discretionary Option Grant at anytime on or after the Plan Effective Date, and the initial option grants under the Automatic Option Grant Program shall also be made on the Plan Effective Date to any non-employee Board members eligible for such grants at that time. However, nooptions granted under the Plan may be exercised, and no shares shall be issued under the Plan, until the Plan is approved by the Corporation’s stockholders. If such stockholder approval is not obtained within twelve (12) months after the PlanEffective Date, then all options previously granted under this Plan shall terminate and cease to be outstanding, and no further options shall be granted and no shares shall be issued under the Plan. 

 

18**.**

B. The Plan shall serve as the successor to the Predecessor Plan, and no further option grants or directstock issuances shall be made under the Predecessor Plan after the Plan Effective Date. All options outstanding under the Predecessor Plan on the Plan Effective Date shall be incorporated into the Plan at that time and shall be treated asoutstanding options under the Plan. However, each outstanding option so incorporated shall continue to be governed solely by the terms of the documents evidencing such option, and no provision of the Plan shall be deemed to affect or otherwisemodify the rights or obligations of the holders of such incorporated options with respect to their acquisition of shares of Common Stock. 

 

C. One or more provisions of the Plan, including (without limitation) the option/vesting acceleration provisions of Article Two relating to CorporateTransactions and Changes in Control, may, in the Plan Administrator’s discretion, be extended to one or more options incorporated from the Predecessor Plan which do not otherwise contain such provisions. 

 

D. The Plan shall terminate upon the earliest to occur of (i) November15, 2009, (ii) the date on which all shares available for issuance under the Plan shall have been issued as fully-vested shares or (iii) the termination of all outstanding options in connection with a Corporate Transaction. Should the Plan terminateon November 15, 2009, then all option grants and unvested stock issuances outstanding at that time shall continue to have force and effect in accordance with the provisions of the documents evidencing such grants or issuances. 

 

**IV. AMENDMENT OF THE PLAN**

 

A. The Board shall have complete and exclusive power and authority to amendor modify the Plan in any or all respects. However, no such amendment or modification shall adversely affect the rights and obligations with respect to stock options or unvested stock issuances at the time outstanding under the Plan unless theOptionee or the Participant consents to such amendment or modification. In addition, certain amendments may require stockholder approval pursuant to applicable laws or regulations. 

 

B. Options to purchase shares of Common Stock may be granted under the Discretionary Option Grant and Salary InvestmentOption Grant Programs and shares of Common Stock may be issued under the Stock Issuance Program that are in each instance in excess of the number of shares then available for issuance under the Plan, provided any excess shares actually issued underthose programs shall be held in escrow until there is obtained stockholder approval of an amendment sufficiently increasing the number of shares of Common Stock available for issuance under the Plan. If such stockholder approval is not obtainedwithin twelve (12) months after the date the first such excess issuances are made, then (i) any unexercised options granted on the basis of such excess shares shall terminate and cease to be outstanding and (ii) the Corporation shall promptly refundto the Optionees and the Participants the exercise or purchase price paid for any excess shares issued under the Plan and held in escrow, together with interest (at the applicable Short Term Federal Rate) for the period the shares were held inescrow, and such shares shall thereupon be automatically cancelled and cease to be outstanding. 

 

**V. USE OF PROCEEDS**

 

Any cash proceeds received by the Corporation from the sale of shares of Common Stock under the Plan shall be used for general corporate purposes.

 

**VI. REGULATORY APPROVALS**

 

A. The implementation of the Plan, the granting of any stock option underthe Plan and the issuance of any shares of Common Stock (i) upon the exercise of any granted option or (ii) under the Stock Issuance Program shall be subject to the Corporation’s procurement of all approvals and permits required by regulatoryauthorities having jurisdiction over the Plan, the stock options granted under it and the shares of Common Stock issued pursuant to it. 

