Document:

<PAGE>

                                                                  EXHIBIT 10.2.1

                           NATUS MEDICAL INCORPORATED

                          NOTICE OF STOCK OPTION GRANT

[Name]
[Address_1]
[Address_2]

     You have been granted an option to purchase Common Stock of Natus Medical
Incorporated (the "Company") under the terms of the Natus Medical Incorporated
1991 Stock Plan as follows:

Grant Number:
                                   ______________________________
Date of Grant:

Option Price Per Share:

Total Number of Shares Granted:    [Total_Shares_Granted]

Total Price of Shares Granted:     $[Total_Price]

Type of Option:                           Incentive Stock Option
                                   -----
                                          Nonstatutory Stock Option
                                   _____
Term/Expiration Date:

Vesting Schedule:                  This Option shall be exercisable
                                   cumulatively, to the extent of 1/48th of the
                                   Total Number of Shares Granted for each month
                                   of your Continuous Status as an Employee or
                                   Consultant which has expired after
                                   [Vesting_Start_Date]     (the vesting
                                   commencement date).

Termination Period:                Option may be exercised for 30 days after
                                   termination of employment or consulting
                                   relationship (but in no event later than the
                                   Expiration Date).

     By your signature and the signature of the Company's representative below,
you and the Company agree that this option is granted under and governed by the
terms and conditions of the 1991 Stock Plan and the Stock Option Agreement, all
of which are attached and made a part of this document.

OPTIONEE:                               NATUS MEDICAL INCORPORATED

_________________________________       ________________________________________
Signature                               By:  Tim C. Johnson, President

[Name]
---------------------------------
Print Name
<PAGE>

                          NATUS MEDICAL INCORPORATED

                            STOCK OPTION AGREEMENT

     1.   Grant of Option.  The Plan Administrator of Natus Medical
          ---------------
Incorporated, a California corporation (the "Company"), hereby grants to the
Optionee named in the Notice of Grant (the "Optionee"), an option (the "Option")
to purchase a total number of shares of Common Stock (the "Shares") set forth in
the Notice of Grant, at the exercise price per share set forth in the Notice of
Grant (the "Exercise Price") subject to the terms, definitions and provisions of
the Natus Medical Incorporated 1991 Stock Plan (the "Plan") adopted by the
Company, which is incorporated herein by reference. Unless otherwise defined
herein, the terms defined in the Plan shall have the same defined meanings in
this Option.

          If designated an Incentive Stock Option, this Option is intended to
qualify as an Incentive Stock Option as defined in Section 422A of the Code.

     2.   Exercise of Option.  This Option shall be exercisable during its term
          ------------------
in accordance with the Vesting Schedule set out in the Notice of Grant and with
the provisions of Section 9 of the Plan as follows:

          (i)  Right to Exercise.

               (a)  This Option may not be exercised for a fraction of a share.

               (b)  In the event of Optionee's death, disability or other
termination of employment, the exercisability of the Option is governed by
Sections 7, 8 and 9 below, subject to the limitation contained in subsection
2(i)(c).

               (c)  In no event may this Option be exercised after the date of
     expiration of the term of this Option as set forth in the Notice of Grant.

          (ii) Method of Exercise.  This Option shall be exercisable by written
               ------------------
notice (in the form attached as Exhibit A) which shall state the election to
exercise the Option, the number of Shares in respect of which the Option is
being exercised, and such other representations and agreements as to the
holder's investment intent with respect to such shares of Common Stock as may be
required by the Company pursuant to the provisions of the Plan. Such written
notice shall be signed by the Optionee and shall be delivered in person or by
certified mail to the Secretary of the Company. The written notice shall be
accompanied by payment of the exercise price. This Option shall be deemed to be
exercised upon receipt by the Company of such written notice accompanied by the
Exercise Price.

          No Shares will be issued pursuant to the exercise of an Option unless
such issuance and such exercise shall comply with all relevant provisions of law
and the requirements of any stock exchange upon which the Shares may then be
listed. Assuming such compliance, for income tax purposes the Shares shall be
considered transferred to the Optionee on the date on which the Option is
exercised with respect to such Shares.
<PAGE>

     3.   Optionee's Representations.  In the event the Shares purchasable
          --------------------------
pursuant to the exercise of this Option have not been registered under the
Securities Act of 1933, as amended, at the time this Option is exercised,
Optionee shall, if required by the Company, concurrently with the exercise of
all or any portion of this Option, deliver to the Company his Investment
Representation Statement in the form attached hereto as Exhibit B, and shall
read the applicable rules of the Commissioner of Corporations attached to such
Investment Representation Statement.

     4.   Method of Payment.  Payment of the Exercise Price shall be by any of
          -----------------
the following, or a combination thereof, at the election of the Optionee:

          (i)    cash; or

          (ii)   check; or

          (iii)  surrender of other shares of Common Stock of the Company which
(A) either have been owned by the Optionee for more than six (6) months on the
date of surrender or were not acquired, directly or indirectly, from the Company
and (B) have a fair market value on the date of surrender equal to the Exercise
Price of the Shares as to which the Option is being exercised.

     5.   Restrictions on Exercise.  This Option may not be exercised until such
          ------------------------
time as the Plan has been approved by the shareholders of the Company, or if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation, including any rule under
Part 207 of Title 12 of the Code of Federal Regulations ("Regulation G") as
promulgated by the Federal Reserve Board. As a condition to the exercise of this
Option, the Company may require Optionee to make any representation and warranty
to the Company as may be required by any applicable law or regulation.

     6.   Section 16 Restrictions.  Options granted to persons who are subject
          -----------------------
to Section 16 of the Exchange Act ("Insiders") may not be exercised for a period
of at least six months from the date of grant, except in the case of death or
disability.

     7.   Termination of Relationship.  In the event Optionee's Continuous
          ---------------------------
Status as an Employee or Consultant terminates, Optionee may, to the extent
otherwise so entitled at the date of such termination (the "Termination Date"),
exercise this Option during the Termination Period set out in the Notice of
Grant. To the extent that Optionee was not entitled to exercise this Option at
the date of such termination, or if Optionee does not exercise this Option
within the time specified herein, the Option shall terminate.

