Exhibit 10.1


 


CATALYTICA
ENERGY SYSTEMS, INC.


(formerly Catalytica Combustion Systems, Inc.)


 


1995 STOCK
PLAN


(As amended
and restated effective August 31, 2005)


 


1.                                       Purposes of the Plan.  The
purposes of this 1995 Stock Plan are:


 


•                                          to
attract and retain the best available personnel for positions of substantial
responsibility,


 


•                                          to
provide additional incentive to Employees, Directors and Consultants, and


 


•                                          to
promote the success of the Company’s business.


 


The Plan permits the grant of Incentive Stock
Options, Nonstatutory Stock Options, Stock Purchase Rights and Restricted Stock
Units.


 


2.                                       Definitions.  As used herein, the following
definitions shall apply:


 


(a)                                  “Administrator”
means the Board or any of its Committees as shall be administering the Plan, in
accordance with Section 4 of the Plan.


 


(b)                                 “Applicable Laws”
means the requirements relating to the administration of stock plans under U.
S. state corporate laws, U.S. federal and state securities laws, the Code, any
stock exchange or quotation system on which the Common Stock is listed or
quoted and the applicable laws of any foreign country or jurisdiction where Awards
are, or will be, granted under the Plan.


 


(c)                                  “Award” means,
individually or collectively, a grant under the Plan of Options, Stock Purchase
Rights, or Restricted Stock Units.


 


(d)                                 “Award Agreement”
means the written or electronic agreement setting forth the terms and
provisions applicable to each Award granted under the Plan.  The Award Agreement is subject to the terms
and conditions of the Plan.


 


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


 


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


 


(g)                                 “Committee”
means a committee of Directors appointed by the Board in accordance with Section 4
of the Plan.


 


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


 





















 


(i)                                     “Company”
means Catalytica Energy Systems, Inc., a Delaware corporation.


 


(j)                                     “Consultant”
means any person, including an advisor, engaged by the Company or a Parent or
Subsidiary to render services to such entity.


 


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


 


(l)                                     “Disability”
means total and permanent disability as defined in Section 22(e)(3) of
the Code.


 


(m)                               “Employee” means
any person, including Officers and Directors, employed by the Company or any
Parent or Subsidiary of the Company.  A
Service Provider shall not cease to be an Employee in the case of (i) any
leave of absence approved by the Company or (ii) transfers between
locations of the Company or between the Company, its Parent, any Subsidiary, or
any successor.  For purposes of Incentive
Stock Options, no such leave may exceed ninety days, unless reemployment upon
expiration of such leave is guaranteed by statute or contract.  If reemployment upon expiration of a leave of
absence approved by the Company is not so guaranteed, on the 181st day of such
leave any Incentive Stock Option held by the Optionee shall cease to be treated
as an Incentive Stock Option and shall be treated for tax purposes as a
Nonstatutory Stock Option.  Neither service
as a Director nor payment of a director’s fee by the Company shall be
sufficient to constitute “employment” by the Company.


 


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


 


(o)                                 “Fair Market Value”
means, as of any date, the value of Common Stock determined as follows:


 


(i)                                     If the Common
Stock is listed on any established stock exchange or a national market system,
including without limitation the Nasdaq National Market or The Nasdaq SmallCap
Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing
sales price for such stock (or the closing bid, if no sales were reported) as
quoted on such exchange or system for the last market trading day prior to the
time of determination, as reported in The Wall Street Journal
or such other source as the Administrator deems reliable;


 


(ii)                                  If the Common Stock
is regularly quoted by a recognized securities dealer but selling prices are
not reported, the Fair Market Value of a Share of Common Stock shall be the
mean between the high bid and low asked prices for the Common Stock on the last
market trading day prior to the day of determination, as reported in The Wall Street Journal or such other source as the
Administrator deems reliable; or


 


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


 


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


 


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


 


(r)                                    “Notice of Grant”
means a written or electronic notice evidencing certain terms and conditions of
an individual Award grant.  The Notice of
Grant is part of the Award Agreement.


 


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


 


(t)                                    “Option”
means a stock option granted pursuant to the Plan.


 


(u)                                 “Option Exchange
Program” means a program whereby outstanding Options are surrendered in
exchange for Options with a lower exercise price.


