Document:

Exhibit 10.3

	

SCIENTIFIC LEARNING
CORPORATION 

STOCK BONUS AGREEMENT

(1999 EQUITY INCENTIVE PLAN) 

        Pursuant
to the Stock Bonus Grant Notice (“Grant Notice”) and this Stock Bonus Agreement
(collectively, the “Award”) and in consideration of your past services,
Scientific Learning Corporation (the “Company”) has awarded you a stock bonus
under its 1999 Equity Incentive Plan (the “Plan”) for the number of shares of
the Company’s Common Stock subject to the Award as indicated in the Grant Notice.
Defined terms not explicitly defined in this Stock Bonus Agreement but defined in the Plan
shall have the same definitions as in the Plan. 

        The
details of your Award are as follows: 

        1.    VESTING.
Your Award shall be 100% vested at all times.  

        2.    NUMBER
OF SHARES. The number of shares subject to your Award may be           adjusted from
time to time for Capitalization Adjustments, as provided in the           Plan.  

        3.    SECURITIES
LAW COMPLIANCE. You may not be issued any shares under your           Award unless
the shares are either (i) then registered under the Securities Act           or (ii) the
Company has determined that such issuance would be exempt from the           registration
requirements of the Securities Act. Your Award must also comply           with other
applicable laws and regulations governing the Award, and you will not           receive
such shares if the Company determines that such receipt would not be in
          material compliance with such laws and regulations.  

        4.    RESTRICTIVE
LEGENDS. The shares issued under your Award shall be endorsed           with
appropriate legends determined by the Company, if any.  

        5.    AWARD
NOT A SERVICE CONTRACT. Your Award is not an employment or service
          contract, and nothing in your Award shall be deemed to create in any way
          whatsoever any obligation on your part to continue in the employ of the Company
          or an Affiliate, or on the part of the Company or an Affiliate to continue your
          employment. In addition, nothing in your Award shall obligate the Company or an
          Affiliate, their respective shareholders, boards of directors, Officers or
          Employees to continue any relationship that you might have as a Director or
          Consultant for the Company or an Affiliate.  

        6.    WITHHOLDING
OBLIGATIONS. 

                (a)     At
the time your Award is made, or at any time thereafter as requested by the
          Company, you hereby authorize withholding from payroll and any other amounts
          payable to you, and otherwise agree to make adequate provision for any sums
          required to satisfy the federal, state, local and foreign tax withholding
          obligations of the Company or an Affiliate, if any, which arise in connection
          with your Award.  

1. 

	

                (b)              Unless
the tax withholding obligations of the Company and/or any Affiliate are
          satisfied, the Company shall have no obligation to issue a certificate for such
          shares or release such shares from any escrow provided for herein.  

        7.    TAX
CONSEQUENCES. The acquisition and vesting of the shares may have           adverse
tax consequences to you that may avoided or mitigated by filing an           election
under Section 83(b) of the Internal Revenue Code, as amended (the           “Code”).
Such election must be filed within thirty (30) days after the           date of your
Award. YOU ACKNOWLEDGE THAT IT IS YOUR OWN RESPONSIBILITY, AND NOT           THE COMPANY’S,
TO FILE A TIMELY ELECTION UNDER CODE SECTION 83(B), EVEN IF           YOU REQUEST THE
COMPANY TO MAKE THE FILING ON YOUR BEHALF.  

        8.    NOTICES.
Any notices provided for in your Award or the Plan shall be           given in writing
and shall be deemed effectively given upon receipt or, in the           case of notices
delivered by the Company to you, five (5) days after deposit in           the United
States mail, postage prepaid, addressed to you at the last address           you provided
to the Company.  

        9.    MISCELLANEOUS.  

                (a)               The
rights and obligations of the Company under your Award shall be transferable           to
any one or more persons or entities, and all covenants and agreements           hereunder
shall inure to the benefit of, and be enforceable by the           Company’s
successors and assigns. Your rights and obligations under your           Award may only
be assigned with the prior written consent of the Company.  

                (b)               You
agree upon request to execute any further documents or instruments necessary           or
desirable in the sole determination of the Company to carry out the purposes           or
intent of your Award.  

