Document:

THIS
      WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
      THE
      SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”).
      THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE
      OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER THE ACT OR
      AN
      OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION THAT SUCH REGISTRATION IS
      NOT
      REQUIRED.

     

    Warrant
      No. B - __

     

     

    June
      15, 2007

     

    REED’S,
      INC.

     

    WARRANT
      TO PURCHASE COMMON STOCK

     

    ****
      __________ Shares of Common Stock****

     

     

    THIS
      WARRANT CERTIFIES THAT, for value received, _____________, or registered assigns
      (the “Holder”),
      is
      entitled to subscribe for and purchase from Reed’s, Inc., a Delaware corporation
      (the “Company”),
      up to
      and including the number of fully paid and nonassessable shares of common stock,
      par value $0.0001 per share (the “Common
      Stock”)
      of the
      Company set forth above, at the exercise price of $6.60 per share ( the
“Warrant
      Exercise Price”)
      (and
      as adjusted from time to time pursuant to Section 3 hereof), at any time or
      from
      time to time from the date first set forth above (the “Issue
      Date”)
      and
      prior to or upon June 15, 2012 (the “Expiration
      Date”),
      subject to the provisions and upon the terms and conditions hereinafter set
      forth:

     

    1. Method
      of Exercise; Cash Payment; Issuance of New Warrant.
      Subject
      to the provisions of this Warrant, the purchase right represented by this
      Warrant may be exercised by the Holder hereof, in whole or in part and from
      time
      to time, at the election of the Holder hereof, by the surrender of this Warrant
      (with the notice of exercise substantially in the form attached hereto as
Exhibit A
      duly
      completed and executed) at the principal executive offices of the Company and
      accompanied by payment to the Company, by (a) certified or bank check acceptable
      to the Company, (b) cancellation by the Holder of indebtedness of the Company
      to
      the Holder, if agreed to in advance in writing by the Company in the Company’s
      sole and absolute discretion, or (c) by wire transfer to an account designated
      by the Company, or any combination of (a), (b) and (c), of an amount equal
      to
      the then applicable Warrant Exercise Price multiplied by the number of Warrant
      Shares then being purchased; or

     

    The
      person or persons in whose name(s) any certificate(s) representing the shares
      of
      the Company’s capital stock to be issued upon exercise of this Warrant (the
“Warrant
      Shares”)
      shall
      be deemed to have become the holder(s) of record of, and shall be treated for
      all purposes as the record holder(s) of, the shares represented thereby (and
      such shares shall be deemed to have been issued) immediately prior to the close
      of business on the date or dates upon which this Warrant is exercised. In the
      event of any exercise of the rights represented by this Warrant, certificates
      for the Warrant Shares so purchased shall be delivered to the Holder hereof
      as
      soon as possible and in any event within 20 days after such exercise and, unless
      this Warrant has been fully exercised or expired, a new warrant having the
      same
      terms as this Warrant and representing the remaining portion of such shares,
      if
      any, with respect to which this Warrant shall not then have
      been

    
      
        
        

      

      
        -1-

        
          

        

      

      
        
        

      

    

     

    exercised
      shall also be issued to the Holder hereof as soon as possible and in any event
      within such 20-day period.

     

    2. Reservation
      of Shares.
      During
      the period within which the rights represented by this Warrant may be exercised,
      the Company will at all times have authorized, and reserved for the purpose
      of
      the issuance upon exercise of the purchase rights evidenced by this Warrant
      a
      sufficient number of shares of its capital stock to provide for the exercise
      of
      the rights represented by this Warrant.

     

    3. Adjustment
      of Warrant Exercise Price and Number of Shares.
      The
      number and kind of securities purchasable upon the exercise of this Warrant
      and
      the Warrant Exercise Price shall be subject to adjustment to the nearest whole
      share (one-half and greater being rounded upward) and nearest cent (one-half
      cent and greater being rounded upward) from time to time upon the occurrence
      of
      certain events, as follows. Each of the adjustments provided by the
      subsections below shall be deemed separate adjustments and any adjustment
      of this Warrant pursuant to one subsection of this Section 3 shall preclude
      additional adjustments for the same event or transaction by the remaining
      subsections.

     

    (a) Reclassification.
      In case
      of any reclassification or change of securities of the class issuable upon
      exercise of this Warrant (other than a change in par value, or from par value
      to
      no par value, or from no par value to par value, or as a result of a subdivision
      or combination) into the same or a different number or class of securities,
      the
      Company shall duly execute and deliver to the Holder of this Warrant a new
      warrant (in form and substance reasonably satisfactory to the Holder of this
      Warrant), so that the Holder of this Warrant shall thereafter be entitled to
      receive upon exercise of this Warrant, at a total purchase price not to exceed
      that payable upon the exercise of the unexercised portion of this Warrant,
      and
      in lieu of the shares of Common Stock theretofore issuable upon exercise of
      this
      Warrant, the kind and amount of shares of stock, other securities, money and
      property receivable upon such reclassification or change by a holder of the
      number of shares then purchasable under this Warrant. The Company shall deliver
      such new warrant as soon as possible and in any event within 20 days after
      such
      reclassification or change. Such new warrant shall provide for adjustments
      that
      shall be as nearly equivalent as may be practicable to the adjustments provided
      for in this Section 3. The provisions of this subparagraph (a) shall similarly
      apply to successive reclassifications or changes.

     

    (b) Stock
      Splits or Combination of Shares.
      If the
      Company at any time while this Warrant remains outstanding and unexpired shall
      subdivide (by stock split) or combine (by reverse stock split) its outstanding
      shares of capital stock of the class into which this Warrant is exercisable,
      the
      Warrant Exercise Price shall be proportionately decreased in the case of a
      subdivision or increased in the case of a combination, effective at the close
      of
      business on the date the subdivision or combination becomes effective and the
      number of shares of Common Stock issuable upon exercise of this Warrant shall
      be
      proportionately increased in the case of a subdivision or decreased in the
      case
      of a combination, and in each case to the nearest whole share, effective at
      the
      close of business on the date the subdivision or combination becomes effective.
      The provisions of this subparagraph (b) shall similarly apply to successive
      subdivisions or combinations of outstanding shares of capital stock into which
      this Warrant is exercisable.