 


(v)                                 “Optioned Stock”
means the Common Stock subject to an Option.


 


(w)                               “Optionee” means
the holder of an outstanding Option granted under the Plan.


 


(x)                                   “Parent”
means a “parent corporation,” whether now or hereafter existing, as defined in Section 424(e) of
the Code.


 


(y)                                 “Participant”
means the holder of an outstanding Award granted under the Plan.


 


(z)                                   “Plan” means
this 1995 Stock Plan.


 


(aa)                            “Restricted Stock”
means shares of Common Stock acquired pursuant to a grant of Stock Purchase
Rights under Section 11 of the Plan.


 


(bb)                          “Restricted Stock Purchase
Agreement” means a written agreement between the Company and the
Participant evidencing the terms and restrictions applying to stock purchased
under a Stock Purchase Right.  The
Restricted Stock Purchase Agreement is subject to the terms and conditions of
the Plan and the Notice of Grant.


 


(cc)                            “Restricted Stock Unit”
means an Award granted pursuant to Section 12 of the Plan.


 


(dd)                          “Rule 16b-3”
means Rule 16b-3 of the Exchange Act or any successor to Rule 16b-3, as
in effect when discretion is being exercised with respect to the Plan.


 


(ee)                            “Section 16(b) ”
means Section 16(b) of the Exchange Act.


 


(ff)                                “Service Provider”
means an Employee, Director or Consultant.


 


(gg)                          “Share” means a share
of the Common Stock, as adjusted in accordance with Section 14 of the
Plan.


 


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(hh)                          “Stock Purchase Right”
means the right to purchase Common Stock pursuant to Section 11 of the
Plan, as evidenced by a Notice of Grant.


 


(ii)                                  “Subsidiary”
means a “subsidiary corporation”, whether now or hereafter existing, as defined
in Section 424(f) of the Code.


 


3.                                       Stock Subject to the Plan.  Subject
to the provisions of Section 14 of the Plan, the maximum aggregate number
of Shares that may be optioned and sold under the Plan is 5,000,000
Shares.  The Shares may be authorized,
but unissued, or reacquired Common Stock.


 


If an Award expires or becomes unexercisable
without having been exercised in full, or is surrendered pursuant to an Option
Exchange Program, the unpurchased Shares which were subject thereto shall
become available for future grant or sale under the Plan (unless the Plan has
terminated); provided, however, that Shares that have actually been
issued under the Plan, whether upon exercise of an Option or Stock Purchase
Right or upon vesting of Restricted Stock or a Restricted Stock Unit, shall not
be returned to the Plan and shall not become available for future distribution
under the Plan, except that if Shares of Restricted Stock are repurchased by
the Company at their original purchase price, such Shares shall become
available for future grant under the Plan.


 


4.                                       Administration of the Plan.


 


(a)                                  Procedure.


 


(i)                                     Multiple
Administrative Bodies.  Different
Committees with respect to different groups of Service Providers may administer
the Plan.


 


(ii)                                  Section 162(m).  To the extent that the Administrator
determines it to be desirable to qualify Awards granted hereunder as “performance-based
compensation” within the meaning of Section 162(m) of the Code, the Plan
shall be administered by a Committee of two or more “outside directors” within
the meaning of Section 162(m) of the Code.


 


(iii)                               Rule 16b-3.  To the extent desirable to qualify
transactions hereunder as exempt under Rule 16b-3, the transactions
contemplated hereunder shall be structured to satisfy the requirements for
exemption under Rule 16b-3.


 


(iv)                              Other Administration.  Other than as provided above, the Plan shall
be administered by (A) the Board or (B) a Committee, which committee
shall be constituted to satisfy Applicable Laws.