                (c)               You
acknowledge and agree that you have reviewed your Award in its entirety,           have
had an opportunity to obtain the advice of counsel prior to executing and
          accepting your Award and fully understand all provisions of your Award.  

        10.    GOVERNING
PLAN DOCUMENT. Your Award is subject to all the provisions of           the Plan, the
provisions of which are hereby made a part of your Award, and is           further
subject to all interpretations, amendments, rules and regulations which           may
from time to time be promulgated and adopted pursuant to the Plan. In the           event
of any conflict between the provisions of your Award and those of the           Plan, the
provisions of the Plan shall control.  

2. 

	

SCIENTIFIC LEARNING
CORPORATION1999 
EQUITY INCENTIVE PLAN 

STOCK OPTION AGREEMENT(INCENTIVE

STOCK OPTION OR NONSTATUTORY STOCK OPTION) 

        Pursuant to
your Notice of Grant of Stock Options (“Grant Notice”) and this Stock Option
Agreement, Scientific Learning Corporation (the “Company”) has granted you an
option under its 1999 Equity Incentive Plan (the “Plan”) to purchase the number
of shares of the Company’s Common Stock indicated in your Grant Notice at the
exercise price indicated in your Grant Notice. Defined terms not explicitly defined in
this Stock Option Agreement but defined in the Plan shall have the same definitions as in
the Plan. 

        The
details of your option are as follows: 

        1.    VESTING.
Subject to the limitations contained herein, your option will           vest as provided
in your Grant Notice, provided that vesting will cease upon the           termination of
your Continuous Service.  

        2.    NUMBER
OF SHARES AND EXERCISE PRICE. The number of shares of Common Stock           subject
to your option and your exercise price per share referenced in your           Grant
Notice may be adjusted from time to time for Capitalization Adjustments,           as
provided in the Plan.  

        3.    EXERCISE
PRIOR TO VESTING (“EARLY EXERCISE”). If permitted in           your Grant
Notice (i.e., Schedule A indicates that “Early Exercise” of           your
option is permitted) and subject to the provisions of your option, you may
          elect at any time that is both (i) during the period of your Continuous Service
          and (ii) during the term of your option, to exercise all or part of your
option,           including the nonvested portion of your option; provided, however,
that:  

                (a)               a
partial exercise of your option shall be deemed to cover first vested shares           of
Common Stock and then the earliest vesting installment of unvested shares of
          Common Stock;  

                (b)               any
shares of Common Stock so purchased from installments that have not vested           as
of the date of exercise shall be subject to the purchase option in favor of           the
Company as described in the Company’s form of Early Exercise Stock
          Purchase Agreement;  

                (c)               you
shall enter into the Company’s form of Early Exercise Stock Purchase
          Agreement with a vesting schedule that will result in the same vesting as if no
          early exercise had occurred; and  

                (d)               if
your option is an incentive stock option, then, as provided in the Plan, to           the
extent that the aggregate Fair Market Value (determined at the time of           grant)
of the shares of Common Stock with respect to which your option plus all           other
incentive stock options you hold are exercisable for the first time by you
          during any calendar year (under all plans of the Company and its Affiliates)
          exceeds one hundred thousand dollars ($100,000), your option(s) or portions
          thereof that exceed such limit (according to the order in which they were
          granted) shall be treated as nonstatutory stock options.  

1. 

	

        4.    METHOD
OF PAYMENT. Payment of the exercise price is due in full upon           exercise of
all or any part of your option. You may elect to make payment of the           exercise
price by one or more of the following:  

                (a)               by
cash or check; or  

                (b)               in
the Company’s sole discretion at the time your option is exercised and
          provided that at the time of exercise the Common Stock is publicly traded and
          quoted regularly in The Wall Street Journal, pursuant to a program
          developed under Regulation T as promulgated by the Federal Reserve Board that,
          prior to the issuance of Common Stock, results in either the receipt of cash
(or           check) by the Company or the receipt of irrevocable instructions to pay the
          aggregate exercise price to the Company from the sales proceeds.  

        5.    WHOLE
SHARES. You may exercise your option only for whole shares of           Common Stock.  

        6.    SECURITIES
LAW COMPLIANCE. Notwithstanding anything to the contrary           contained herein,
you may not exercise your option unless the shares of Common           Stock issuable
upon such exercise are then registered under the Securities Act           or, if such
shares of Common Stock are not then so registered, the Company has           determined
that such exercise and issuance would be exempt from the registration
          requirements of the Securities Act. The exercise of your option must also
comply           with other applicable laws and regulations governing your option, and
you may           not exercise your option if the Company determines that such exercise
would not           be in material compliance with such laws and regulations.  