 

B. No shares of Common Stock or other assets shall be issued or delivered under the Plan unless and until there shall have been compliance with allapplicable requirements of Federal and state securities laws, including the filing and effectiveness of the Form S-8 registration statement for the shares of Common Stock issuable under the Plan, and all applicable listing requirements of any stockexchange (or the Nasdaq National Market, if applicable) on which Common Stock is then listed for trading. 

 

19**.**

**VII. NO EMPLOYMENT/SERVICE RIGHTS**

 

Nothing in the Plan shall confer upon the Optionee or the Participant any right to continue in Service for any period ofspecific duration or interfere with or otherwise restrict in any way the rights of the Corporation (or any Parent or Subsidiary employing or retaining such person) or of the Optionee or the Participant, which rights are hereby expressly reserved byeach, to terminate such person’s Service at any time for any reason, with or without cause.****

 

**VIII. INFORMATION TO OPTIONEES AND PURCHASERS**

 

The Company shall provide to each Optionee and to each individual who acquires shares of Common Stock pursuant to the Plan, not less frequently thanannually during the period such Optionee or purchaser has one or more Options or other awards outstanding, and, in the case of an individual who acquires shares of Common Stock pursuant to the Plan, during the period such individual owns such sharesof Common Stock, copies of annual financial statements. The Company shall not be required to provide such statements to key employees whose duties in connection with the Company assure their access to equivalent information. 

 

20**.**

**APPENDIX**

 

The following definitions shall be in effect under the Plan: 

 

A. **Automatic Option Grant Program** shall mean the automatic option grant program in effect under Article Fiveof the Plan. 

 

B. **Board** shall mean theCorporation’s Board of Directors. 

 

C. **Change inControl** shall mean a change in ownership or control of the Corporation effected through either of the following transactions: 

 

(i) the acquisition, directly or indirectly by any person or related group of persons (other than the Corporation or a person thatdirectly or indirectly controls, is controlled by, or is under common control with, the Corporation), of beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty percent (50%) of the totalcombined voting power of the Corporation’s outstanding securities pursuant to a tender or exchange offer made directly to the Corporation’s stockholders, or 

 

(ii) a change in the composition of the Board over a period of thirty-six (36) consecutive months or lesssuch that a majority of the Board members ceases, by reason of one or more contested elections for Board membership, to be comprised of individuals who either (A) have been Board members continuously since the beginning of such period or (B) havebeen elected or nominated for election as Board members during such period by at least a majority of the Board members described in clause (A) who were still in office at the time the Board approved such election or nomination. 

 

D. **Code** shall mean the Internal Revenue Code of 1986, asamended. 

 

E. **Common Stock** shall mean theCorporation’s common stock. 

 

F. **CorporateTransaction** shall mean either of the following stockholder-approved transactions to which the Corporation is a party: 

 

(i) a merger or consolidation in which securities possessing more than fifty percent (50%) of the total combined voting power of theCorporation’s outstanding securities are transferred to a person or persons different from the persons holding those securities immediately prior to such transaction, or 

 

(ii) the sale, transfer or other disposition of all or substantially all of the Corporation’s assetsin complete liquidation or dissolution of the Corporation. 

 

G.**Corporation** shall mean Versata, Inc., a Delaware corporation, and any corporate successor to all or substantially all of the assets or voting stock of Versata, Inc. which shall by appropriate action adopt the Plan. 

 

H. **Director Fee Option Grant Program** shall mean the specialstock option grant in effect for non-employee Board members under Article Six of the Plan. 

 

I. **Disability** means total and permanent disability as defined in Section 22(e)(3) of the Code. 

 

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J. **Discretionary Option Grant Program** shall mean the discretionary option grant program ineffect under Article Two of the Plan. 

 

K.**Employee** shall mean an individual who is in the employ of the Corporation (or any Parent or Subsidiary), subject to the control and direction of the employer entity as to both the work to be performed and the manner and method ofperformance. 

 

L. **Exercise Date** shall mean thedate on which the Corporation shall have received written notice of the option exercise. 