     

    (c) Common
      Stock Dividends.
      If the
      Company at any time while this Warrant is outstanding and unexpired shall pay
      a
      dividend with respect to Common Stock payable in Common Stock, then (i) the
      Warrant Exercise Price shall be adjusted, from and after the date of
      determination of stockholders entitled to receive such dividend or distribution
      (the “Record
      Date”),
      to
      that price determined by multiplying the Warrant Exercise Price in effect
      immediately prior to such date of determination by a fraction (A) the numerator
      of which shall be the total number of shares of Common Stock outstanding
      immediately prior to such dividend or distribution, and (B) the denominator
      of
      which shall be the total number of shares of Common Stock outstanding
      immediately after such dividend or distribution and (ii) the number of shares
      of

    
      
        
        

      

      
        -2-

        
          

        

      

      
        
        

      

    

     

    Common
      Stock issuable upon exercise of this Warrant shall be proportionately adjusted,
      to the nearest whole share, from and after the Record Date by multiplying the
      number of shares of Common Stock purchasable hereunder immediately prior to
      such
      Record Date by a fraction (A) the numerator of which shall be the total number
      of shares of Common Stock outstanding immediately after such dividend or
      distribution, and (B) the denominator of which shall be the total number of
      shares of Common Stock outstanding immediately prior to such dividend or
      distribution. The provisions of this subparagraph (c) shall similarly apply
      to
      successive Common Stock dividends by the Company.

     

    4. Notice
      of Adjustments.
      Whenever the Warrant Exercise Price or the number of shares of Common Stock
      purchasable hereunder shall be adjusted pursuant to Section 3 above, the Company
      shall deliver a written notice, setting forth, in reasonable detail, the event
      requiring the adjustment, the amount of the adjustment, the method by which
      such
      adjustment was calculated, and the Warrant Exercise Price and the number of
      shares of Common Stock purchasable hereunder after giving effect to such
      adjustment, and shall use commercially reasonable efforts to cause copies of
      such notice to be delivered to the Holder of this Warrant within twenty (20)
      days after the occurrence of the event resulting in such adjustment at such
      Holder’s last known address in accordance with Section 10 hereof.

     

    5. Fractional
      Shares.
      No
      fractional shares will be issued in connection with any exercise hereunder,
      but
      in lieu of such fractional shares, the number of shares of Common Stock to
      be
      issued shall be rounded up to the nearest whole number.

     

    6. Compliance
      with Securities Act of 1933; Transfer of Warrant or Shares.

     

    (a) Compliance
      with Securities Act of 1933.
      The
      Holder of this Warrant, by acceptance hereof, agrees that this Warrant, the
      Warrant Shares and the capital stock issuable upon conversion of the Warrant
      Shares (collectively, the “Securities”)
      are
      being acquired for investment and that such holder will not offer, sell,
      transfer or otherwise dispose of the Securities except under circumstances
      which
      will not result in a violation of the Securities Act of 1933, as amended (the
      “Securities
      Act”)
      and
      any applicable state securities laws. Upon exercise of this Warrant, unless
      the
      Warrant Shares being acquired are registered under the Securities Act and any
      applicable state securities laws or an exemption from such registration is
      available, the Holder hereof shall confirm in writing that the Warrant Shares
      so
      purchased are being acquired for investment and not with a view toward
      distribution or resale in violation of the Securities Act and shall confirm
      such
      other matters related thereto as may be reasonably requested by the Company.
      The
      Warrant Shares (unless registered under the Securities Act and any applicable
      state securities laws) shall be stamped or imprinted with a legend in
      substantially the following form:

     

    THE
      SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
      ACT
      OF 1933, AS AMENDED (THE “ACT”).
      THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE
      OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER THE ACT OR
      AN
      OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION THAT SUCH REGISTRATION IS
      NOT
      REQUIRED.

     

    Such
      legend shall be removed by the Company, upon the request of a Holder, at such
      time as the restrictions on the transfer of the applicable security shall have
      terminated.

     

    (b) Transferability
      of the Warrant.
      Subject
      to compliance with Section 6(c) below, which provisions are intended to ensure
      compliance with applicable federal and states securities laws, the Securities
      may be transferred by the Holder hereof, in whole or in part and from time
      to
      time.

    
      
        
        

      

      
        -3-

        
          

        

      

      
        
        

      

    

     

    (c) Method
      of Transfer.
      With
      respect to any offer, sale, transfer or other disposition of the Securities,
      the
      Holder hereof shall prior to such offer, sale, transfer or other
      disposition:

     

    (i) surrender
      this Warrant or certificate representing Warrant Shares at the principal
      executive offices of the Company or provide evidence reasonably satisfactory
      to
      the Company of the loss, theft or destruction of this Warrant or certificate
      representing Warrant Shares and an indemnity agreement reasonable satisfactory
      to the Company,

     

    (ii) pay
      any
      applicable transfer taxes or establish
      to the satisfaction of the Company that such taxes have been paid,

     

    (iii) deliver
      a
      written assignment to the Company in substantially the form attached hereto
      as
Exhibit
      B
      or
      appropriate stock power duly completed and executed prior to transfer,
      describing briefly the manner thereof, and

     

    (iv) deliver
      a
      written opinion of such Holder’s counsel, or other evidence, if reasonably
      requested by the Company, to the effect that such offer, sale, transfer or
      other
      disposition may be effected without registration or qualification (under the
      Securities Act as then in effect and any applicable state securities law then
      in
      effect) of the Securities.

     

    As
      soon
      as reasonably practicable after receiving the items set forth above, the Company
      shall notify the Holder that it may sell, transfer or otherwise dispose of
      the
      Securities, all in accordance with the terms of the notice delivered to the
      Company. If a determination has been made pursuant to this Section 6(c) that
      the
      opinion of counsel for the Holder or other evidence is not reasonably
      satisfactory to the Company, the Company shall so notify the Holder promptly
      with details of such determination. Notwithstanding the foregoing, the
      Securities may, as to such federal laws, be offered, sold or otherwise disposed
      of in accordance with Rule 144 under the Securities Act if the Company satisfied
      the provisions thereof and provided that the Holder shall furnish such
      information as the Company may reasonably request to provide a reasonable
      assurance that the provisions of Rule 144 have been satisfied. Each certificate
      representing this Warrant or Warrant Shares thus transferred (except a transfer
      pursuant to Rule 144 or an effective registration statement) shall bear a legend
      as to the applicable restrictions on transferability in order to ensure
      compliance with applicable federal and state securities laws, unless in the
      aforesaid opinion of counsel to the Holder and to the reasonable satisfaction
      of
      the Company, such legend is not required in order to ensure compliance with
      such
      laws. Upon
      any
      partial transfer of this Warrant, the Company will issue and deliver to such
      new
      holder a new
      warrant (in form and substance similar to this Warrant) with
      respect to the portion transferred and will issue and deliver to the Holder
      a
new
      warrant (in form and substance similar to this Warrant) with
      respect to the portion not transferred as
      soon
      as possible and in any event within 20 days after such transfer.