        7.    TERM.
You may not exercise your option before the commencement of its           term or after
its term expires. The term of your option commences on the Date of           Grant and
expires upon the earliest of the following:  

                (a)               three
(3) months after the termination of your Continuous Service for any reason
          other than Disability or death, provided that if during any part of such three-
          (3-) month period you may not exercise your option solely because of the
          condition set forth in the preceding paragraph relating to “Securities Law
          Compliance,” your option shall not expire until the earlier of the
          Expiration Date or until it shall have been exercisable for an aggregate period
          of three (3) months after the termination of your Continuous Service;  

                (b)               twelve
(12) months after the termination of your Continuous Service due to your
          Disability;  

                (c)               twelve
(12) months after your death if you die either during your Continuous           Service;  

                (d)               the
Expiration Date indicated in your Grant Notice; or  

                (e)               the
day before the tenth (10th) anniversary of the Date of Grant.  

2. 

	

        If
your option is an incentive stock option, note that, to obtain the federal income tax
advantages associated with an “incentive stock option,” the Code requires that
at all times beginning on the date of grant of your option and ending on the day three
(3) months before the date of your option’s exercise, you must be an employee of the
Company or an Affiliate, except in the event of your death or Disability. The Company has
provided for extended exercisability of your option under certain circumstances for your
benefit but cannot guarantee that your option will necessarily be treated as an “incentive
stock option” if you continue to provide services to the Company or an Affiliate as
a Consultant or Director after your employment terminates or if you otherwise exercise
your option more than three (3) months after the date your employment terminates.  

        8.    EXERCISE. 

                (a)               You
may exercise the vested portion of your option (and the unvested portion of
          your option if your Grant Notice so permits) during its term by delivering a
          Notice of Exercise (in a form designated by the Company) together with the
          exercise price to the Secretary of the Company, or to such other person as the
          Company may designate, during regular business hours, together with such
          additional documents as the Company may then require.  

                (b)               By
exercising your option you agree that, as a condition to any exercise of your
          option, the Company may require you to enter into an arrangement providing for
          the payment by you to the Company of any tax withholding obligation of the
          Company arising by reason of (1) the exercise of your option, (2) the lapse of
          any substantial risk of forfeiture to which the shares of Common Stock are
          subject at the time of exercise, or (3) the disposition of shares of Common
          Stock acquired upon such exercise.  

                (c)               If
your option is an incentive stock option, by exercising your option you agree
          that you will notify the Company in writing within fifteen (15) days after the
          date of any disposition of any of the shares of the Common Stock issued upon
          exercise of your option that occurs within two (2) years after the date of your
          option grant or within one (1) year after such shares of Common Stock are
          transferred upon exercise of your option.  

        9.    TRANSFERABILITY.
Your option is not transferable, except by will or by           the laws of descent and
distribution, and is exercisable during your life only           by you. Notwithstanding
the foregoing, by delivering written notice to the           Company, in a form
satisfactory to the Company, you may designate a third party           who, in the event
of your death, shall thereafter be entitled to exercise your           option.  

        10.        OPTION
NOT A SERVICE CONTRACT. Your option is not an employment or           service
contract, and nothing in your option shall be deemed to create in any           way
whatsoever any obligation on your part to continue in the employ of the           Company
or an Affiliate, or of the Company or an Affiliate to continue your           employment.
In addition, nothing in your option shall obligate the Company or an           Affiliate,
their respective stockholders, Boards of Directors, Officers or           Employees to
continue any relationship that you might have as a Director or           Consultant for
the Company or an Affiliate.  

3. 

	

        11.    WITHHOLDING
OBLIGATIONS. 

                (a)               At
the time you exercise your option, in whole or in part, or at any time
          thereafter as requested by the Company, you hereby authorize withholding from
          payroll and any other amounts payable to you, and otherwise agree to make
          adequate provision for (including by means of a “cashless exercise”          pursuant
to a program developed under Regulation T as promulgated by the Federal           Reserve
Board to the extent permitted by the Company), any sums required to           satisfy the
federal, state, local and foreign tax withholding obligations of the           Company or
an Affiliate, if any, which arise in connection with your option.  