     8.   Disability of Optionee.  Notwithstanding the provisions of Section 7
          ----------------------
above, in the event Optionee's Continuous Status as an Employee or Consultant
terminates as a result of total and permanent disability (as defined in Section
22(e)(3) of the Code), Optionee may, but only within six (6) months from the
date of termination of employment or consultancy (but in no event later than the
date of expiration of the term of this Option as set forth in Section 11 below),
exercise the Option to the extent otherwise so entitled at the date of such
termination. To the extent that Optionee was not entitled to exercise the Option
at the date of termination, or if Optionee does not exercise such Option (to the
extent otherwise so entitled) within the time specified herein, the Option shall
terminate.

                                      -2-
<PAGE>

     9.   Death of Optionee.  The Option may be exercised at any time within six
          -----------------
(6) months after the Optionee's death (but in no event later than the date of
expiration of the term of this Option as set forth in Section 11 below), by
Optionee's estate or by a person who acquired the right to exercise the Option
by bequest or inheritance, but only to the extent the Optionee could exercise
the Option at the date of death.

     10.  Non-Transferability of Option.  This Option may not be transferred or
          -----------------------------
assigned in any manner otherwise than by will or by the laws of descent or
distribution and may be exercised during the lifetime of Optionee only by him.
The terms of this Option shall be binding upon the executors, administrators,
heirs, successors and assigns of the Optionee.

     11.  Term of Option.  This Option may be exercised only within the term set
          --------------
out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option.

     12.  Tax Consequences.  Set forth below is a brief summary as of the date
          ----------------
of this Option of some of the federal tax consequences of exercise of this
Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE,
AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT
A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.

          (i)    Exercise of ISO.  If this Option qualifies as an ISO, there
                 ---------------
will be no regular federal income tax liability upon the exercise of the Option,
although the excess, if any, of the fair market value of the Shares on the date
of exercise over the Exercise Price will be treated as an adjustment to the
alternative minimum tax for federal tax purposes and may subject the Optionee to
the alternative minimum tax.

          (ii)   Exercise of Nonqualified Stock Option. If this Option does not
                 -------------------------------------
qualify as an ISO, there may be a regular federal income tax liability upon the
exercise of the Option. The Optionee will be treated as having received
compensation income (taxable at ordinary income tax rates) equal to the excess,
if any, of the fair market value of the Shares on the date of exercise over the
Exercise Price. If Optionee is an employee, the Company will be required to
withhold from Optionee's compensation or collect from Optionee and pay to the
applicable taxing authorities an amount equal to a percentage of this
compensation income at the time of exercise.

          (iii)  Disposition of Shares.  In the case of an NSO, if Shares are
                 ---------------------
held for at least one year, any gain realized on disposition of the Shares will
be treated as long-term capital gain for federal income tax purposes. In the
case of an ISO, if Shares transferred pursuant to the Option are held for at
least one year after exercise and are disposed of at least two years after the
Date of Grant, any gain realized on disposition of the Shares will also be
treated as long-term capital gain for federal income tax purposes. If Shares
purchased under an ISO are disposed of within such one-year period or within two
years after the Date of Grant, any gain realized on such disposition will be
treated as compensation income (taxable at ordinary income rates) to the extent
of the excess, if any, of the fair market value of the Shares on the date of
exercise over the Exercise Price.

          (iv)   Notice of Disqualifying Disposition of ISO Shares.  If the
                 -------------------------------------------------
Option granted to Optionee herein is an ISO, and if Optionee sells or otherwise
disposes of any of the Shares acquired

                                      -3-
<PAGE>

pursuant to the ISO on or before the later of (1) the date two years after the
Date of Grant, or (2) the date one year after transfer of such Shares to the
Optionee upon exercise of the ISO, the Optionee shall immediately notify the
Company in writing of such disposition. Optionee agrees that Optionee may be
subject to income tax withholding by the Company on the compensation income
recognized by the Optionee from the early disposition by payment in cash or out
of the current earnings paid to the Optionee.

                                             NATUS MEDICAL INCORPORATED
                                             a California corporation

                                             By: _______________________________
                                                  Tim C. Johnson, President

     OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE
OPTION HEREOF IS EARNED ONLY BY CONTINUING CONSULTANCY OR EMPLOYMENT AT THE WILL
OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR
ACQUIRING SHARES HEREUNDER).  OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT
NOTHING IN THIS OPTION, NOR IN THE COMPANY'S 1991 STOCK PLAN WHICH IS
INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE ANY RIGHT WITH
RESPECT TO CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY THE COMPANY, NOR SHALL
IT INTERFERE IN ANY WAY WITH HIS RIGHT OR THE COMPANY'S RIGHT TO TERMINATE HIS
EMPLOYMENT OR CONSULTANCY AT ANY TIME, WITH OR WITHOUT CAUSE.

     Optionee acknowledges receipt of a copy of the Plan and certain information
related thereto and represents that he is familiar with the terms and provisions
thereof, and hereby accepts this Option subject to all of the terms and
provisions of the Plan.  Optionee has reviewed the Plan and this Option in their
entirety, has had an opportunity to obtain the advice of counsel prior to
executing this Option and fully understands all provisions relating to this
Option.  Optionee hereby agrees to accept as binding, conclusive and final all
decisions or interpretations of the Board upon any questions arising under the
Plan or this Option.

Dated: _____________________________         ___________________________________
                                              Optionee

                                      -4-
<PAGE>

                                   EXHIBIT A
                                   ---------

                                EXERCISE NOTICE

Natus Medical Incorporated
1501 Industrial Road
San Carlos, CA 94070

Attention:  Secretary

     1.   Exercise of Option.  Effective as of today, __________________,
          ------------------
______, the undersigned ("Optionee") hereby elects to exercise Optionee's option
to purchase ____________ shares of the Common Stock (the "Shares") of Natus
Medical Incorporated (the "Company") under and pursuant to the Company's 1991
Stock Option Plan, as amended (the "Plan") and the [ ] Incentive [ ]
Nonqualified Stock Option Agreement dated _________________, ______ (the "Option
Agreement").