     

    7. No
      Rights as Shareholders; Information.
      Prior
      to exercise of this Warrant, the Holder of this Warrant, as such, shall not
      be
      entitled to vote the Warrant Shares or receive dividends on or be deemed the
      holder of such shares, nor shall anything contained herein be construed to
      confer upon the Holder of this Warrant, as such, any of the rights of a
      shareholder of the Company or any right to vote for the election of directors
      or
      upon any matter submitted to shareholders at any meeting thereof, or to receive
      notice of meetings, or to receive dividends or subscription rights or otherwise
      until this Warrant shall have been exercised and the shares of Common Stock
      purchasable upon the exercise hereof shall have become deliverable, as provided
      herein.

     

    8.
Call
      Provision and Certain Registration Rights.
      This
      Warrant has been issued as part of the compensation to the placement agents
      in a
      private placement (the “Private Placement”) of the Company’s

    
      
        
        

      

      
        -4-

        
          

        

      

      
        
        

      

    

     

    
      securities
        which was completed on June 15, 2007. The Holder of this Warrant will have
        the
        registration rights provided to and obligations of the purchasers in the
        Private
        Placement in accordance with the terms and conditions of a Registration Rights
        Agreement relating to the Private Placement, but solely with respect to the
        shares of Common Stock underlying this Warrant and the Holder agrees to be
        bound
        by the terms and conditions of the Registration Rights Agreement. The warrants
        (the “Purchaser Warrants”) issued to the purchasers in the Private Placement
        include a “call provision” relating to any time that the Closing Sale Price (as
        such term is defined in the Purchaser Warrants) of the Common Stock equal
        or
        exceed $10.00 per share (and as adjusted from time to time pursuant to the
        terms
        of the Purchaser Warrants) for a period of ten consecutive trading days.
        In the
        event that the Company shall exercise the call provision in the Purchaser
        Warrants, the mandatory registration rights of the Holder of this Warrant
        or any
        shares underlying this Warrant set forth in the Registration Rights Agreement
        shall immediately terminate, and the Holder will only have the piggyback
        registration rights for such securities as are set forth in the Registration
        Rights Agreement.

       

    

    9. Modification
      and Waiver; Effect of Amendment or Waiver.
      This
      Warrant and any provision hereof may be modified, amended, waived, discharged
      or
      terminated only by an instrument in writing, designated as an amendment to
      this
      Warrant and executed by a duly authorized officer of the Company and the Holder
      of this Warrant. Any waiver or amendment effected in accordance with this
      Section 9 shall be binding upon the Holder, each future holder of this Warrant
      or of any shares purchased under this Warrant (including securities into which
      such shares have been converted) and the Company.

     

    10. Notices.
      Any
      notice, request, communication or other document required or permitted to be
      given or delivered to the Holder hereof or the Company shall be delivered by
      personal delivery, or shall be sent by certified United States mail, first-class
      postage prepaid or by overnight delivery using a nationally recognized courier
      service, to each such holder at its address as shown on the books of the Company
      or to the Company at the address indicated on the signature page of this
      Warrant. All such notices, requests, communications or other documents shall
      be
      deemed to have been received by the recipient (i) in the case of personal
      delivery, on the date of such delivery, (ii) in the case of delivery by a
      nationally recognized courier service, on the next business day subsequent
      to
      deposit with the courier and (iii) in the case of mailing, on the fourth
      business day following the date of deposit in the United States mails,
      first-class postage prepaid. 

     

    11. Successors.
      The
      obligations of the Company relating to the Warrant Shares shall inure to the
      benefit of the successors and assigns of the Holder hereof and shall be binding
      upon any successor entity whether upon a Change of Control or sale of all or
      substantially all of the assets of the Company. Upon such event, the successor
      entity shall assume the obligations of this Warrant, and this Warrant (or any
      substitute warrant as provided hereinbefore) shall be exercisable for the
      securities, cash and property of the successor entity on the terms provided
      herein.

     

    12. Lost
      Warrants or Stock Certificates.
      Upon
      receipt of evidence reasonably satisfactory to the Company of the loss, theft,
      destruction or mutilation of this Warrant or any stock certificate and, in
      the
      case of any such loss, theft or destruction, upon receipt of an indemnity
      agreement reasonably satisfactory to the Company, or in the case of any such
      mutilation upon surrender and cancellation of such mutilated Warrant or stock
      certificate, the Company will issue and deliver a new warrant (containing the
      same terms as this Warrant) or stock certificate, in lieu of the lost, stolen,
      destroyed or mutilated Warrant or stock certificate.

     

    13. Descriptive
      Headings.
      The
      descriptive headings of the several paragraphs of this Warrant are inserted
      for
      convenience only and do not constitute a part of this Warrant. The language
      in
      this Warrant shall be construed as to its fair meaning without regard to which
      party drafted this Warrant.

    
      
        
        

      

      
        -5-

        
          

        

      

      
        
        

      

    

     

    14. Governing
      Law.
      This
      Warrant shall be construed and enforced in accordance with, and the rights
      of
      the parties shall be governed by, the laws of the State of Delaware, without
      reference to principles governing choice or conflicts of laws.

     

    15. Entire
      Agreement.
      This
      Warrant constitutes the full and entire understanding and agreement between
      the
      parties with regard to the subject matter hereof and supersedes all prior and
      contemporaneous agreements, representations, and undertakings of the parties,
      whether oral or written, with respect to such subject matter. 

     

    16. No
      Impairment.
      The
      Company will not, by an voluntary action, avoid or seek to avoid the observance
      or performance of any of the terms to be observed or performed under this
      Warrant by the Company, but will at all times in good faith assist in carrying
      out all the provisions of this Warrant and in the taking of all such actions
      as
      may be necessary or appropriate in order to protect the rights of the Holder
      of
      this Warrant against impairment.

     

    17. Issue
      Taxes.
      The
      Company shall pay any and all issue and other taxes payable in respect of any
      issue or delivery of Common Stock upon the exercise of this Warrant that may
      be
      imposed under the laws of the United States of America or by any state,
      political subdivision or taxing authority of the United States of America;
      provided,
      however,
      that
      the Company shall not be required
      to pay any tax or taxes that may be payable in respect of any transfer involved
      in the issue or delivery of any Warrant or certificates for Common
      Stock in
      a name
      other than that of the registered holder of such Warrant, and no such issue
      or
      delivery shall be made unless and until the person or entity requesting the
      issuance thereof shall have paid to the Company the amount of such tax or shall
      have established to the satisfaction of the Company that such tax has been
      paid.

     

    18. Severability.
      In the
      event that any one or more of the provisions contained in this Warrant shall
      for
      any reason be held to be invalid, illegal or unenforceable in any respect,
      such
      provision(s) shall be ineffective only to the extent of such invalidity,
      illegality or unenforceability, without invalidating the remainder of such
      provision or the remaining provisions of this Warrant and such invalidity,
      illegality or unenforceability shall not affect any other provision of this
      Warrant, which shall remain in full force and effect.