                (b)               Upon
your request and subject to approval by the Company, in its sole           discretion,
and compliance with any applicable conditions or restrictions of           law, the
Company may withhold from fully vested shares of Common Stock otherwise
          issuable to you upon the exercise of your option a number of whole shares of
          Common Stock having a Fair Market Value, determined by the Company as of the
          date of exercise, not in excess of the minimum amount of tax required to be
          withheld by law. If the date of determination of any tax withholding obligation
          is deferred to a date later than the date of exercise of your option, share
          withholding pursuant to the preceding sentence shall not be permitted unless
you           make a proper and timely election under Section 83(b) of the Code,
covering           the aggregate number of shares of Common Stock acquired upon such
exercise with           respect to which such determination is otherwise deferred, to
accelerate the           determination of such tax withholding obligation to the date of
exercise of your           option. Notwithstanding the filing of such election, shares of
Common Stock           shall be withheld solely from fully vested shares of Common Stock
determined as           of the date of exercise of your option that are otherwise
issuable to you upon           such exercise. Any adverse consequences to you arising in
connection with such           share withholding procedure shall be your sole
responsibility.  

                (c)               You
may not exercise your option unless the tax withholding obligations of the
          Company and/or any Affiliate are satisfied. Accordingly, you may not be able to
          exercise your option when desired even though your option is vested, and the
          Company shall have no obligation to issue a certificate for such shares of
          Common Stock or release such shares of Common Stock from any escrow provided
for           herein.  

        12.    NOTICES.
Any notices provided for in your option or the Plan shall be           given in writing
and shall be deemed effectively given upon receipt or, in the           case of notices
delivered by mail by the Company to you, five (5) days after           deposit in the
United States mail, postage prepaid, addressed to you at the last           address you
provided to the Company.  

        13.    GOVERNING
PLAN DOCUMENT. Your option is subject to all the provisions of           the Plan,
the provisions of which are hereby made a part of your option, and is           further
subject to all interpretations, amendments, rules and regulations which           may
from time to time be promulgated and adopted pursuant to the Plan. In the           event
of any conflict between the provisions of your option and those of the           Plan,
the provisions of the Plan shall control.  

4. 

	

	Notice of Grant of Stock Options  	
Scientific Learning Corporation 

ID: 94-3234458

300 Frank. H. Ogawa Plaza

Suite 500

Oakland, CA 94612-2040 

	Name

Address

City, State Country Zip Code 
	Option Number:

Plan: 1999

ID: 

	

Effective XXXX, 200X, you have been
granted a(n) Incentive/Nonqualified Stock Option to buy X shares of Scientific Learning
Corporation (the Company) common stock. 

The current total value of the award
is $. 

The award will vest in increments on the
date(s) shown. 

				
	Shares	 	 	Vest Type	 	 	Full Vest	 	 	Expiration	 	 
	
		
		
		
	

	

By your signature and the
Company’s signature below, you and the Company agree that these options are granted
under and governed by the terms and conditions of the Company’s 1999 Equity Incentive
Plan, as amended, which has been made available to you and the Option Agreement, which is
attached. 

		
	 	 	 	 
	
		
	
	Scientific Learning Corporation

	 	Date

	 
	
		
	
	Name	 	Date	 

	

	

	Notice of Grant of Award  	
Scientific Learning Corporation 

ID: 94-3234458

300 Frank. H. Ogawa Plaza

Suite 500

Oakland, CA 94612-2040 

	Name

Address

City, State Country Zip Code 
	Award Number:

Plan:  

	

Effective XXXX200X, you have been
granted an award of X shares of Scientific Learning
Corporation (the Company) common stock. These shares are restricted until the vest date(s) shown below.

The current total value of the award
is $. 

The award will vest in increments on the
date(s) shown. 

				
	 	 	 	Shares	 	 	Full Vest	 	 	 	 	 
			
		
			

	

By your signature and the
Company’s signature below, you and the Company agree that this award is granted
under and governed by the terms and conditions of the Company’s 1999 Equity Incentive
Plan, as amended, which has been made available to you and the Stock Bonus Agreement, which is
attached. 