 


(b)                                 Powers of the
Administrator.  Subject to the
provisions of the Plan, and in the case of a Committee, subject to the specific
duties delegated by the Board to such Committee, the Administrator shall have
the authority, in its discretion:


 


(i)                                                to
determine the Fair Market Value;


 


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(ii)                                             to select
the Service Providers to whom Awards may be granted hereunder;


 


(iii)                                          to determine
the number of shares of Common Stock to be covered by each Award granted
hereunder;


 


(iv)                                         to approve
forms of agreement for use under the Plan;


 


(v)                                            to
determine the terms and conditions, not inconsistent with the terms of the
Plan, of any Award granted hereunder. 
Such terms and conditions include, but are not limited to, the exercise
price, the time or times when Options or Stock Purchase Rights may be exercised
or Restricted Stock Units vest (which may be based on performance criteria),
any vesting acceleration or waiver of forfeiture restrictions, and any
restriction or limitation regarding any Award or the shares of Common Stock
relating thereto, based in each case on such factors as the Administrator, in
its sole discretion, shall determine;


 


(vi)                                         to reduce the
exercise price of any Option or Stock Purchase Right to the then current Fair
Market Value if the Fair Market Value of the Common Stock covered by such Award
shall have declined since the date the Award was granted;


 


(vii)                                      to institute an
Option Exchange Program;


 


(viii)                                   to construe and
interpret the terms of the Plan and Awards granted pursuant to the Plan;


 


(ix)                                           to
prescribe, amend and rescind rules and regulations relating to the Plan,
including rules and regulations relating to sub-plans established for the
purpose of qualifying for preferred tax treatment under foreign tax laws;


 


(x)                                              to modify
or amend each Award (subject to Section 17(c) of the Plan), including
the discretionary authority to extend the post-termination exercisability
period of Options longer than is otherwise provided for in the Plan;


 


(xi)                                           to allow Participants
to satisfy withholding tax obligations by electing to have the Company withhold
from the Shares to be issued upon exercise of an Award that number of Shares
having a Fair Market Value equal to the amount required to be withheld.  The Fair Market Value of the Shares to be
withheld shall be determined on the date that the amount of tax to be withheld
is to be determined.  All elections by a
Participant to have Shares withheld for this purpose shall be made in such form
and under such conditions as the Administrator may deem necessary or advisable;


 


(xii)                                        to authorize
any person to execute on behalf of the Company any instrument required to
effect the grant of an Award previously granted by the Administrator;


 


(xiii)                                     to make all other
determinations deemed necessary or advisable for administering the Plan.


 


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(c)                                  Effect of
Administrator’s Decision.  The
Administrator’s decisions, determinations and interpretations shall be final
and binding on all Participants and any other holders of Awards.


 


5.                                       Eligibility.  Nonstatutory Stock Options, Stock
Purchase Rights and Restricted Stock Units may be granted to Service
Providers.  Incentive Stock Options may
be granted only to Employees.


 


6.                                       Limitations.


 


(a)                                  Each Option shall be
designated in the Award Agreement as either an Incentive Stock Option or a
Nonstatutory Stock Option.  However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options.  For purposes of this Section 6(a),
Incentive Stock Options shall be taken into account in the order in which they
were granted.  The Fair Market Value of
the Shares shall be determined as of the time the Option with respect to such
Shares is granted.


 


(b)                                 Neither the Plan nor
any Award shall confer upon a Participant any right with respect to continuing
the Participant’s relationship as a Service Provider with the Company, nor
shall they interfere in any way with the Participant’s right or the Company’s
right to terminate such relationship at any time, with or without cause.


 


(c)                                  The following
limitations shall apply to grants of Options:


 


(i)                                     No Service
Provider shall be granted, in any fiscal year of the Company, Options to
purchase more than 500,000 Shares.


 


(ii)                                  In connection with
his or her initial service, a Service Provider may be granted Options to
purchase up to an additional 500,000 Shares, which shall not count against the
limit set forth in subsection (i) above.


 


(d)                                 The foregoing
limitations shall be adjusted proportionately in connection with any change in
the Company’s capitalization as described in Section 14.


 


(e)                                  If an Option is
cancelled in the same fiscal year of the Company in which it was granted (other
than in connection with a transaction described in Section 14), the
cancelled Option will be counted against the limits set forth in subsections
(c)(i), (c)(ii), (d)(i) and (d)(ii) above.  For this purpose, if the exercise price of an
Option is reduced, the transaction will be treated as a cancellation of the Option
and the grant of a new Option.