     

    19. Survival
      of Representations, Warranties and Agreements.
      All
      representations and warranties of the Company and the Holder hereof shall
      survive the Issue Date of this Warrant, the exercise or conversion of this
      Warrant (or any part hereof) or the termination or expiration of rights
      hereunder. All agreements of the Company and the Holder hereof contained herein
      shall survive indefinitely, until by their respective terms, they are no longer
      operative.

     

    20. Counterparts.
      This
      Warrant may be executed in two or more counterparts, each of which shall be
      an
      original, and all of which together shall constitute one
      instrument.

     

     

    [REMAINDER
      OF THIS PAGE INTENTIONALLY LEFT BLANK]

     

    
      
        
        

      

      
        -6-

        
          

        

      

      
        
        

      

    

     

    IN
      WITNESS WHEREOF,
      the
      parties hereto have caused this Warrant to be duly executed as of the issue
      date
      of this Warrant by its duly authorized officers.

    

    

    REED’S,
      INC.

    a
      Delaware corporation

     

    By: ________________________________

    Name: Christopher
      J. Reed

    Title: Chief
      Executive Officer

    

    

    

    

     

    

    
      
        
          SIGNATURE
            PAGE TO WARRANT TO PURCHASE COMMON STOCK

        

        
        

      

      
        
        

        
          

        

      

      
        
        

        
        

      

    

     

    EXHIBIT
      A

     

    NOTICE
      OF EXERCISE

     

    To:
      REED’S, INC. (the “Company”)

     

    1. The
      undersigned hereby:

     

    
      	 	o	
              elects
                to purchase __________ shares of Common Stock of the Company pursuant
                to
                the terms of the attached Warrant, and tenders herewith payment of
                the
                purchase price of such shares in
                full.

            

    

     

    2. Please
      issue a certificate or certificates representing said shares in the name of
      the
      undersigned or in such other name or names as are specified below:

     

    _________________________________________

    (Name)

     

    _________________________________________

    (Address)

     

    _________________________________________

    (City,
      State)

    

     

    3. The
      undersigned represents that the aforesaid shares being acquired for the account
      of the undersigned for investment and not with a view to, or for resale in
      connection with, the distribution thereof and that the undersigned has no
      present intention of distributing or reselling such shares, all except as in
      compliance with applicable securities laws, and that the undersigned is an
      “accredited investor” within the meaning of Rule 501 of Regulation D promulgated
      under the Securities Act of 1933, as amended.

     

    _______________

    (Date)

    __________________________________________

    (Signature)

    

    
      	
              NOTICE:
                Signature
                must be guaranteed by a commercial bank or trust company or a member
                firm
                of a major stock exchange if shares of capital stock are to be issued,
                or
                securities are to be delivered, other than to or in the name of the
                registered holder of this Warrant. In addition, signature must correspond
                in all respects with the name as written upon the face of the Warrant
                in
                every particular without alteration or any change
                whatever.

            

    

    
 

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
      B

     

    FORM
      OF ASSIGNMENT

    

     

    FOR
      VALUE RECEIVED,
      the
      undersigned holder of the attached Warrant hereby sells, assigns and transfers
      unto _______________________ whose address is
      _______________________________________ and whose taxpayer identification number
      is _________________the undersigned’s right, title and interest in and to the
      Warrant issued by Reed’s, Inc., a Delaware corporation (the “Company”)
      to
      purchase _______ shares of the Company’s Common Stock, and does hereby
      irrevocably constitute and appoint __________________________ attorney to
      transfer said Warrant on the books of the Company with full power of
      substitution in the premises.

     

    In
      connection with such sale, assignment, transfer or other disposition of this
      Warrant, the undersigned hereby confirms that:

     

    
      	 	o	
              such
                sale, transfer or other disposition may be effected without registration
                or qualification (under the Securities Act as then in effect and
                any
                applicable state securities law then in effect) of this Warrant or
                the
                shares of capital stock of the Company issuable thereunder and has
                attached hereto a written opinion of the undersigned’s counsel to that
                effect; or

            

    

     

    
      	 	o	
              such
                sale, transfer or other disposition has been registered under the
                Securities Act of 1933, as amended, and registered and/or qualified
                under
                all applicable state securities
                laws.

            

    

    

     

    _______________

    (Date)

     

    __________________________________________

    (Signature)

    

    
      	
              NOTICE:
                Signature
                must correspond in all respects with the name as written upon the
                face of
                the Warrant in every particular without alteration or any change
                whatever.Unassociated Document

     

     

    TRIBE
      WORKS, INC.

     

    2004
      EMPLOYEE STOCK INCENTIVE PLAN

     

    As
      Adopted March 24, 2004

     

    
      	
              1.

            	
              PURPOSE.

            

    

     

    The
      purpose of this Plan is to provide incentives to attract, retain and motivate
      eligible persons whose present and potential contributions are important to
      the
      success of the Company, its Parent and Subsidiaries, by offering them an
      opportunity to participate in the Company’s future performance through awards of
      Options, Restricted Stock and Stock Bonuses. Capitalized terms not defined
      in
      the text are defined in Section 2.

     

    
      	
              2.

            	
              DEFINITIONS.

            

    

     

    As
      used
      in this Plan, the following terms will have the following meanings:

     

    “AWARD”
means
      any award under this Plan, including any Option, Restricted Stock or Stock
      Bonus.

     

    “AWARD
      AGREEMENT”
means,
      with respect to each Award, the signed written agreement between the Company
      and
      the Participant setting forth the terms and conditions of the
      Award.

     

    “BOARD”
means
      the Board of Directors of the Company.

     

    “CAUSE”
means
      any cause, as defined by applicable law, for the termination of a Participant’s
      employment with the Company or a Parent or Subsidiary of the
      Company.

     

    “CODE”
means
      the Internal Revenue Code of 1986, as amended.

     

    “COMPANY”
means
      Tribeworks, Inc., a Delaware corporation, or any successor
      corporation.

     

    “DISABILITY”
means
      a
      disability, whether temporary or permanent, partial or total, as determined
      by
      the Board.

     

    “EXCHANGE
      ACT”
means
      the Securities Exchange Act of 1934, as amended.

     

    “EXERCISE
      PRICE”
means
      the price at which a holder of an Option may purchase the Shares issuable upon
      exercise of the Option.