		
	 	 	 	 
	
		
	
	Scientific Learning Corporation

	 	Date

	 
	
		
	
	Name	 	DateSCIENTIFIC LEARNING
CORPORATION 

1999 NON-EMPLOYEE
DIRECTORS’ STOCK OPTION PLAN

Adopted May 17, 1999

Approved By Stockholders May 28, 1999

 Amended October 9, 2002 

Amended February 25, 2003

Approved By Stockholders _____, 2003 

Termination Date: May 17, 2009  

1.    PURPOSE.  

        (a)                  The
purpose of the 1999 Non-Employee Directors’ Stock Option Plan (the           “Plan”)
is to provide a means by which each member of the Board of           Directors of
Scientific Learning Corporation (the “Company”) who is           not at the
time of grant an employee of the Company or of any Affiliate of the           Company, or
a holder or representative of the holder of 10% or more of the           Company’s
capital stock (each such person being hereafter referred to as a           “Non-Employee
Director”) will be given an opportunity to purchase           stock of the Company.  

        (b)                  The
word “Affiliate” as used in the Plan means any parent corporation           or
subsidiary corporation of the Company as those terms are defined in Sections
          424(e) and (f), respectively, of the Internal Revenue Code of 1986, as amended
          from time to time (the “Code”).  

        (c)                  The
Company, by means of the Plan, seeks to retain the services of persons now
          serving as Non-Employee Directors of the Company, to secure and retain the
          services of persons capable of serving in such capacity, and to provide
          incentives for such persons to exert maximum efforts for the success of the
          Company.  

2.    ADMINISTRATION.  

        (a)                  The
Board of Directors of the Company (the “Board”) shall administer           the
Plan unless and until the Board delegates administration to a committee, as
          provided in subparagraph 2(b).  

        (b)                  The
Board may delegate administration of the Plan to a committee composed of two
          (2) or more members of the Board (the “Committee”). If administration
          is delegated to a Committee, the Committee shall have, in connection with the
          administration of the Plan, the powers theretofore possessed by the Board,
          subject, however, to such resolutions, not inconsistent with the provisions of
          the Plan, as may be adopted from time to time by the Board. The Board may
          abolish the Committee at any time and revest in the Board the administration of
          the Plan.  

1. 

	

3.    SHARES
SUBJECT TO THE PLAN. 

        (a)                  Subject
to the provisions of paragraph 10 relating to adjustments upon           changes in
stock, the stock that may be sold pursuant to options granted under           the Plan
shall not exceed in the aggregate One Hundred Fifty Thousand (150,000)           shares
of the Company’s common stock. If any option granted under the Plan           shall
for any reason expire or otherwise terminate without having been exercised           in
full, the stock not purchased under such option shall again become available
          for the Plan.  

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

        (c)                  Notwithstanding
any provision herein to the contrary, in the event the Plan is           not approved by
holders of at least two-thirds of the Company’s outstanding           common stock
within twelve months of the date an option is first granted           hereunder following
the October 2002 amendment of the Plan, then, unless an           exemption from
qualification is available with respect to such grant that does           not require
compliance with the provisions of 260.140.45 of the California Code           of
Regulations, any option granted hereunder which (i) followed the October 2002
          amendment of the Plan and (ii) was granted at a time when the total number of
          securities issuable upon exercise of all outstanding options [exclusive of
          rights described in Section 260.140.40 and warrants described in Sections
          260.140.43 and 260.140.44 of the California Code of Regulations, and any
          purchase plan or agreement as described in Section 260.140.42 of the California
          Code of Regulations (provided that the purchase plan or agreement provides that
          all securities will have a purchase price of 100% of the fair value, as
          determined in accordance with Section 260.140.50 of the California Code of
          Regulations, of the security either at the time the person is granted the right
          to purchase securities under the plan or agreement or at the time the purchase
          is consummated)] and the total number of securities called for under any bonus
          or similar plan or agreement exceeded 30% of the Company’s then
outstanding           securities, calculated on an as-converted to common stock basis,
shall be void.  

4.    ELIGIBILITY. 

        Options
shall be granted only to Non-Employee Directors of the Company.  