     2.   Representations of Optionee.  Optionee acknowledges that Optionee has
          ---------------------------
received, read and understood the Plan and the Option Agreement and agrees to
abide by and be bound by their terms and conditions. Optionee represents that
Optionee is purchasing the Shares for Optionee's own account for investment and
not with a view to, or for sale in connection with, a distribution of any of
such Shares.

     3.   Compliance with Securities Laws.  Optionee understands and
          -------------------------------
acknowledges that the Shares have not been registered under the Securities Act
of 1933, as amended (the "1933 Act"), and, notwithstanding any other provision
of the Option Agreement to the contrary, the exercise of any rights to purchase
any Shares is expressly conditioned upon compliance with the 1933 Act, all
applicable state securities laws and all applicable requirements of any stock
exchange or over the counter market on which the Company's Common Stock may be
listed or traded at the time of exercise and transfer. Optionee agrees to
cooperate with the Company to ensure compliance with such laws.

     4.   Federal Restrictions on Transfer.  Optionee understands that the
          --------------------------------
Shares have not been registered under the 1933 Act and therefore cannot be
resold and must be held indefinitely unless they are registered under the 1933
Act or unless an exemption from such registration is available and that the
certificate(s) representing the Shares may bear a legend to that effect.
Optionee understands that the Company is under no obligation to register the
Shares and that an exemption may not be available or may not permit Optionee to
transfer Shares in the amounts or at the times proposed by Optionee.
Specifically, Optionee has been advised that Rule 144 promulgated under the 1933
Act, which permits certain resales of unregistered securities, is not presently
available with respect to the Shares and, in any event requires that the Shares
be paid for and then be held for at least two years (and in some cases three
years) before they may be resold under Rule 144.

     5.   Rights as Shareholder.  Subject to the terms and conditions of this
          ---------------------
Agreement, Optionee shall have all of the rights of a shareholder of the Company
with respect to the Shares from
<PAGE>

and after the date that Optionee delivers full payment of the Exercise Price
until such time as Optionee disposes of the Shares or the Company and/or its
assignee(s) exercises the Right of First Refusal hereunder. Upon such exercise,
Optionee shall have no further rights as a holder of the Shares so purchased
except the right to receive payment for the Shares so purchased in accordance
with the provisions of this Agreement, and Optionee shall forthwith cause the
certificate(s) evidencing the Shares so purchased to be surrendered to the
Company for transfer or cancellation.

     6.   Company's Right of First Refusal.  Before any Shares held by Optionee
          --------------------------------
or any transferee (either being sometimes referred to herein as the "Holder")
may be sold or otherwise transferred (including transfer by gift or operation of
law), the Company or its assignee(s) shall have a right of first refusal to
purchase the Shares on the terms and conditions set forth in this Section (the
"Right of First Refusal").

          (a)  Notice of Proposed Transfer.  The Holder of the Shares shall
               ---------------------------
deliver to the Company a written notice (the "Notice") stating: (i) the Holder's
bona fide intention to sell or otherwise transfer such Shares; (ii) the name of
each proposed purchaser or other transferee ("Proposed Transferee"); (iii) the
number of Shares to be transferred to each Proposed Transferee; and (iv) the
bona fide cash price or other consideration for which the Holder proposes to
transfer the Shares (the "Offered Price"), and the Holder shall offer the Shares
at the Offered Price to the Company or its assignee(s).

          (b)  Exercise of Right of First Refusal.  At any time within thirty
               ----------------------------------
(30) days after receipt of the Notice, the Company and/or its assignee(s) may,
by giving written notice to the Holder, elect to purchase all, but not less than
all, of the Shares proposed to be transferred to any one or more of the Proposed
Transferees, at the purchase price determined in accordance with subsection (c)
below.

          (c)  Purchase Price.  The purchase price ("Purchase Price") for the
               --------------
Shares purchased by the Company or its assignee(s) under this Section shall be
the Offered Price. If the Offered Price includes consideration other than cash,
the cash equivalent value of the non-cash consideration shall be determined by
the Board of Directors of the Company in good faith.

          (d)  Payment.  Payment of the Purchase Price shall be made, at the
               -------
option of the Company or its assignee(s), in cash (by check), by cancellation of
all or a portion of any outstanding indebtedness of the Holder to the Company
(or, in the case of repurchase by an assignee, to the assignee), or by any
combination thereof within 30 days after receipt of the Notice or in the manner
and at the times set forth in the Notice.

          (e)  Holder's Right to Transfer.  If all of the Shares proposed in the
               --------------------------
Notice to be transferred to a given Proposed Transferee are not purchased by the
Company and/or its assignee(s) as provided in this Section, then the Holder may
sell or otherwise transfer such Shares to that Proposed Transferee at the
Offered Price or at a higher price, provided that such sale or other transfer is
consummated within 120 days after the date of the Notice and provided further
that any such sale or other transfer is effected in accordance with any
applicable securities laws and the Proposed Transferee agrees in writing that
the provisions of this Section shall continue to apply to the Shares in the
hands of such Proposed Transferee. If the Shares described in the Notice are not

                                      -2-
<PAGE>

transferred to the Proposed Transferee within such period, a new Notice shall be
given to the Company, and the Company and/or its assignees shall again be
offered the Right of First Refusal before any Shares held by the Holder may be
sold or otherwise transferred.

          (f)  Exception for Certain Family Transfers.  Anything to the contrary
               --------------------------------------
contained in this Section notwithstanding, the transfer of any or all of the
Shares during the Optionee's lifetime or on the Optionee's death by will or
intestacy to the Optionee's immediate family or a trust for the benefit of the
Optionee's immediate family shall be exempt from the provisions of this Section.
"Immediate Family" as used herein shall mean spouse, lineal descendant or
antecedent, father, mother, brother or sister. In such case, the transferee or
other recipient shall receive and hold the Shares so transferred subject to the
provisions of this Section, and there shall be no further transfer of such
Shares except in accordance with the terms of this Section.