     

    “FAIR
      MARKET VALUE”
means,
      as of any date, the value of a share of the Company’s Common Stock determined as
      follows:

     

    
      
        
        

      

      
        B-1

        
          

        

      

      
        
        

      

    

     

    
      	 	
              (a)

            	
              if
                such Common Stock is publicly traded and is then listed on a national
                securities exchange, its closing price on the date of determination
                on the
                principal national securities exchange on which the Common Stock
                is listed
                or admitted to trading as reported in The Wall Street
                Journal;

            

    

     

    
      	 	
              (b)

            	
              if
                such Common Stock is quoted on the NASDAQ National Market, its closing
                price on the NASDAQ National Market on the date of determination
                as
                reported in The Wall Street
                Journal;

            

    

     

    
      	 	
              (c)

            	
              if
                such Common Stock is publicly traded but is not listed or admitted
                to
                trading on a national securities exchange, the average of the closing
                bid
                and asked prices on the date of determination as reported by Bloomberg,
                L.P.;

            

    

     

    
      	 	
              (d)

            	
              in
                the case of an Award made on the Effective Date, the price per share
                at
                which shares of the Company’s Common Stock are initially offered for sale
                to the public by the Company’s underwriters in the initial public offering
                of the Company’s Common Stock pursuant to a registration statement filed
                with the SEC under the Securities Act;
                or

            

    

     

    
      	 	
              (e)

            	
              if
                none of the foregoing is applicable, by the Board in good
                faith.

            

    

     

    “INSIDER”
means
      an officer or director of the Company or any other person whose transactions
      in
      the Company’s Common Stock are subject to Section 16 of the Exchange
      Act.

     

    “OPTION”
means
      an award of an option to purchase Shares pursuant to Section 6.

     

    “PARENT”
means
      any corporation (other than the Company) in an unbroken ‘chain of corporations
      ending with the Company if each of such corporations other than the Company
      owns
      stock possessing 50% or more of the total combined voting power of all classes
      of stock in one of the other corporations in such chain.

     

    “PARTICIPANT”
means
      a
      person who receives an Award under this Plan.

     

    “PERFORMANCE
      FACTORS”
means
      the factors selected by the Board, in its sole and absolute discretion, from
      among the following measures to determine whether the performance goals
      applicable to Awards have been satisfied:

     

    
      	 	
              (a)

            	
              Net
                revenue and/or net revenue growth;

            

    

     

    
      	 	
              (b)

            	
              Earnings
                before income taxes and amortization and/or earnings before income
                taxes
                and amortization growth;

            

    

     

    
      	 	
              (c)

            	
              Operating
                income and/or operating income
                growth;

            

    

     

    
      	 	
              (d)

            	
              Net
                income and/or net income growth;

            

    

     

    
      	 	
              (e)

            	
              Earnings
                per share and/or earnings per share
                growth;

            

    

     

    
      
        
        

      

      
        B-2

        
          

        

      

      
        
        

      

    

     

    
      	 	
              (f)

            	
              Total
                stockholder return and/or total stockholder return
                growth;

            

    

     

    
      	 	
              (g)

            	
              Return
                on equity;

            

    

     

    
      	 	
              (h)

            	
              Operating
                cash flow return on income;

            

    

     

    
      	 	
              (i)

            	
              Adjusted
                operating cash flow return on
                income;

            

    

     

    
      	 	
              (j)

            	
              Economic
                value added; and

            

    

     

    
      	 	
              (k)

            	
              Individual
                confidential business objectives.

            

    

     

    “PERFORMANCE
      PERIOD”
means
      the period of service determined by the Board, not to exceed five years, during
      which years of service or performance is to be measured for Restricted Stock
      Awards or Stock Bonuses.

     

    “PLAN”
means
      this Tribeworks, Inc. 2004 Employee Stock Incentive Plan, as amended from time
      to time.

     

    “RESTRICTED
      STOCK AWARD”
means
      an award of Shares pursuant to Section 7.

     

    “SEC”
means
      the Securities and Exchange Commission.

     

    “SECURITIES
      ACT”
means
      the Securities Act of 1933, as amended.

     

    “SHARES”
means
      shares of the Company’s Common Stock reserved for issuance under this Plan, as
      adjusted pursuant to Sections 3 and 19, and any successor security.

     

    “STOCK
      BONUS”
means
      an award of Shares, or cash in lieu of Shares, pursuant to Section
      8.

     

    “SUBSIDIARY”
means
      any corporation (other than the Company) in an unbroken chain of corporations
      beginning with the Company if each of the corporations other than the last
      corporation in the unbroken chain owns stock possessing 50% or more of the
      total
      combined voting power of all classes of stock in one of the other corporations
      in such chain.

     

    “TERMINATION”
      or “TERMINATED”
means,
      for purposes of this Plan with respect to a Participant, that the Participant
      has for any reason ceased to provide services as an employee, officer, director,
      consultant, independent contractor, or advisor to the Company or a Parent or
      Subsidiary of the Company. An employee will not be deemed to have ceased to
      provide services in the case of (i) sick leave, (ii) military leave, or (iii)
      any other leave of absence approved by the Company, provided that such leave
      is
      for a period of not more than 90 days, unless reemployment upon the expiration
      of such leave is guaranteed by contract or statute or unless provided otherwise
      pursuant to a formal policy adopted from time to time by the Company and issued
      and promulgated to employees in writing. In the case of any employee on an
      approved leave of absence, the Board may make such provisions, respecting
      suspension of vesting of the Award while on leave from the employ of the Company
      or a Subsidiary as it may deem appropriate, except that in no event may an
      Option be exercised after the expiration of the term set forth in the Option
      agreement. The Board will have sole discretion to determine whether a
      Participant has ceased to provide services and the effective date on which
      the
      Participant ceased .to provide services (the “TERMINATION DATE”).

     

    
      
        
        

      

      
        B-3

        
          

        

      

      
        
        

      

       

    

    “UNVESTED
      SHARES”
means
      “Unvested Shares” as defined in the Award Agreement.

     

    “VESTED
      SHARES”
means
      “Vested Shares” as defined in the Award Agreement.

     

    
      	
              3.

            	
              SHARES
                SUBJECT TO THE PLAN.

            

    

     

    3.1 Number
      of Shares Available.
      Subject
      to Sections 3.2 and 19, the total aggregate number of Shares reserved and
      available for grant and issuance pursuant to this Plan will be 25% of the shares
      of common stock outstanding of Tribeworks, Inc., as determined from time to
      time
      and will include Shares that are subject to: (a) issuance upon exercise of
      an
      Option but cease to be subject to such Option for any reason other than exercise
      of such Option; (b) an Award granted hereunder but forfeited or repurchased
      by
      the Company at the original issue price; and (c) an Award that otherwise
      terminates without Shares being issued. At all times the Company, shall reserve
      and keep available a sufficient number of Shares as shall be required to satisfy
      the requirements of all outstanding Options granted under this Plan and all
      other outstanding but unvested Awards granted under this Plan.