 


7.                                       Term of Plan.  Subject to Section 21 of the
Plan, the Plan shall become effective upon its adoption by the Board.  Unless terminated earlier under Section 17,
it shall continue in effect for a term of ten (10) years from the later of
(i) the effective date of the Plan, or (ii) the date of the most
recent Board approval of an increase in the number of shares reserved for
issuance under the Plan.


 


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8.                                       Term of Options.  The term of each Option shall be
stated in the Award Agreement.  In the
case of an Incentive Stock Option, the term shall be ten (10) years from
the date of grant or such shorter term as may be provided in the Award
Agreement.  Moreover, in the case of an
Incentive Stock Option granted to an Optionee who, at the time the Incentive
Stock Option is granted, owns stock representing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company or any
Parent or Subsidiary, the term of the Incentive Stock Option shall be five (5) years
from the date of grant or such shorter term as may be provided in the Award
Agreement.


 


9.                                       Option Exercise Price and Consideration.


 


(a)                                  Exercise Price.  The per share exercise price for the Shares
to be issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:


 


(i)                                     In the case of an
Incentive Stock Option


 


(A)                              granted to an Employee
who, at the time the Incentive Stock Option is granted, owns stock representing
more than ten percent (10%) of the voting power of all classes of stock of the
Company or any Parent or Subsidiary, the per Share exercise price shall be no
less than 110% of the Fair Market Value per Share on the date of grant.


 


(B)                                granted to any Employee
other than an Employee described in paragraph (A) immediately above, the
per Share exercise price shall be no less than 100% of the Fair Market Value
per Share on the date of grant.


 


(ii)                                  In the case of a
Nonstatutory Stock Option, the per Share exercise price shall be determined by
the Administrator.  In the case of a
Nonstatutory Stock Option intended to qualify as “performance-based
compensation” within the meaning of Section 162(m) of the Code, the per
Share exercise price shall be no less than 100% of the Fair Market Value per
Share on the date of grant.


 


(iii)                               Notwithstanding the
foregoing, Options may be granted with a per Share exercise price of less than
100% of the Fair Market Value per Share on the date of grant pursuant to a
merger or other corporate transaction.


 


(b)                                 Waiting Period and
Exercise Dates.  At the time an
Option is granted, the Administrator shall fix the period within which the
Option may be exercised and shall determine any conditions that must be
satisfied before the Option may be exercised.


 


(c)                                  Form of
Consideration.  The Administrator
shall determine the acceptable form of consideration for exercising an Option,
including the method of payment.  In the
case of an Incentive Stock Option, the Administrator shall determine the
acceptable form of consideration at the time of grant.  Such consideration may consist entirely of:


 


(i)                                     cash;


 


(ii)                                  check;


 


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(iii)                               promissory note;


 


(iv)                              other Shares which (A) in
the case of Shares acquired upon exercise of an option, have been owned by the Optionee
for more than six months on the date of surrender, and (B) have a Fair
Market Value on the date of surrender equal to the aggregate exercise price of
the Shares as to which said Option shall be exercised;


 


(v)                                 consideration received
by the Company under a cashless exercise program implemented by the Company in
connection with the Plan;


 


(vi)                              a reduction in the amount
of any Company liability to the Optionee, including any liability attributable
to the Optionee’s participation in any Company-sponsored deferred compensation
program or arrangement;


 


(vii)                           any combination of the
foregoing methods of payment; or


 


(viii)                        such other consideration and
method of payment for the issuance of Shares to the extent permitted by
Applicable Laws.


 


10.                                 Exercise of Option.


 


(a)                                  Procedure for
Exercise; Rights as a Shareholder. 
Any Option granted hereunder shall be exercisable according to the terms
of the Plan and at such times and under such conditions as determined by the
Administrator and set forth in the Award Agreement.  Unless the Administrator provides otherwise,
vesting of Options granted hereunder shall be tolled during any unpaid leave of
absence.  An Option may not be exercised
for a fraction of a Share.


 


An Option shall be deemed exercised when the
Company receives: (i) written or electronic notice of exercise (in
accordance with the Award Agreement) from the person entitled to exercise the
Option, and (ii) full payment for the Shares with respect to which the
Option is exercised.  Full payment may
consist of any consideration and method of payment authorized by the
Administrator and permitted by the Award Agreement and the Plan.  Shares issued upon exercise of an Option
shall be issued in the name of the Optionee or, if requested by the Optionee,
in the name of the Optionee and his or her spouse.  Until the Shares are issued (as evidenced by
the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company), no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. 
The Company shall issue (or cause to be issued) such Shares promptly
after the Option is exercised.  No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the Shares are issued, except as provided in Section 14
of the Plan.