          (g)  Termination of Right of First Refusal. The Right of First Refusal
               -------------------------------------
shall terminate as to any Shares 90 days after the first sale of Common Stock of
the Company to the general public pursuant to a registration statement filed
with and declared effective by the Securities and Exchange Commission under the
1933 Act.

     7.   Tax Consultation.  Optionee understands that Optionee may suffer
          ----------------
adverse tax consequences as a result of Optionee's purchase or disposition of
the Shares. Optionee represents that Optionee has consulted with any tax
consultants Optionee deems advisable in connection with the purchase or
disposition of the Shares and that Optionee is not relying on the Company for
any tax advice.

     8.   Restrictive Legends and Stop-Transfer Orders.
          --------------------------------------------

          (a)  Legends.  Optionee understands and agrees that the Company shall
               -------
cause the legends set forth below or legends substantially equivalent thereto,
to be placed upon any certificate(s) evidencing ownership of the Shares together
with any other legends that may be required by state or federal securities laws:

          THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
          SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR
          OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
          REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL IN FORM AND
          SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER,
          SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.

          THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
          RESTRICTIONS ON TRANSFER AND RIGHT OF FIRST REFUSAL OPTIONS HELD BY
          THE ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN THE EXERCISE NOTICE
          BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF
          WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER.

                                      -3-
<PAGE>

          SUCH TRANSFER RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE BINDING ON
          TRANSFEEES OF THESE SHARES.

          IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR
          ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR,
          WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS
          OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S
          RULES.

          Optionee understands that transfer of the Shares may be restricted by
Section 260.141.11 of the Rules of the California Corporations Commissioner, a
copy of which is attached to Exhibit B, the Investment Representation Statement.

          (b)  Stop-Transfer Notices.  Optionee agrees that, in order to ensure
               ---------------------
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.

          (c)  Refusal to Transfer.  The Company shall not be required (i) to
               -------------------
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.

     9.   Market Standoff Agreement.  Optionee hereby agrees that if so
          -------------------------
requested by the Company or any representative of the underwriters in connection
with any registration of the offering of any securities of the Company under the
1933 Act, Optionee shall not sell or otherwise transfer any Shares or other
securities of the Company during the 180-day period following the effective date
of a registration statement of the Company filed under the 1933 Act; provided,
however, that such restriction shall only apply to the first two registration
statements of the Company to become effective under the 1933 Act which include
securities to be sold on behalf of the Company to the public in an underwritten
public offering under the 1933 Act. The Company may impose stop-transfer
instructions with respect to securities subject to the foregoing restrictions
until the end of such 180-day period.

     10.  Successors and Assigns. The Company may assign any of its rights under
          ----------------------
this Agreement to single or multiple assignees, and this Agreement shall inure
to the benefit of the successors and assigns of the Company. Subject to the
restrictions on transfer herein set forth, this Agreement shall be binding upon
Optionee and his or her heirs, executors, administrators, successors and
assigns.

     11.  Interpretation.  Any dispute regarding the interpretation of this
          --------------
Agreement shall be submitted by Optionee or by the Company forthwith to the
Company's Board of Directors or the committee thereof that administers the Plan,
which shall review such dispute at its next regular meeting. The resolution of
such a dispute by the Board or committee shall be final and binding on the
Company and on Optionee.

                                      -4-
<PAGE>

     12.  Governing Law; Severability. This Agreement shall be governed by and
          ---------------------------
construed in accordance with the laws of the State of California excluding that
body of law pertaining to conflicts of law. Should any provision of this
Agreement be determined by a court of law to be illegal or unenforceable, the
other provisions shall nevertheless remain effective and shall remain
enforceable.

     13.  Notices.  Any notice required or permitted hereunder shall be given in
          -------
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States mail by certified mail, with postage and fees
prepaid, addressed to the other party at its address as shown below beneath its
signature, or to such other address as such party may designate in writing from
time to time to the other party.

     14.  Further Instruments.  The parties agree to execute such further
          -------------------
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this Agreement.

     15.  Delivery of Payment.  Optionee herewith delivers to the Company the
          -------------------
full Exercise Price for the Shares.

     16.  Entire Agreement.  The Plan and Notice of Grant/Option Agreement are
          ----------------
incorporated herein by reference.  This Agreement, the Plan and the Notice of
Grant/Option Agreement constitute the entire agreement of the parties and
supersede in their entirety all prior undertakings and agreements of the Company
and Optionee with respect to the subject matter hereof, and is governed by
California law except for that body of law pertaining to conflict of laws.

Submitted by:                                Accepted by:

OPTIONEE:                                    NATUS MEDICAL INCORPORATED

______________________________________       By:  ______________________________
                (Signature)
                                             Its: ______________________________

______________________________________
                (Print Name)

Address:                                     Address:
-------                                      -------

______________________________________       1501 Industrial Road
______________________________________       San Carlos, CA  94070

                                      -5-
<PAGE>

                                   EXHIBIT B
                                   ---------

                      INVESTMENT REPRESENTATION STATEMENT

OPTIONEE              :
                             ____________________________

COMPANY               :        NATUS MEDICAL INCORPORATED

SECURITY              :        COMMON STOCK

AMOUNT                :      ____________________________

DATE                  :      ____________________________

     In connection with the purchase of the above-listed Securities, the
undersigned Optionee represents to the Company the following:

          (a)   Optionee is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the Company to
reach an informed and knowledgeable decision to acquire the securities. Optionee
is acquiring these securities for investment for Optionee's own account only and
not with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act").

          (b)   Optionee acknowledges and understands that the securities
constitute "restricted securities" under the Securities Act and have not been
registered under the Securities Act in reliance upon a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of Optionee's investment intent as expressed herein.  In this connection,
Optionee understands that, in the view of the Securities and Exchange
Commission, the statutory basis for such exemption may be unavailable if
Optionee's representation was predicated solely upon a present intention to hold
these Securities for the minimum capital gains period specified under tax
statutes, for a deferred sale, for or until an increase or decrease in the
market price of the Securities, or for a period of one year or any other fixed
period in the future.  Optionee further understands that the Securities must be
held indefinitely unless they are subsequently registered under the Securities
Act or an exemption from such  registration is available.  Optionee further
acknowledges and understands that the Company is under no obligation to register
the securities.  Optionee understands that the certificate evidencing the
securities will be imprinted with a legend which prohibits the transfer of the
Securities unless they are registered or such registration is not required in
the opinion of counsel satisfactory to the Company, a legend prohibiting their
transfer without the consent of the Commissioner of Corporations of the State of
California and any other legend required under applicable state securities laws.