5.    NON-DISCRETIONARY
GRANTS AND COMPENSATION. 

        (a)                  Upon
the effectiveness of the registration statement for the initial public           offering
(the “IPO”) of the Company, each person who is then a           Non-Employee
Director, and after the IPO, upon the election to the Board of           Directors of a
new member who is a Non-Employee Director, automatically shall be           granted
options to purchase Five Thousand (5,000) shares of common stock of the           Company
(an “Initial Grant”) on the terms and conditions set forth           herein;
provided, however, that (unless otherwise determined by a majority of
          disinterested Directors) such Initial Grant shall only be granted to
          Non-Employee Directors who have not previously been granted stock options or
had           the opportunity to purchase restricted stock in the Company in connection
with           their service as a Director of the Company.  

2. 

	

        (b)                  Each
person who is a Non-Employee Director on any anniversary of the IPO
          automatically shall, on such anniversary, be granted an option to purchase Five
          Thousand (5,000) shares of common stock of the Company on the terms and
          conditions set forth herein (an “Annual Grant”).  

6.    OPTION
PROVISIONS. 

        Each
option shall be subject to the following terms and conditions:  

        (a)                  The
term of each option commences on the date it is granted and, unless sooner
          terminated as set forth herein, expires on the date five (5) years from the
date           of grant (“Expiration Date”). If the optionee’s service as
a           Non-Employee Director of the Company or an employee, member of the Board of
          Directors or consultant to the Company or any Affiliate terminates for any
          reason or for no reason, the option shall terminate on the earlier of the
          Expiration Date or the date twelve (12)  months following the date of
          termination of all such service; provided, however, that if such
          termination of service is due to the optionee’s death, the option shall
          terminate on the earlier of the Expiration Date or eighteen (18)  months
          following the date of the optionee’s death.  

        (b)                  The
exercise price of each option shall be equal to one hundred percent (100%)           of
the Fair Market Value of the stock (as such term is defined in subsection           9(d))
subject to such option on the date such option is granted.  

        (c)                  The
optionee may elect to make payment of the exercise price under one of the
          following alternatives:  

                  (i)                  Payment
of the exercise price per share in cash at the time of exercise;  

                  (ii)                  Provided
that at the time of the exercise the Company’s common stock is           publicly
traded and quoted regularly in The Wall Street Journal, payment           by
delivery of shares of common stock of the Company already owned by the
          optionee, held for the period required to avoid a charge to the Company’s
          reported earnings, and owned free and clear of any liens, claims, encumbrances
          or security interest, which common stock shall be valued at its Fair Market
          Value on the date preceding the date of exercise; or  

                  (iii)                  Payment
pursuant to a program developed under Regulation T as promulgated by the
          Federal Reserve Board which results in the receipt of cash (or check) by the
          Company either prior to the issuance of shares of the Company’s common
          stock or pursuant to the terms of irrevocable instructions issued by the
          optionee prior to the issuance of shares of the Company’s common stock.  

                  (iv)                  Payment
by a combination of the methods of payment specified in subparagraph           6(c)(i)
through 6(c)(iii) above.  

        (d)                  An
option shall not be transferable except by will or by the laws of descent and
          distribution and, to the extent provided in the option agreement, to such
          further extent as permitted by Section 260.140.41(d) of Title 10 of the
          California Code of Regulations at the time of the grant of the option, and
shall           be exercisable during the lifetime of the optionee only by the optionee.
If the           option does not provide for transferability, then the option shall not
be           transferable except by will or by the laws of descent and distribution and
shall           be exercisable during the lifetime of the optionee only by the optionee.
          Notwithstanding the foregoing, the optionee may, by delivering written notice
to           the Company, in a form satisfactory to the Company, designate a third party
who,           in the event of the death of the optionee, shall thereafter be entitled to
          exercise the option.  

3. 

	

        (e)                  The
Initial Grant shall be fully vested at the time of grant.  

        (f)                  The
Annual Grant shall be fully vested at the time of grant.  