 


Exercising an Option in any manner shall
decrease the number of Shares thereafter available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.


 


(b)                                 Termination of
Relationship as a Service Provider. 
If an Optionee ceases to be a Service Provider, other than upon the
Optionee’s death or Disability, the Optionee may


 


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exercise his or her Option within such period of time as is specified
in the Award Agreement to the extent that the Option is vested on the date of
termination (but in no event later than the expiration of the term of such
Option as set forth in the Award Agreement). 
In the absence of a specified time in the Award Agreement, the Option
shall remain exercisable for three (3) months following the Optionee’s
termination.  If, on the date of
termination, the Optionee is not vested as to his or her entire Option, the
Shares covered by the unvested portion of the Option shall revert to the
Plan.  If, after termination, the
Optionee does not exercise his or her Option within the time specified by the
Administrator, the Option shall terminate, and the Shares covered by such
Option shall revert to the Plan.


 


(c)                                  Disability of
Optionee.  If an Optionee ceases to
be a Service Provider as a result of the Optionee’s Disability, the Optionee
may exercise his or her Option within such period of time as is specified in
the Award Agreement to the extent the Option is vested on the date of
termination (but in no event later than the expiration of the term of such
Option as set forth in the Award Agreement). 
In the absence of a specified time in the Award Agreement, the Option
shall remain exercisable for twelve (12) months following the Optionee’s termination.  If, on the date of termination, the Optionee
is not vested as to his or her entire Option, the Shares covered by the
unvested portion of the Option shall revert to the Plan.  If, after termination, the Optionee does not
exercise his or her Option within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.


 


(d)                                 Death of Optionee.  If an Optionee dies while a Service Provider,
the Option may be exercised within such period of time as is specified in the Award
Agreement (but in no event later than the expiration of the term of such Option
as set forth in the Notice of Grant), by the Optionee’s estate or by a person
who acquires the right to exercise the Option by bequest or inheritance, but
only to the extent that the Option is vested on the date of death.  In the absence of a specified time in the Award
Agreement, the Option shall remain exercisable for twelve (12) months following
the Optionee’s termination.  If, at the
time of death, the Optionee is not vested as to his or her entire Option, the
Shares covered by the unvested portion of the Option shall immediately revert
to the Plan.  The Option may be exercised
by the executor or administrator of the Optionee’s estate or, if none, by the
person(s) entitled to exercise the Option under the Optionee’s will or the laws
of descent or distribution.  If the
Option is not so exercised within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.


 


11.                                 Stock Purchase Rights.


 


(a)                                  Rights to Purchase.  Stock Purchase Rights may be issued either
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. 
After the Administrator determines that it will offer Stock Purchase
Rights under the Plan, it shall advise the offeree in writing or
electronically, by means of a Notice of Grant, of the terms, conditions and
restrictions related to the offer, including the number of Shares that the
offeree shall be entitled to purchase, the price to be paid, and the time
within which the offeree must accept such offer.  The offer shall be accepted by execution of a
Restricted Stock Purchase Agreement in the form determined by the Administrator.


 


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(b)                                 Repurchase Option.  Unless the Administrator determines
otherwise, the Restricted Stock Purchase Agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser’s service with the Company for any reason (including death or
Disability).  The purchase price for
Shares repurchased pursuant to the Restricted Stock Purchase Agreement shall be
the original price paid by the purchaser and may be paid by cancellation of any
indebtedness of the purchaser to the Company. 
The repurchase option shall lapse at a rate determined by the
Administrator.


 


(c)                                  Other Provisions.  The Restricted Stock Purchase Agreement shall
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion.


 


(d)                                 Rights as a
Shareholder.  Once the Stock Purchase
Right is exercised, the purchaser shall have the rights equivalent to those of
a shareholder, and shall be a shareholder when his or her purchase is entered
upon the records of the duly authorized transfer agent of the Company.  No adjustment will be made for a dividend or
other right for which the record date is prior to the date the Stock Purchase
Right is exercised, except as provided in Section 14 of the Plan.