          (c)   Optionee is familiar with the provisions of Rule 701 and Rule
144, each promulgated under the Securities Act, which, in substance, permit
limited public resale of "restricted
<PAGE>

securities" acquired, directly or indirectly from the issuer thereof, in a non-
public offering subject to the satisfaction of certain conditions. Rule 701
provides that if the issuer qualifies under Rule 701 at the time of exercise of
the Option by the Optionee, such exercise will be exempt from registration under
the Securities Act. In the event the Company later becomes subject to the
reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, one hundred eighty (180) days thereafter the securities exempt under Rule
701 may be resold, subject to the satisfaction of certain of the conditions
specified by Rule 144, including among other things: (1) the sale being made
through a broker in an unsolicited "broker's transaction" or in transactions
directly with a market maker (as said term is defined under the Securities
Exchange Act of 1934); and, in the case of an affiliate, (2) the availability of
certain public information about the Company, and the amount of securities being
sold during any three month period not exceeding the limitations specified in
Rule 144(e), if applicable.

          In the event that the Company does not qualify under Rule 701 at the
time of exercise of the Option, then the securities may be resold in certain
limited circumstances subject to the provisions of Rule 144, which requires
among other things:  (1) the resale occurring not less than two years after the
party has purchased, and made full payment for, within the meaning of Rule 144,
the securities to be sold; and, in the case of an affiliate, or of a non-
affiliate who has held the securities less than three years, (2) the
availability of certain public information about the Company, (3) the sale being
made through a broker in an unsolicited "broker's transaction" or in
transactions directly with a market maker (as said term is defined under the
Securities Exchange Act of 1934), and (4) the amount of securities being sold
during any three month period not exceeding the specified limitations stated
therein, if applicable.

          (d)   Optionee agrees, in connection with the Company's initial
underwritten public offering of the Company's securities, (1) not to sell, make
short sale of, loan, grant any options for the purchase of, or otherwise dispose
of any shares of Common Stock of the Company held by Optionee (other than those
shares included in the registration) without the prior written consent of the
Company or the underwriters managing such initial underwritten public offering
of the Company's securities for one hundred eighty (180) days from the effective
date of such registration, and (2) further agrees to execute any agreement
reflecting (1) above as may be requested by the underwriters at the time of the
public offering; provided however that the officers and directors of the Company
                 -------- -------
who own the stock of the Company also agree to such restrictions.

          (e)   Optionee further understands that in the event all of the
applicable requirements of Rule 701 or 144 are not satisfied, registration under
the Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rules 144
and 701 are not exclusive, the Staff of the Securities and Exchange Commission
has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rules 144 or 701 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and that such
persons and their respective brokers who participate in such transactions do so
at their own risk.  Optionee understands that no assurances can be given that
any such other registration exemption will be available in such event.

                                      -2-
<PAGE>

          (f) Optionee understands that the certificate evidencing the
Securities will be imprinted with a legend which prohibits the transfer of the
Securities without the consent of the Commissioner of Corporations of
California.  Optionee has read the applicable Commissioner's Rules with respect
to such restriction, a copy of which is attached.

                                           Signature of Optionee:

                                           _____________________________________

                                           Date:  ___________________, _________

C:\wpconv\wp2edgw\tmp2.doc

                                      -3-
<PAGE>

                                 ATTACHMENT 1

              STATE OF CALIFORNIA - CALIFORNIA ADMINISTRATIVE CODE
              ----------------------------------------------------
        Title 10. Investment - Chapter 3. Commissioner of Corporations

     260.141.11:  Restriction on Transfer.  (a)  The issuer of any security upon
     ----------   -----------------------
which a restriction on transfer has been imposed pursuant to Sections 260.102.6,
260.141.10 or 260.534 shall cause a copy of this section to be delivered to each
issuee or transferee of such security at the time the certificate evidencing the
security is delivered to the issuee or transferee.

     (b)  It is unlawful for the holder of any such security to consummate a
sale or transfer of such security, or any interest therein, without the prior
written consent of the Commissioner (until this condition is removed pursuant to
Section 260.141.12 of these rules), except:

          (1)   to the issuer;

          (2)   pursuant to the order or process of any court;

          (3)   to any person described in Subdivision (i) of Section 25102 of
the Code or Section 260.105.14 of these rules;

          (4)   to the transferror's ancestors, descendants or spouse, or any
custodian or trustee for the account of the transferrer or the transferror's
ancestors, descendants, or spouse; or to a transferee by a trustee or custodian
for the account of the transferee or the transferee's ancestors, descendants or
spouse;

          (5)   to holders of securities of the same class of the same issuer;

          (6)   by way of gift or donation inter vivos or on death;

          (7)   by or through a broker-dealer licensed under the Code (either
acting as such or as a finder) to a resident of a foreign state, territory or
country who is neither domiciled in this state to the knowledge of the broker-
dealer, nor actually present in this state if the sale of such securities is not
in violation of any securities law of the foreign state, territory or country
concerned;

          (8)   to a broker-dealer licensed under the Code in a principal
transaction, or as an underwriter or member of an underwriting syndicate or
selling group;

          (9)   if the interest sold or transferred is a pledge or other lien
given by the purchaser to the seller upon a sale of the security for which the
Commissioner's written consent is obtained or under this rule not required;

          (10)  by way of a sale qualified under Sections 25111, 25112, 25113 or
25121 of the Code, of the securities to be transferred, provided that no order
under Section 25140 or Subdivision (a) of Section 25143 is in effect with
respect to such qualification;

          (11)  by a corporation to a wholly owned subsidiary of such
corporation, or by a wholly owned subsidiary of a corporation to such
corporation;