     

    3.2 Adjustment
      of Shares.
      In the
      event that the number of outstanding shares is changed by a stock dividend,
      recapitalization, stock split, reverse stock split, subdivision, combination,
      reclassification or similar change in the capital structure of the Company
      without consideration, then (a) the number of Shares reserved for issuance
      under
      this Plan, (b) the Exercise Prices of and number of Shares subject to
      outstanding Options, and (c) the number of Shares subject to other outstanding
      Awards will be proportionately adjusted, subject to any required action by
      the
      Board or the stockholders of the Company and compliance with applicable
      securities laws; provided, however, that fractions of a Share will not be issued
      but will either be replaced by a cash payment equal to the Fair Market Value
      of
      such fraction of a Share or will be rounded up to the nearest whole Share,
      as
      determined by the Board.

     

    
      	
              4.

            	
              ELIGIBILITY.

            

    

     

    ISOs
      (as
      defined in Section 6 below) may be granted only to employees (including officers
      and directors who are also employees) of the Company or of a Parent or
      Subsidiary of the Company. All other Awards may be granted to employees,
      officers, directors, consultants, independent contractors and advisors of the
      Company or any Parent or Subsidiary of the Company; provided such consultants,
      contractors and advisors render bona fide services not in connection with the
      offer and sale of securities in a capital-raising transaction.

     

    
      	
              5.

            	
              ADMINISTRATION.

            

    

     

    5.1 Board
      Authority.
      The
      Board will administer this Plan. Subject to the general purposes, terms and
      conditions of this Plan, the Board will have full power to implement and carry
      out this Plan. Without limitation, the Board will have the authority
      to:

     

    
      
        
        

      

      
        B-4

        
          

        

      

      
        
        

      

    

     

    
      	 	
              (a)

            	
              construe
                and interpret this Plan, any Award Agreement and any other agreement
                or
                document executed pursuant to this
                Plan;

            

    

     

    
      	 	
              (b)

            	
              prescribe,
                amend and rescind rules and regulations relating to this Plan or
                any
                Award;

            

    

     

    
      	 	
              (c)

            	
              select
                persons to receive Awards;

            

    

     

    
      	 	
              (d)

            	
              determine
                the form and terms of Awards;

            

    

     

    
      	 	
              (e)

            	
              determine
                the number of Shares or other consideration subject to
                Awards;

            

    

     

    
      	 	
              (f)

            	
              determine
                whether Awards will be granted singly, in combination with, in tandem
                with, in replacement of, or as alternatives to, other Awards under
                this
                Plan or any other incentive or compensation plan of the Company or
                any
                Parent or Subsidiary of the
                Company;

            

    

     

    
      	 	
              (g)

            	
              grant
                waivers of Plan or Award
                conditions;

            

    

     

    
      	 	
              (h)

            	
              determine
                the vesting, ability to exercise and payment of
                Awards;

            

    

     

    
      	 	
              (i)

            	
              correct
                any defect, supply any omission or reconcile any inconsistency in
                this
                Plan, any Award or any Award
                Agreement;

            

    

     

    
      	 	
              (j)

            	
              determine
                whether an Award has been earned;
                and

            

    

     

    
      	 	
              (k)

            	
              make
                all other determinations necessary or advisable for the administration
                of
                this Plan.

            

    

     

    5.2 Board
      Discretion.
      Any
      determination made by the Board with respect to any Award will be made at the
      time of grant of the Award or, unless in contravention of any express term
      of
      this Plan or Award, at any later time, and such determination will be final
      and
      binding on the Company and on all persons having an interest in any Award under
      this Plan. The Board may delegate to one or more officers of the Company the
      authority to grant an Award under this Plan to Participants who are not Insiders
      of the Company.

     

    
      	
              6.

            	
              OPTIONS.

            

    

     

    The
      Board
      may , grant Options to eligible persons and will determine whether such Options
      will be Incentive Stock Options within the meaning of the Code (“ISO”) or
      Nonqualified Stock Options (“NQSOS”), the number of Shares subject to the
      Option, the Exercise Price of the Option, the period during which the Option
      may
      be exercised, and all other terms and conditions of the Option, subject to
      the
      following:

     

    6.1 Form
      of Option Grant.
      Each
      Option granted under this Plan will be evidenced by an Award Agreement that
      will
      expressly identify the Option as an ISO or an NQSO (hereinafter referred to
      as
      the “STOCK OPTION AGREEMENT”), and will be in such form and contain such
      provisions (which need not be the same for each Participant) as the Board may
      from time to time approve, and which will comply with and be subject to the
      terms and conditions of this Plan.

     

    
      
        
        

      

      
        B-5

        
          

        

      

      
        
        

      

       

    

    6.2 Date
      of Grant.
      The
      date of grant of an Option will be the date on which the Board makes the
      determination to grant such Option, unless otherwise specified by the Board.
      The
      Stock Option Agreement and a copy of this Plan will be delivered to the
      Participant within a reasonable time after the granting of the
      Option.

     

    6.3 Exercise
      Period.
      Options
      may be exercisable within the times or upon the events determined by the Board
      as set forth in the Stock Option Agreement governing such Option; provided,
      however, that no Option will be exercisable after the expiration of ten (10)
      years from the date the Option is granted; and provided further that no ISO
      granted to a person who directly or by attribution owns more than ten percent
      (10%) of the total combined voting power of all classes of stock of the Company
      or of any Parent or Subsidiary of the Company (“TEN PERCENT STOCKHOLDER”) will
      be exercisable after the expiration of five (5) years from the date the ISO
      is
      granted. The Board also may provide for Options to become exercisable at one
      time or from time to time, periodically or otherwise, in such number of Shares
      or percentage of Shares as the Board determines.

     

    6.4 Exercise
      Price.
      The
      Exercise Price of an Option will be determined by the Board when the Option
      is
      granted and may be not less than 85% of the Fair Market Value of the Shares
      on
      the date of grant; provided that: (a) the Exercise Price of an ISO will be
      not
      less than 100% of the Fair Market Value of the Shares on the date of grant;
      and
      (b) the Exercise Price of any ISO granted to a Ten Percent Stockholder will
      not
      be less than 110% of the Fair Market Value of the Shares on the date of grant
      Payment for the Shares purchased may be made in accordance with Section 9 of
      this Plan.

     

    6.5 Method
      of Exercise.
      Options
      may be exercised only by delivery to the Company of a written stock option
      exercise agreement (the “EXERCISE AGREEMENT”) in a form approved by the Board,
      (which need not be the same for each Participant), stating the number of Shares
      being purchased, the restrictions imposed on the Shares purchased under such
      Exercise Agreement, if any, and such representations and agreements regarding
      Participant’s investment intent and access to information and other matters, if
      any, as may be required or desirable by the Company to comply with applicable
      securities laws, together with payment in full of the Exercise Price for the
      number of Shares being purchased.