 


12.                                 Restricted Stock Units.


 


(a)                                  Grant.  Restricted Stock Units may be granted at any
time and from time to time as determined by the Administrator.  The Administrator shall have complete
discretion to determine (i) the number of Shares subject to a Restricted
Stock Unit award granted to any Participant, and (ii) the conditions that
must be satisfied, which typically will be based principally or solely on
continued service but may include a performance-based component, upon which is
conditioned the grant or vesting of Restricted Stock Units.  Restricted Stock Units shall be granted in
the form of units to acquire Shares. 
Each such unit shall be the equivalent of one Share for purposes of
determining the number of Shares subject to an Award.  Until the Shares are issued, no right to vote
or receive dividends or any other rights as a stockholder shall exist with
respect to the units to acquire Shares.


 


(b)                                 Vesting Criteria
and Other Terms.  The Administrator
shall set vesting criteria in its discretion, which, depending on the extent to
which the criteria are met, will determine the number of Shares that will be
paid out to the Participant.  The
Administrator may set vesting criteria based upon the achievement of
Company-wide, business unit, or individual goals (including, but not limited
to, continued employment), or any other basis determined by the Administrator
in its discretion.


 


(c)                                  Earning Restricted
Stock Units.  Upon meeting the
applicable vesting criteria, the Participant shall be entitled to receive a
payout as specified in the Award Agreement. 
Notwithstanding the foregoing, at any time after the grant of Restricted
Stock Units, the Administrator, in its sole discretion, may reduce or waive any
vesting criteria that must be met to receive a payout.


 


(d)                                 Form and
Timing of Payment.  Payment of earned
Restricted Stock Units shall be made as soon as practicable after the date(s)
set forth in the Award Agreement.  The
Administrator shall pay earned Restricted Stock Units in Shares.


 


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(e)                                  Cancellation.  On the date set forth in the Award Agreement,
all unearned Restricted Stock Units shall be forfeited to the Company.


 


13.                                 Non-Transferability of Awards.  Unless
determined otherwise by the Administrator, an Award may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Participant, only by the Participant.  If the Administrator makes an Award transferable,
such Award shall contain such additional terms and conditions as the
Administrator deems appropriate.


 


14.                                 Adjustments Upon Changes in Capitalization,
Dissolution, Merger or Asset Sale.


 


(a)                                  Changes in
Capitalization.  Subject to any
required action by the shareholders of the Company, the number of shares of
Common Stock covered by each outstanding Award, and the number of shares of Common
Stock which have been authorized for issuance under the Plan but as to which no
Awards have yet been granted or which have been returned to the Plan upon
cancellation or expiration of an Award, as well as the price per share of
Common Stock covered by each such outstanding Award, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without
receipt of consideration by the Company; provided, however, that conversion of
any convertible securities of the Company shall not be deemed to have been “effected
without receipt of consideration.”  Such
adjustment shall be made by the Board, whose determination in that respect
shall be final, binding and conclusive. 
Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to an Award.


 


(b)                                 Dissolution or
Liquidation.  In the event of the
proposed dissolution or liquidation of the Company, the Administrator shall
notify each Participant as soon as practicable prior to the effective date of
such proposed transaction.  The
Administrator in its discretion may provide for a Participant to have the right
to exercise his or her Award until ten (10) days prior to such transaction
as to all of the Shares covered thereby, including Shares as to which the Award
would not otherwise be exercisable.  In
addition, the Administrator may provide that any Company repurchase option
applicable to any Shares purchased upon exercise of an Award shall lapse as to
all such Shares, provided the proposed dissolution or liquidation takes place
at the time and in the manner contemplated. 
To the extent it has not been previously exercised, an Award will
terminate immediately prior to the consummation of such proposed action.