 

M. **Fair Market Value** per share of Common Stock on any relevant date shall be determined in accordance with the following provisions: 

 

(i) If the Common Stock is at the time traded on the Nasdaq National Market, then the Fair Market Valueshall be the closing selling price per share of Common Stock on the date in question, as such price is reported by the National Association of Securities Dealers on the Nasdaq National Market and published in The Wall Street Journal. If thereis no closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be the closing selling price on the last preceding date for which such quotation exists. 

 

(ii) If the Common Stock is at the time listed on any StockExchange, then the Fair Market Value shall be the closing selling price per share of Common Stock on the date in question on the Stock Exchange determined by the Plan Administrator to be the primary market for the Common Stock, as such price isofficially quoted in the composite tape of transactions on such exchange and published in The Wall Street Journal. If there is no closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be theclosing selling price on the last preceding date for which such quotation exists. 

 

(iii) For purposes of any option grants made on the Underwriting Date, the Fair Market Value shall be deemed to be equal to the price pershare at which the Common Stock is to be sold in the initial public offering pursuant to the Underwriting Agreement. 

 

N. **Hostile Take-Over** shall mean the acquisition, directly or indirectly, by any person or related group of persons (other than theCorporation or a person that directly or indirectly controls, is controlled by, or is under common control with, the Corporation) of beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more than fiftypercent (50%) of the total combined voting power of the Corporation’s outstanding securities pursuant to a tender or exchange offer made directly to the Corporation’s stockholders which the Board does not recommend such stockholders toaccept. 

 

O. **Incentive Option** shall mean an optionwhich satisfies the requirements of Code Section 422. 

 

P.**Involuntary Termination** shall mean the termination of the Service of any individual which occurs by reason of: 

 

(i) such individual’s involuntary dismissal or discharge by the Corporation for reasons other than Misconduct, or 

 

(ii) such individual’s voluntary resignation following(A) a change in his or her position with the Corporation which materially reduces his or her duties and responsibilities or the level of management to which he or she reports, (B) a reduction in his or her level of compensation (including basesalary, fringe benefits and target bonus under any corporate-performance based bonus or incentive programs) by more than fifteen percent (15%) or (C) a relocation of such individual’s place of employment by more than fifty (50) miles, providedand only if such change, reduction or relocation is effected by the Corporation without the individual’s consent. 

 

A-2. 

Q. **Misconduct** shall mean the commission of any act of fraud, embezzlement or dishonesty bythe Optionee or Participant, any unauthorized use or disclosure by such person of confidential information or trade secrets of the Corporation (or any Parent or Subsidiary), or any other intentional misconduct by such person adversely affecting thebusiness or affairs of the Corporation (or any Parent or Subsidiary) in a material manner. The foregoing definition shall not in any way preclude or restrict the right of the Corporation (or any Parent or Subsidiary) to discharge or dismiss of anyOptionee, Participant or other person in the Service of the Corporation (or any Parent or Subsidiary) for any other acts or omissions, but such other acts or omissions shall not be deemed, for purposes of the Plan, to constitute grounds fortermination for Misconduct. 

 

R. **1934 Act** shallmean the Securities Exchange Act of 1934, as amended. 

 

S.**Non-Statutory Option** shall mean an option not intended to satisfy the requirements of Code Section 422. 

 

T. **Optionee** shall mean any person to whom an option is granted under the Discretionary Option Grant, Salary Investment Option Grant,Automatic Option Grant or Director Fee Option Grant Program. 

 

U. **Parent** shall mean any corporation (other than the Corporation) in an unbroken chain of corporations ending with the Corporation, provided each corporation in the unbroken chain (other than the Corporation) owns, at the timeof the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. 

 

V. **Participant** shall mean any person who is issued shares of Common Stock under the Stock Issuance Program.

 

W. **Permanent Disability or Permanently Disabled**shall mean the inability of the Optionee or the Participant to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment expected to result in death or to be of continuous duration of twelve(12) months or more. However, solely for purposes of the Automatic Option Grant and Director Fee Option Grant Programs, Permanent Disability or Permanently Disabled shall mean the inability of the non-employee Board member to perform his or herusual duties as a Board member by reason of any medically determinable physical or mental impairment expected to result in death or to be of continuous duration of twelve (12) months or more. 