     

    6.6 Termination.
      Notwithstanding the exercise periods set forth in the Stock Option Agreement,
      exercise of an Option will always be subject to the following:

     

    
      	 	
              (a)

            	
              If
                the Participant’s service is Terminated for any reason except death or
                Disability, then the Participant may exercise such Participant’s Options
                only to the extent that such Options would have been exercisable
                upon the
                Termination Date no later than three (3) months after the Termination
                Date
                (or such shorter or longer time period not exceeding five (5) years
                as may
                be determined by the Board, with any exercise beyond three (3) months
                after the Termination Date deemed to be an NQSO), but in any event,
                no
                later than the expiration date of the
                Options.

            

    

     

    
      
        
        

      

      
        B-6

        
          

        

      

      
        
        

      

    

     

    
      	 	
              (b)

            	
              If
                the Participant’s service is Terminated because of Participant’s death or
                Disability (or the Participant dies within three (3) months after
                a
                Termination other than for Cause or because of Participant’s Disability),
                then Participant’s Options may be exercised only to the extent that such
                Options would have been exercisable by Participant on the Termination
                Date
                and must be exercised by Participant (or Participant’s legal
                representative or authorized assignee) no later than twelve (12)
                months
                after the Termination Date (or such shorter or longer time period
                not
                exceeding five (5) years as may be determined by the Board, with
                any such
                exercise beyond (i) three (3) months after the Termination Date when
                the
                Termination is for any reason other than the Participant’s death or
                Disability, or (ii) twelve (12) months after the Termination Date
                when the
                Termination is for Participant’s death or Disability, deemed to be an
                NQSO), but in any event no later than the expiration date of the
                Options.

            

    

     

    
      	 	
              (c)

            	
              Notwithstanding
                the provisions in paragraph 6.6(a) above, if a Participant’s service is
                Terminated for Cause, neither the Participant, the Participant’s estate
                nor such other person who may then hold the Option shall be entitled
                to
                exercise any Option with respect to any Shares whatsoever, after
                Termination, whether or not after Termination the Participant may
                receive
                payment from the Company or Subsidiary for vacation pay, for services
                rendered prior to Termination, for services rendered for the day
                on which
                Termination occurs, for salary in lieu of notice, or for any other
                benefits. For the purpose of this paragraph, Termination shall be
                deemed
                to occur on the date when the Company dispatches notice or advice
                to the
                Participant that his service is
                Terminated.

            

    

     

    6.7 Limitations
      on Exercise.
      The
      Board may specify a reasonable minimum number of Shares that , may be purchased
      on any exercise of an Option, provided that such minimum number will not prevent
      Participant from exercising the Option for the full number of Shares for which
      it is then exercisable.

     

    6.8 Limitations
      on ISO.
      The
      aggregate Fair Market Value (determined as of the date of grant) of Shares
      with
      respect to which ISO are exercisable for the first time by a Participant during
      any calendar year (under this Plan or under any other incentive stock option
      plan of the Company, Parent or Subsidiary of the Company) will not exceed
      $100,000. If the Fair Market Value of Shares on the date of grant with respect
      to which ISO are exercisable for the first time by a Participant during any
      calendar year exceeds $100,000, then the Options for the first $100,000 worth
      of
      Shares to become exercisable in such calendar year will be ISO and the Options
      for the amount in excess of $100,000 that become exercisable in that calendar
      year will be NQSOs. In the event that the Code or the regulations promulgated
      thereunder are amended after the Effective Date of this Plan to provide for
      a
      different limit on the Fair Market Value of Shares permitted to be subject
      to
      ISO, such different limit will be automatically incorporated herein and will
      apply to any Options granted after the effective date of such
      amendment.

     

    
      
        
        

      

      
        B-7

        
          

        

      

      
        
        

      

       

    

    6.9 Modification,
      Extension or Renewal.
      The
      Board may modify, extend or renew outstanding Options and authorize the grant
      of
      new Options in substitution therefor, provided that any such action may not,
      without the written consent of a Participant, impair any of such Participant’s
      rights under any Option previously granted. Any outstanding ISO that is
      modified, extended, renewed or otherwise altered will be treated in accordance
      with Section 424(h) of the Code. The Board may reduce the Exercise Price of
      outstanding Options without the consent of Participants affected by a written
      notice to them; provided, however, that the Exercise Price may not be reduced
      below the minimum Exercise Price that would be permitted under Section 6.4
      of
      this Plan for Options granted on the date the action is taken to reduce the
      Exercise Price.

     

    6.10 No
      Disqualification.
      Notwithstanding any other provision in this Plan, no term of this Plan relating
      to ISO will be interpreted, amended or altered, nor will any discretion or
      authority granted under this Plan be exercised, so as to disqualify this Plan
      under Section 422 of the Code or, without the consent of the Participant
      affected, to disqualify any ISO under Section 422 of the Code.

     

    
      	
              7.

            	
              STOCK
                AWARD.

            

    

     

    A
      Stock
      Award is an offer by the Company to sell to an eligible person Shares that
      may
      or may not be subject to restrictions. The Board will determine to whom an
      offer
      will be made, the number of Shares the person may purchase, the price to be
      paid
      (the “PURCHASE PRICE”), the restrictions to which the Shares will be subject,
      and all other terms and conditions of the Stock Award, subject to the
      following:

     

    7.1 Form
      of Stock Award.
      All
      purchases under a Stock Award made pursuant to this Plan will be evidenced
      by an
      Award Agreement (the “STOCK PURCHASE AGREEMENT”) that will be in such form
      (which need not be the same for each Participant) as the Board will from time
      to
      time approve, and will comply with and be subject to the terms and conditions
      of
      this Plan. The offer of Stock will be accepted by the Participant’s execution
      and delivery of the Stock Purchase Agreement and full payment for the Shares
      to
      the Company within thirty (30) days from the date the Stock Purchase Agreement
      is delivered to the person. If such person does not execute and deliver the
      Stock Purchase Agreement along with full payment for the Shares to the Company
      within thirty (30) days, then the offer will terminate, unless otherwise
      extended by the Board.

     

    7.2 Purchase
      Price.
      The
      Purchase Price of Shares sold pursuant to a Stock Award will be determined
      by
      the Board on the date the Stock Award is granted, except in the case of a sale
      to a Ten Percent Stockholder, in which case the Purchase Price will be 100%
      of
      the Fair Market Value. Payment of the Purchase Price must be made in accordance
      with Section 9 of this Plan.