 


(c)                                  Merger or Asset
Sale.  In the event of a merger of
the Company with or into another corporation, or the sale of substantially all
of the assets of the Company:


 


(i)                                     Unless otherwise
provided in the Notice of Grant and Award Agreement, each Award may be assumed
or an equivalent option or right substituted by such successor corporation
(including as a “successor” any purchaser of substantially all of the assets of
the Company) or a parent or subsidiary of such successor corporation.  In the event that the


 


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successor corporation refuses to assume or substitute for the Award,
the Participant shall fully vest in and have the right to exercise the Award as
to all of the Shares, including Shares as to which it would not otherwise be
vested or exercisable.  In such event the
Administrator shall notify the Participant as soon as practicable prior to the
effective date of such transaction that the Award shall be fully exercisable
for a period of ten (10) days from the date of such notice, and the Award
shall terminate upon the expiration of such period if the successor corporation
does not assume or substitute for such option or right.  For the purposes of this paragraph, an Award
shall be considered assumed if, following the merger or sale of assets, the
option or right confers the right to purchase or receive, for each Share
subject to the Award immediately prior to the merger or sale of assets, the
consideration (whether stock, cash, or other securities or property) received
in the merger or sale of assets by holders of Common Stock for each Share held
on the effective date of the transaction (and if holders were offered a choice
of consideration, the type of consideration chosen by the holders of a majority
of the outstanding Shares).  If such
consideration received in the merger is not solely common stock of the
successor corporation or its Parent, the Administrator may, with the consent of
the successor corporation, provide for the consideration to be received upon
the exercise of the Award, for each Share subject to the Award, to be solely
common stock of the successor corporation or its Parent equal in fair market
value to the per share consideration received by holders of Common Stock in the
merger or sale of assets.


 


(ii)                                  Any Shares subject to
a repurchase option of the Company shall be exchanged for the consideration
(whether stock, cash, or other securities or property) received in the merger
or asset sale by the holders of Common Stock for each Share held on the
effective date of the transaction, as described in the preceding
paragraph.  If in such exchange the Participant
receives shares of stock of the successor corporation or a parent or subsidiary
of such successor corporation, and if the successor corporation has agreed to
assume or substitute for Awards as provided in the preceding paragraph, such
exchanged shares shall continue to be subject to a repurchase option as
provided in the Participant’s restricted stock purchase agreement.  If, as provided in the preceding paragraph,
the Participants shall have the right to exercise Awards as to all of the Shares
covered thereby, all of the Shares that are subject to a repurchase option of
the Company will automatically be released from such repurchase option.


 


15.                                 Change of Control.


 


(a)                                  In the event of a
Change of Control (as defined below), a Participant shall (i) have the
right to exercise each Option and Stock Purchase Right as to all or a portion
of the Shares covered thereby, including Shares as to which the Award would not
otherwise be exercisable, and (ii) fully vest in any Restricted Stock
Unit, in either case on the date six (6) months after such Change of
Control or earlier if a Participant’s status as
a Service Provider with the successor corporation is terminated by the
successor corporation as a result of an Involuntary Termination (as defined
below).  Thereafter, the Option or Stock
Purchase Right shall remain exercisable in accordance with terms of the Plan.


 


(b)                                 For purposes of this Section 15,
the following definitions shall apply:


 


(i)                                     a “Change of
Control” means the happening of any of the following events:


 


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(A)                              Any “person” (as such
term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended) becomes the “beneficial owner” (as defined in
Rule 13d-3 under said Act), directly or indirectly, of securities of the
Company representing fifty percent (50%) or more of the total voting power
represented by the Company’s then outstanding voting securities; or


 


(B)                                A change in the
composition of the Board occurring within a one-year period, as a result of
which fewer than a majority of the directors are Incumbent Directors. “Incumbent
Directors” shall mean directors who either (i) are directors of the
Company as of the date hereof, or (ii) are elected, or nominated for
election, to the Board with the affirmative votes of at least a majority of the
Incumbent Directors at the time of such election or nomination (but shall not
include an individual whose election or nomination is in connection with an
actual or threatened proxy contest relating to the election of directors to the
Company); or


 


(C)                                The consummation of a
merger or consolidation of the Company with any other corporation, other than a
merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either
by remaining outstanding or by being converted into voting securities of the
surviving entity) more than fifty percent (50%) of the total voting power
represented by the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation; or


 


(D)                               the consummation of the
sale or disposition by the Company of all or substantially all of the Company’s
assets.