        (g)                  The
Company may require any optionee, or any person to whom an option is
          transferred under subparagraph 6(d), as a condition of exercising any such
          option: (i) to give written assurances satisfactory to the Company as to
          the optionee’s knowledge and experience in financial and business matters;
          and (ii) to give written assurances satisfactory to the Company stating
          that such person is acquiring the stock subject to the option for such
          person’s own account and not with any present intention of selling or
          otherwise distributing the stock. These requirements, and any assurances given
          pursuant to such requirements, shall be inoperative if (i) the issuance of
          the shares upon the exercise of the option has been registered under a then
          currently-effective registration statement under the Securities Act of 1933, as
          amended (the “Securities Act”), or (ii) as to any particular
          requirement, a determination is made by counsel for the Company that such
          requirement need not be met in the circumstances under the then applicable
          securities laws. The Company may require any optionee to provide such other
          representations, written assurances or information that the Company shall
          determine is necessary, desirable or appropriate to comply with applicable
          securities laws as a condition of granting an option to the optionee or
          permitting the optionee to exercise the option. The Company may, upon advice of
          counsel to the Company, place legends on stock certificates issued under the
          Plan as such counsel deems necessary or appropriate in order to comply with
          applicable securities laws, including, but not limited to, legends restricting
          the transfer of the stock.  

        (h)                  Notwithstanding
anything to the contrary contained herein, an option may not be           exercised
unless the shares issuable upon exercise of such option are then           registered
under the Securities Act or, if such shares are not then so           registered, the
Company has determined that such exercise and issuance would be           exempt from the
registration requirements of the Securities Act.  

7.    COVENANTS
OF THE COMPANY. 

        (a)                  During
the terms of the options granted under the Plan, the Company shall keep
          available at all times the number of shares of stock required to satisfy such
          options.  

        (b)                  The
Company shall seek to obtain from each regulatory commission or agency           having
jurisdiction over the Plan such authority as may be required to issue and           sell
shares of stock upon exercise of the options granted under the Plan; provided however, that
this undertaking shall not require the Company to           register under the Securities
Act either the Plan, any option granted under the           Plan, or any stock issued or
issuable pursuant to any such option. If, after           reasonable efforts, the Company
is unable to obtain from any such regulatory           commission or agency the authority
which counsel for the Company deems necessary           for the lawful issuance and sale
of stock under the Plan, the Company shall be           relieved from any liability for
failure to issue and sell stock upon exercise of           such options.  

4. 

	

8.    USE
OF PROCEEDS FROM STOCK. 

        Proceeds
from the sale of stock pursuant to options granted under the Plan shall constitute
general funds of the Company.  

9.    MISCELLANEOUS. 

        (a)                  Neither
an optionee nor any person to whom an option is transferred under           subparagraph
6(d) shall be deemed to be the holder of, or to have any of the           rights of a
holder with respect to, any shares subject to such option unless and           until such
person has satisfied all requirements for exercise of the option           pursuant to
its terms.  

        (b)                  Nothing
in the Plan or in any instrument executed pursuant thereto shall confer           upon
any Non-Employee Director any right to continue in the service of the           Company
or any Affiliate in any capacity or shall affect any right of the           Company, its
Board or shareholders or any Affiliate, to remove any Non-Employee           Director
pursuant to the Company’s Bylaws and the provisions of Delaware           general
corporation law.  

        (c)                  In
connection with each option made pursuant to the Plan, it shall be a           condition
precedent to the Company’s obligation to issue or transfer shares           to a
Non-Employee Director, or to evidence the removal of any restrictions on
          transfer, that such Non-Employee Director make arrangements satisfactory to the
          Company to insure that the amount of any federal, state or local withholding
tax           required to be withheld with respect to such sale or transfer, or such
removal           or lapse, is made available to the Company for timely payment of such
tax.  

        (d)                  As
used in this Plan, “Fair Market Value” means, as of any date, the
          value of the common stock of the Company 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, or is quoted on the OTC Bulletin Board, the Fair Market Value
          of a share of common stock shall be the closing sales price for such stock (or
          the closing bid, if no sales were reported) as quoted on such system, exchange
          or board (or the exchange with the greatest volume of trading in 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 Board deems reliable;
          or  

5. 

	

                  (ii)                  In
the absence of an established market for the common stock, the Fair Market
          Value shall be determined in good faith by the Board and to the extent that the
          Company is subject to Section 260.140.50 of Title 10 of the California Code of
          Regulations (“Section 260.140.50”) at the time the option is granted,
          in a manner consistent with Section 260.140.50.  