 

X. **Plan** shall mean the Corporation’s 2000 Stock IncentivePlan, as set forth in this document. 

 

Y. **PlanAdministrator** shall mean the particular entity, whether the Primary Committee, the Board or the Secondary Committee, which is authorized to administer the Discretionary Option Grant and Stock Issuance Programs with respect to one or moreclasses of eligible persons, to the extent such entity is carrying out its administrative functions under those programs with respect to the persons under its jurisdiction. 

 

Z. **Plan Effective Date** shall mean the date the Plan shall become effective and shall be coincident with theUnderwriting Date. 

 

AA. **Predecessor Plan** shallmean the Corporation’s 1997 Stock Option Plan in effect immediately prior to the Plan Effective Date hereunder. 

 

BB. **Primary Committee** shall mean the committee of two (2) or more non-employee Board members appointed by the Board to administer theDiscretionary Option Grant and Stock Issuance Programs with respect to Section 16 Insiders and to administer the Salary Investment Option Grant Program solely with respect to the selection of the eligible individuals who may participate in suchprogram. 

 

A-3. 

CC. **Salary Investment Option Grant Program** shall mean the salary investment option grantprogram in effect under Article Three of the Plan. 

 

DD.**Secondary Committee** shall mean a committee of one or more Board members appointed by the Board to administer the Discretionary Option Grant and Stock Issuance Programs with respect to eligible persons other than Section 16 Insiders.

 

EE. **Section 16 Insider** shall mean an officer ordirector of the Corporation subject to the short-swing profit liabilities of Section 16 of the 1934 Act. 

 

FF. **Service** shall mean the performance of services for the Corporation (or any Parent or Subsidiary) by a person in the capacity of anEmployee, a non-employee member of the board of directors or a consultant or independent advisor, except to the extent otherwise specifically provided in the documents evidencing the option grant or stock issuance. 

 

GG. **Stock Exchange** shall mean either the American StockExchange or the New York Stock Exchange. 

 

HH. **StockIssuance Agreement** shall mean the agreement entered into by the Corporation and the Participant at the time of issuance of shares of Common Stock under the Stock Issuance Program. 

 

II. **Stock Issuance Program** shall mean the stock issuance program in effect under Article Four of the Plan.

 

JJ. **Subsidiary** shall mean any corporation (otherthan the Corporation) in an unbroken chain of corporations beginning with the Corporation, provided each corporation (other than the last corporation) in the unbroken chain owns, at the time of the determination, stock possessing fifty percent (50%)or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. 

 

KK. **Take-Over Price** shall mean the greater of (i) the Fair Market Value per share of Common Stock on the date the option issurrendered to the Corporation in connection with a Hostile Take-Over or (ii) the highest reported price per share of Common Stock paid by the tender offeror in effecting such Hostile Take-Over. However, if the surrendered option is an IncentiveOption, the Take-Over Price shall not exceed the clause (i) price per share. 

 

LL. **10% Stockholder** shall mean the owner of stock (as determined under Code Section 424(d)) possessing more than ten percent (10%) of the total combined voting power of all classes of stock of theCorporation (or any Parent or Subsidiary). 

 

MM.**Underwriting Agreement** shall mean the agreement between the Corporation and the underwriter or underwriters managing the initial public offering of the Common Stock. 

 

NN. **Underwriting Date** shall mean the date on which the Underwriting Agreement is executed and priced inconnection with an initial public offering of the Common Stock. 

 

OO. **Withholding Taxes** shall mean the Federal, state and local income and employment withholding taxes to which the holder of Non-Statutory Options or unvested shares of Common Stock may become subject in connection with theexercise of those options or the vesting of those shares. 

 

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