 


(ii)                                  “Involuntary
Termination” shall mean any of the following events: (A) without the Participant’s express written consent, a significant
reduction of the Participant’s duties, authority or responsibilities, relative
to the Participant’s duties, authority or responsibilities as in effect
immediately prior to the Change of Control; (B) without
the Participant’s express written consent, a substantial
reduction, without good business reasons, of the facilities and perquisites
(including office space and location) available to the Participant immediately
prior to the Change of Control; (C) without the Participant’s express
written consent, a reduction in the base salary of the Participant as in effect
immediately prior to the Change of Control; (D) without the Participant’s
express written consent, a material reduction in the kind or level of employee
benefits, including bonuses, to which the Participant was entitled immediately
prior to the Change of Control with the result that the Participant’s overall
benefits package is significantly reduced; (E) without the Participant’s
express written consent, the relocation of the Participant to a facility or a
location more than thirty (30) miles from the Participant’s then present
location; (F) any purported termination of the Participant which is not
effected for Disability or for Cause (as defined below), or any purported
termination for which the grounds relied upon are not valid; or (G) or any
act or set of facts or circumstances which would, under California case law or
statute, constitute a constructive termination of the Participant.


 


(iii)                               “Cause” shall mean (A) any
act of personal dishonesty taken by the Participant in connection with his
responsibilities as a Service Provider and intended to result


 


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in substantial personal enrichment of the Participant, (B) Participant’s
conviction of or plea of nolo contendere to a felony, (C) a willful act by
the Participant which constitutes gross misconduct and which is injurious to
the successor corporation, or (D) following delivery to the Participant of
a written demand for performance from the successor corporation which describes
the basis for the successor corporation’s belief that the Participant has not
substantially performed his duties, continued violations by the Participant of
the Participant’s obligations to the successor corporation which are
demonstrably willful and deliberate on the Participant’s part.


 


16.                                 Date of Grant.  The date of grant of an Award
shall be, for all purposes, the date on which the Administrator makes the
determination granting such Award, or such other later date as is determined by
the Administrator.  Notice of the
determination shall be provided to each Participant within a reasonable time
after the date of such grant.


 


17.                                 Amendment and Termination of the Plan.


 


(a)                                  Amendment and
Termination.  The Board may at any
time amend, alter, suspend or terminate the Plan.


 


(b)                                 Shareholder
Approval.  The Company shall obtain
shareholder approval of any Plan amendment to the extent necessary and
desirable to comply with Applicable Laws.


 


(c)                                  Effect of
Amendment or Termination.  No
amendment, alteration, suspension or termination of the Plan shall impair the
rights of any Participant, unless mutually agreed otherwise between the Participant
and the Administrator, which agreement must be in writing and signed by the Participant
and the Company.  Termination of the Plan
shall not affect the Administrator’s ability to exercise the powers granted to
it hereunder with respect to Awards granted under the Plan prior to the date of
such termination.


 


18.                                 Conditions Upon Issuance of Shares.


 


(a)                                  Legal Compliance.  Shares shall not be issued pursuant to the
exercise or vesting of an Award unless the exercise or vesting of such Award
and the issuance and delivery of such Shares shall comply with Applicable Laws
and shall be further subject to the approval of counsel for the Company with
respect to such compliance.


 


(b)                                 Investment
Representations.  As a condition to
the exercise of an Award, the Company may require the person exercising such Award
to represent and warrant at the time of any such exercise that the Shares are
being purchased only for investment and without any present intention to sell
or distribute such Shares if, in the opinion of counsel for the Company, such a
representation is required.


 


19.                                 Inability to Obtain Authority.  The
inability of the Company to obtain authority from any regulatory body having
jurisdiction, which authority is deemed by the Company’s counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to issue or sell
such Shares as to which such requisite authority shall not have been obtained.


 


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20.                                 Reservation of Shares.  The
Company, during the term of this Plan, will at all times reserve and keep
available such number of Shares as shall be sufficient to satisfy the
requirements of the Plan.


 


21.                                 Shareholder Approval.  The Plan
shall be subject to approval by the shareholders of the Company within twelve
(12) months after the date the Plan is adopted. 
Such shareholder approval shall be obtained in the manner and to the
degree required under Applicable Laws.


 


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