          (12)  by way of an exchange qualified under Section 25111, 25112 or
25113 of the Code, provided that no order under Section 25140 or Subdivision (a)
of Section 25143 is in effect with respect to such qualification;

          (13)  between residents of foreign states, territories or countries
who are neither domiciled nor actually present in this state;

          (14)  to the State Controller pursuant to the Unclaimed Property Law
or to the administrator of the unclaimed property law of another state;

          (15)  by the State Controller pursuant to the Unclaimed Property Law
or by the administrator of the unclaimed property law of another state if, in
either such case, such person (i) discloses to potential purchasers at the sale
that transfer of the securities is restricted under this rule, (ii) delivers to
each purchaser a copy of this rule, and (iii) advises the Commissioner of the
name of each purchaser;

          (16)  by a trustee to a successor trustee when such transfer does not
involve a change in the beneficial ownership of the securities; or

          (17)  by way of an offer and sale of outstanding securities in an
issuer transaction that is subject to the qualification requirement of Section
25110 of the Code but exempt from that qualification requirement by  subdivision
(f) of Section 25102;

provided that any such transfer is on the condition that any certificate
evidencing the security issued to such transferee shall contain the legend
required by this section.

     (c)  The certificates representing all such securities subject to such a
restriction on transfer, whether upon initial issuance or upon any transfer
thereof, shall bear on their face a legend, prominently stamped or printed
thereon in capital letters of not less than 10-point size, reading as follows:

          "IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR
ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE
PRIOR WRITTEN CONSENT OF THE COMMISSIONER OR CORPORATIONS OF THE STATE OF
CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES."<PAGE>

                                                                    EXHIBIT 10.3

                          NATUS MEDICAL INCORPORATED
                            2000 STOCK OPTION PLAN

     1.   Purposes of the Plan. The purposes of this Stock Option Plan are to
          --------------------
attract and retain the best available personnel for positions of substantial
responsibilty, to provide additional incentive to Employees, Directors and
Consultants and to promote the success of the Company's business. Options
granted under the Plan may be Incentive Stock Options or Nonstatutory Stock
Options, as determined by the Administrator at the time of grant.

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

          (a)  "Administrator" means the Board or any of its Committees
                -------------
appointed in accordance with section 4 hereof.

          (b)  "Applicable Laws" means the requirements relating to the
                ---------------
administration of stock option 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 Options are, or will be, granted under
the Plan.

          (c)  "Board" means the Board of Directors of the Company.
                -----

          (d)  "Code" means the Internal Revenue Code of 1986, as amended.
                ----

          (e)  "Committee" means a committee of Directors appointed by the
                ---------
Board in accordance with Section 4 hereof.

          (f)  "Common Stock" means the Common Stock of the Company.
                ------------

          (g)  "Company" means Natus Medical Incorporated, a Delaware
corporation.

          (h)  "Consultant" means any person who is engaged by the Company or
                ----------
any Parent or Subsidiary to render consulting or advisory services to such
entity and who is compensated for such services, including a Director.

          (i)  "Director" means a member of the Board of Directors of the
                --------
Company.

          (j)  "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 statue or
contract. If reemployment upon expiration of a leave of absence approved by the
Company is not so guaranteed, on the 181/st/ day of such leave any Incentive
Stock Option held by the Optionee shall cease to be treated as an
<PAGE>

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.

          (k)  "Exchange Act" means the Securities Exchange Act of 1934, as
                ------------
amended.

          (l)  "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 at The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market 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, its Fair Market Value
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 determined; or

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

          (m)  "Incentive Stock Option" means an Option intended to qualify as
                ----------------------
an incentive stock option within the meaning of Section 422 of the Code.

          (n)  "Nonstatutory Stock Option" means an Option not intended to
                -------------------------
qualify as an Incentive Stock Option.

          (o)  "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.

          (p)  "Option" means a stock option granted pursuant to the Plan.
                ------

          (q)  "Option Agreement" means a written or electronic agreement
                ----------------
between the Company and an Optionee evidencing the terms and conditions of an
individual Option grant. The Option Agreement is subject to the terms and
conditions of the Plan.

          (r)  "Option Exchange Program" means a program whereby outstanding
                -----------------------
Options are exchanged for Options with a lower exercise price.

          (s)  "Optioned Stock" means the Common Stock subject to an Option.
                --------------

          (t)  "Optionee" means the holder of an outstanding Option granted
under the Plan.

                                      -2-
<PAGE>

          (u)  "Parent" means a "parent corporation," whether now or
                ------
hereafter existing, as defined in Section 424(e) of the Code.

          (v)  "Plan" means this 2000 Stock Option Plan.
                ----

          (w)  "Service Provider" means an Employee, Director or Consultant.
                ----------------

          (x)  "Share" means a share of the Common Stock, as adjusted in
                -----
accordance with Section 12 below.

          (y)  "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 12 of
the Plan, the maximum aggregate number of Shares (as adjusted for the July 2000
two-for-five reverse split) which may be subject to option and sold under the
Plan is 1,500,000 Shares (post-split), together with an annual increase in the
number of shares of Common Stock reserved for issuance hereunder on the first
day of the Company's fiscal year, beginning with January 1, 2002, equal to the
lesser of (i) 1,500,000 Shares (post-split), (ii) seven percent (7%) of the
outstanding Shares of the Company as of the last day of the prior fiscal year
or (iii) such amount as determined by the Board of Directors. The Shares may
be authorized but unissued, or reacquired Common Stock.

          If an Option 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). However, Shares
that have actually been issued under the Plan, upon exercise of an Option,shall
not be returned to the Plan and shall not become available for future
distribution under the Plan.

     4.   Administration of the Plan.
          --------------------------

          (a)  Procedure.
               ---------

               (i)    Multiple Administrative Bodies. The Plan may be
                      ------------------------------
administered by different groups of Employees and consultants.

               (ii)   Section 162(m). To the extent that the Administrator
                      --------------
determines it to be desirable to qualify Options granted hereunder as
"performed-based compensation" within the meaning 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 completed
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.