        (e)                  To
the extent required by Section 260.140.46 of Title 10 of the California Code           of
Regulations, the Company shall deliver financial statements to Participants           at
least annually. This Section 14 shall not apply to key Employees whose duties
          in connection with the Company assure them access to equivalent information.  

10.    ADJUSTMENTS
UPON CHANGES IN STOCK. 

        (a)                  If
any change is made in the stock subject to the Plan, or subject to any option
          granted under the Plan (through merger, consolidation, reorganization,
          recapitalization, stock dividend, dividend in property other than cash, stock
          split, liquidating dividend, combination of shares, exchange of shares, change
          in corporate structure or other transaction not involving the receipt of
          consideration by the Company), the Plan and outstanding options will be
          appropriately adjusted in the class(es) and maximum number of shares subject to
          the Plan and the class(es) and number of shares and price per share of stock
          subject to outstanding options. The Board shall make such adjustments, and the
          determination of the Board shall be final, binding and conclusive. (The
          conversion of any convertible securities of the Company shall not be treated as
          a “transaction not involving the receipt of consideration by the
          Company.”)  

        (b)                  In
the event of: (1) a dissolution, liquidation, or sale of all or substantially
          all of the assets of the Company; (2) a merger or consolidation in which
          the Company is not the surviving corporation; or (3) a reverse merger in
          which the Company is the surviving corporation but the shares of the
          Company’s common stock outstanding immediately preceding the merger are
          converted by virtue of the merger into other property, whether in the form of
          securities, cash or otherwise, then (i) any surviving or acquiring corporation
          shall assume any options outstanding under the Plan or shall substitute similar
          options (including an option to acquire the same consideration paid to the
          shareholders in the transaction described in this subparagraph 10(b)) for those
          outstanding under the Plan, or (ii) in the event any surviving corporation or
          acquiring corporation refuses to assume such options or to substitute similar
          options for those outstanding under the Plan, then such options shall be
          terminated if not exercised prior to such event.  

        (c)                  In
the event of the acquisition by any person, entity or group within the           meaning
of Section 13(d) or 14(d) of the Exchange Act, or any comparable           successor
provisions (excluding any employee benefit plan, or related trust,           sponsored or
maintained by the Company or any Affiliate of the Company) of the           beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the           Exchange Act,
or comparable successor rule) of securities of the Company           representing at
least fifty percent (50%) of the combined voting power entitled           to vote in the
election of directors, then, with respect to options held by           persons whose
continuous service has not terminated, the vesting of such options           (and, if
applicable, the time during which such options may be exercised) shall           be
accelerated immediately upon the happening of such event.  

6. 

	

11.    AMENDMENT
OF THE PLAN. 

        (a)                  The
Board at any time, and from time to time, may amend the Plan and/or some or           all
outstanding options granted under the Plan. However, except as provided in
          paragraph 10 relating to adjustments upon changes in stock, no amendment shall
          be effective unless approved by the shareholders of the Company to the extent
          shareholder approval is necessary for the Plan to satisfy the requirements of
          Rule 16b-3 under the Exchange Act or any Nasdaq or securities exchange listing
          requirements.  

        (b)                  Rights
and obligations under any option granted before any amendment of the Plan           shall
not be impaired by such amendment unless (i) the Company requests the           consent
of the person to whom the option was granted and (ii) such person           consents in
writing.  

12.    TERMINATION
OR SUSPENSION OF THE PLAN. 

        (a)                  The
Board may suspend or terminate the Plan at any time. Unless sooner           terminated,
the Plan shall terminate ten (10) years after the date adopted by           the Board. No
options may be granted under the Plan while the Plan is suspended           or after it
is terminated.  

        (b)                  Suspension
or termination of the Plan shall not impair rights and obligations           under any
option granted while the Plan is in effect, except with the consent of           the
person to whom the option was granted.  

13.    EFFECTIVE
DATE OF PLAN; CONDITIONS OF EXERCISE. 

        (a)                     The
Plan shall become effective on the same day that the Company’s initial
          public offering of shares of common stock becomes effective, subject to the
          condition subsequent that the shareholders of the Company approve the Plan.  

        (b)                     No
option granted under the Plan shall be exercised or exercisable unless and
          until the condition of subparagraph 13(a) above has been met.  

7.

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