                                      -3-
<PAGE>

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

               (i)     to determine the Fair Market Value;

               (ii)    to select the Service Providers to whom Options and Stock
Purchase Rights may from time to time be granted hereunder;

               (iii)   to determine the number of Shares to be covered by each
such award granted hereunder;

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

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

               (vi)    to determine whether and under what circumstances an
Option any be settled in cash under subsection 9(f) instead of Common Stock;

               (vii)   to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option has declined since the date the Option was granted;

               (viii)  to initiate an Option Exchange Program;

               (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 allow Optionees to satisfy withholding tax obligations
by electing to have the Company withhold from the Shares to be issued upon
exercise of an Option 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 Optionees 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; and

               (xi)    to construe and interpret the terms of the Plan and
awards granted pursuant to the Plan.

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

                                      -4-

<PAGE>

          (c)  Effect of Administrator's Decision. All decisions, determinations
               ----------------------------------
and interpretations of the Administrator shall be final and binding on all
optionees.

     5.   Eligibility.
          -----------

          (a)  Nonstatutory Stock Options may be granted to Service Providers.
Incentive Stock Options may be granted only to Employees.

          (b)  Each Option shall be designated in the Option 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 5(b), 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.

          (c)  Neither the Plan nor any Option shall confer upon any Optionee
any right with respect to continuing the Optionee's relationship as a Service
Provider with the Company, nor shall it interfere in any way with his or her
right or the Company's right to terminate such relationship at any time, with
or without cause.

          (d)  Upon the Company, or a successor corporation issuing any class of
common equity securities required to be registered under Section 12 of the
Exchange Act, or upon the Plan being assumed by a corporation having a class of
common equity securities required to be registered under Section 12 of the
Exchange Act, the following limitations shall apply to grants to options to
Service Providers:

               (i)    No Employee shall be granted in any fiscal year, Options
to purchase more than 1,000,000 Shares (post-split).

               (ii)   In connection with his or her initial employment, and
Employee may be granted Options to purchase up to an additional 500,000 Shares
(post-split) which shall not count against the amount set forth in subsection
(i) above.

               (iii)  The foregoing limitations shall be adjusted appropriately
in connection with any change in the Company's capitalization as described in
Section 11.

               (iv)  If any 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 11), the cancelled Option will be counted against the
limits set forth in subsections (i) and (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.

     6.   Term of Plan. The Plan shall become effective upon its adoption by the
Board; provided, however, the Plan shall not become effective until the
effective date of the Company's initial public offering pursuant to a
registration statement filed with the Securities and Exchange

                                      -5-
<PAGE>

Commission. It shall continue in effect for a term of ten (10) years unless
sooner terminated under Section 14 of the Plan.

     7.   Term of Option. The term of Option shall be stated in the Option
          --------------
Agreement; provided, however, that the term shall be no more than ten (10) years
           --------  -------
from the date of grant thereof. In the case of an Incentive Stock Option granted
to an Optionee who, at the time of the Option is granted, owns stock
representing more than the percent (10%) of the voting power of all classes of
stock of the Company or any Parent or Subsidiary, the term of the Option shall
be five (5) years from the date of grant or such shorter term as may be provided
in the Option Agreement.

     8.   Option Excess Price and Consideration.
          -------------------------------------

          (a)  The per share exercise price for the Shares to be issued upon
exercise of an Option shall be such price as is determined by the Administrator,
but shall be subject to the following:

               (i)    In the case of an Incentive Stock Option

                      (A)   granted to an Employee who, at the time of grant of
such Option, 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
exercise price shall be no less than 110% of the Fair Market Value per Share on
the date of grant.

                      (B)   granted to any other Employee, 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 granted to a
Service Provider who, at the time of grant of such Option, 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 exercise price shall be no
less than 110% of the Fair Market Value per Share on the date of the grant.

               (iii)  Notwithstanding the foregoing, Options may be granted with
a per Share exercise price other than as required above pursuant to a merger or
other corporate transaction.

          (b)  The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant). Such consideration may consist of (1) cash,
(2) check, (3) promissory note, (4) other Shares which (x) 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 (y) have a Fair Market Value on
the date of surrender equal to the aggregate exercise price of the Shares as to
which such Option shall be exercised, (5) delivery of a properly executed
exercise notice together with such other documentation as the Administrator and
the broker, if applicable, shall require to effect an exercise of the Option and
delivery to the Company of the sale or loan proceeds required to pay the
exercise price, (6) consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan, (7) any
combination of the foregoing methods of payment, or (8) such other consideration
and method of payment for the issuance of Shares to the extent permitted by
Applicable Laws. In making
                                      -6-
<PAGE>

its determination as to the type of consideration to accept, the Administrator
shall consider if acceptance of such consideration may be reasonably expected to
benefit the Company.

     9.   Exercise of Option.
          ------------------

          (a)  Procedure for Exercise; Rights as a Stockholder. Any Option
               -----------------------------------------------
granted hereunder shall be exercisable according to the terms hereof at such
times and under such conditions as determined by the Administrator set forth in
the Option 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 electronic notice of exercise (in accordance with the Option
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 Option 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 Stockholder shall exist
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 12 of the Plan.

               Exercise of an Option in any manner shall result in a decrease in
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, such Optionee may exercise his or her Option
within such period of time as is specified in the Option Agreement (of at least
thirty (30) days) 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 the Option
as set forth in the Option Agreement). In the absence of a specified time in the
Option 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 Option Agreement
to the extent the Option is vested on the date of termination (but in no event
later that the expiration of the term of such Option as set forth in the

                                      -7-

<PAGE>

Option Agreement). In the absence of a special time in the Option Agreement, the
Option shall remain exercisable for twelve (12) months following the Optionee's
termination. If such disability is not a "disability" as such term is defined in
Section 22(e)(3) of the Code, in the case of an Incentive Stock Option such
Incentive Stock Option shall automatically cease to be treated as an Incentive
Stock Option and shall be treated for tax purposes as a Nonstatutory Stock
Option on the day three months and one day following such 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
Option 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 Option 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.

          (e)  Buyout Provisions. The Administrator may at any time offer to buy
               -----------------
out for a payment in cash or Shares, an Option previously granted, based on such
terms and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made.

     10.  Non-Transferability of Options. Options 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 Optionee, only by the Optionee.

     11.  Adjustments Upon Changes in Capitalization, Merger or Asset Sale.
          ----------------------------------------------------------------

          a)   Changes in Capitalization. Subject to any required action by the
               -------------------------
Stockholders of the Company, the number of shares of Common Stock covered by
each outstanding Option, and the number of shares of Common Stock which have
been authorized for issuance under the Plan but as to which no Options have yet
been granted or which have been returned to the Plan upon cancellation or
expiration of an Option, as well as the price per share of Common Stock covered
by each such outstanding Option, 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 of
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. The 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

                                      -8-
<PAGE>

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 Option.

          (b)  Dissolution or Liquidation. In the event of the proposed
               --------------------------
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until fifteen (15) days prior to
such transaction as to all of the Optioned Stock covered thereby, including
Shares as to which the Option 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 Option 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 Option will terminate immediately prior to the consummation of
such proposed action.

          (c)  Merger or Asset Sale.
               --------------------

               (i)  In the event of a merger of the Company with or into another
corporation or the sale of all or substantially all of the assets of the Company
pursuant to which the shareholders of the Company prior to such transaction hold
less than 50% of the outstanding capital stock of the surviving corporation
immediately after the closing of such transaction a "Change in Control
Transaction") within four years after the date the Securities and Exchange
Commission declares effective a registration statement filed by the Company for
the initial public offering of the Company's Common Stock pursuant to the
Securities Act (the "IPO Effective Time"), outstanding Options may be assumed or
equivalent options may be substituted by the successor corporation or a Parent
or Subsidiary thereof (the "Successor Corporation"). Following such assumption
or substitution, if the Optionee's status as an employee of the Company or
employee of the Successor Corporation, as applicable, is terminated within 12
months of the Change in Control Transaction other than upon a voluntary
resignation by the Optionee or the termination of Optionee for cause, the Option
or option shall become fully exercisable, including as to Shares for which it
would not otherwise be exercisable. Thereafter, the Option or option shall
remain exercisable in accordance with Sections 9(b) through (d) above. If the
SUccessor Corporation does not assume an outstanding Option or substitute for it
an equivalent option, the Option shall become fully vested and exercisable,
including as to Shares for which it would not otherwise be exercisable. In such
event the Board shall notify the Optionee that the Option shall be fully
exercisable for a period of fifteen (15) days from the date of such notice, and
upon the expiration of such period, the Option shall terminate.

               (ii) In the event of a Change in Control Transaction after four
years after the IPO Effective Time, outstanding Options may be assumed or
equivalent options may be substituted by the Successor Corporation at the
Administrator's discretion. The Administrator also shall have the discretion to
terminate the Plan and permit the Optionee to exercise the Option to the extent
already vested and the discretion to make a determination to accelerate vesting
of any portion of or all of the outstanding Options. The Administrator may
provide at the Administrator's discretion that following an assumption or
substitution, if the Optionee's status as an employee of the Company or employee
of the Successor Corporation, as applicable, is terminated within 12 months of
the Change in Control Transaction other than upon a voluntary resignation by the
Optionee or the termination of Optionee

                                      -9-
<PAGE>

for cause, the Option or option shall become fully exercisable, including as to
Shares for which it would not otherwise be exercisable. Thereafter, the Option
or option shall remain  exercisable in accordance with Section 9(b) through (d)
above. In such event the Board shall notify the Optionee that the Option shall
be fully exercisable for a period of fifteen (15) days from the date of such
notice, and upon the expiration of such period the Option shall terminate.

          (iii)   Notwithstanding the foregoing, until such time as the Company
is no longer subject to Section 21115 of the California Corporation Code, in the
event of a Change in Control Transaction, each outstanding Option shall be
assumed or an equivalent option or right substituted by the Successor
Corporation. In the event that the Successor Corporation refuses to assume or
substitute for the Option, the Option shall terminate upon the closing of the
merger or sale of assets.

          (iv)   In the event of the merger of the Company with or into another
corporation or the sale of substantially all of the assets of the Company in a
transaction that is not a Change in Control Transaction, each outstanding option
shall be assumed or an equivalent option shall be substituted by the Successor
Corporation. In the event the Successor Corporation refuses to assume or
substitute for the Option, each outstanding Option shall terminate upon the
closing of such merger or sale of assets.

          For the purposes of this Section 11(c), an Option shall be considered
assumed if, following the merger or sale of assets, the Option confers the right
to purchase or receive, for each Share of Optioned Stock subject to the Option
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 or sale of assets 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 Option, for each Share
of Optioned Stock subject to the Option, 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.

     12.  Time of Granting Options and Stock Purchase Rights. The date of grant
          --------------------------------------------------
of an Option shall, for all purposes, be at the date on which the Administrator
makes the determination granting such Option, or such other date as is
determined by the Administrator. Notice of the determination shall be given to
each Employee or Consultant to whom an Option is so granted within a reasonable
time after the date of such grant.

     13.  Amendment and Termination of the Plan.
          -------------------------------------

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

          (b)  Stockholder Approval. The Board shall obtain stockholder approval
               --------------------
of any Plan amendment to the extent necessary and desirable to comply with
Applicable Laws.

                                     -10-
<PAGE>

          (c)  Effect of Amendment or Termination. No amendment, alteration,
               ----------------------------------
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee 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 Options granted under the
Plan prior to the date of such termination.

     14.  Conditions Upon Issuance of Shares.
          ----------------------------------

          (a)  Legal Compliance. Shares shall not be issued pursuant to the
               ----------------
exercise of an Option unless the exercise of such Option 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
               --------------------------
Option, the Administrator may require the person exercising such Option 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.

     15.  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 Shares as to which such requisite authority
shall not have been obtained.

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

     17.  Stockholder Approval. The Plan shall be subject to approval by the
          --------------------
stockholders of the Company within twelve (12) months after the date the Plan
is adopted. Such stockholder approval shall be obtained in the degree and manner
required Applicable Laws.

                                     -11-

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