     

    7.3 Terms
      of Stock Awards.
      Stock
      Awards shall be subject to such restrictions as the Board may impose. These
      restrictions may be based upon completion, of a specified number of years of
      service with the Company or upon completion of the performance goals as set
      out
      in advance in the Participant’s individual Stock Purchase Agreement. Stock
      Awards may vary from Participant to Participant and between groups of
      Participants. Prior to the grant of a Stock Award, the Board shall: (a)
      determine the nature, length and starting date of any Performance Period for
      the
      Stock Award; (b) select from among the Performance Factors to be used to measure
      performance goals, if any; and (c) determine the number of Shares that may
      be
      awarded to the Participant. Prior to the payment of any Stock Award, the Board
      shall determine the extent to which such Stock Award has been earned.
      Performance Periods may overlap and Participants may participate simultaneously
      with respect to Stock Awards that are subject to different Performance Periods
      and have different performance goals and other criteria.

     

    
      
        
        

      

      
        B-8

        
          

        

      

      
        
        

      

    

     

    7.4 Termination
      During Performance Period.
      If a
      Participant is Terminated during a Performance Period for any reason, then
      such
      Participant will be entitled to payment (whether in Shares, cash or otherwise)
      with respect to the Stock Award only to the extent earned as of the date of
      Termination in accordance with the Stock Purchase Agreement, unless the Board
      determines otherwise.

     

    
      	
              8.

            	
              STOCK
                BONUSES.

            

    

     

    8.1 Awards
      of Stock Bonuses.
      A Stock
      Bonus is an award of Shares (which may consist of Restricted Stock) for
      extraordinary services rendered, to the Company or any Parent or Subsidiary
      of
      the Company. A Stock Bonus will be awarded pursuant to an Award Agreement (the
      “STOCK BONUS AGREEMENT”) that will be in such form (which need not be the same
      for each Participant) as the Board will from time to time approve, and will
      comply with and be subject to the terms and conditions of this Plan. A Stock
      Bonus may be awarded upon satisfaction of such performance goals as are set
      out
      in advance in the Participant’s individual Award Agreement (the “PERFORMANCE
      STOCK BONUS AGREEMENT”) that will be in such form (which need not be the same
      for each Participant) as the Board will from time to time approve, and will
      comply with and be subject to the terms and conditions of this Plan. Stock
      Bonuses may vary from Participant to Participant and between groups of
      Participants, and may be based upon the achievement of the Company, Parent
      or
      Subsidiary and/or individual performance factors or upon such other criteria
      as
      the Board may determine.

     

    8.2 Terms
      of Stock Bonuses.
      The
      Board will determine the number of Shares to be awarded to the Participant.
      If
      the Stock Bonus is being earned upon the satisfaction of performance goals
      pursuant to a Performance Stock Bonus Agreement, then the Board will: (a)
      determine the nature, length and starting date of any Performance Period for
      each Stock Bonus; (b) select from among the Performance Factors to be used
      to
      measure the performance, if any; and (c) determine the number of Shares that
      may
      be awarded to the Participant. Prior to the payment of any Stock Bonus, the
      Board shall determine the extent to which such Stock Bonuses have been earned.
      Performance Periods may overlap and Participants may participate simultaneously
      with respect to Stock Bonuses that are subject to different Performance Periods
      and different performance goals and other criteria. The number of Shares may
      be
      fixed or may vary in accordance with such performance goals and criteria as
      may
      be determined by the Board. The Board may adjust the performance goals
      applicable to the Stock Bonuses to take into account changes in law and
      accounting or tax rules and to make such adjustments as the Board deems
      necessary or appropriate to reflect the impact of extraordinary or unusual
      items, events or circumstances to avoid windfalls or hardships.

     

    8.3 Form
      of Payment.
      The
      earned portion of a Stock Bonus may be paid to the Participant by the Company
      either currently or on a deferred basis, with such interest or dividend
      equivalent, if any, as the Board may determine. Payment may be made in the
      form
      of cash or whole Shares or a combination thereof, either in a lump sum payment
      or in installments, all as the Board will determine.

     

    
      
        
        

      

      
        B-9

        
          

        

      

      
        
        

      

    

     

    
      	
              9.

            	
              PAYMENT
                FOR SHARE PURCHASES.

            

    

     

    9.1 Payment.
      Payment
      for Shares purchased pursuant to this Plan may be made in cash (by check) or,
      where expressly approved for the Participant by the Board and where permitted
      by
      law:

     

    
      	 	
              (a)

            	
              by
                cancellation of indebtedness of the Company to the
                Participant;

            

    

     

    
      	 	
              (b)

            	
              by
                surrender of shares that either: (1) have been owned by Participant
                for
                more than one year and have been paid for within the meaning of Rule
                144
                of the Securities Act of 1933 (and, if such shares were purchased
                from the
                Company by use of a promissory note, such note has been fully paid
                with
                respect to such shares); or (2) were obtained by Participant in the
                public
                market;

            

    

     

    
      	 	
              (c)

            	
              by
                waiver of compensation due or accrued to the Participant for services
                rendered;

            

    

     

    
      	 	
              (d)

            	
              with
                respect only to purchases upon exercise of an Option, and provided
                that a
                public market for the Company’s stock
                exists:

            

    

     

    
      	 	
              (1)

            	
              through
                a “same day sale” commitment from the Participant and a broker-dealer that
                is a member of the National Association of Securities Dealers (an
“NASD
                DEALER”) whereby the Participant irrevocably elects to exercise the Option
                and to sell a portion of the Shares so purchased to pay for the Exercise
                Price, and whereby the NASD Dealer irrevocably commits upon receipt
                of
                such Shares to forward the Exercise Price directly ,to the Company;
                or

            

    

     

    
      	 	
              (2)

            	
              through
                a “margin” commitment from the Participant and a NASD Dealer whereby the
                Participant irrevocably elects to exercise the Option and to pledge
                the
                Shares so purchased to the NASD Dealer in a margin account as security
                for
                a loan from the NASD Dealer in the amount of the Exercise Price,
                and
                whereby the NASD Dealer irrevocably commits upon receipt of such
                Shares to
                forward the Exercise Price directly to the Company;
                or

            

    

     

    
      	 	
              (e)

            	
              by
                any combination of the foregoing.

            

    

     

    
      	
              10.

            	
              WITHHOLDING
                TAXES.

            

    

     

    10.1 Withholding
      Generally.
      Whenever Shares are to be issued in satisfaction of Awards granted under this
      Plan, the Company may require the Participant to remit to the Company an amount
      sufficient to satisfy federal, state and local withholding tax requirements
      prior to the delivery of any certificate or certificates for such Shares.
      Whenever, under this Plan, payments in satisfaction of Awards are to be made
      in
      cash, such payment will be net of an amount sufficient to satisfy federal,
      state, and local withholding tax requirements.

     

    
      
        
        

      

      
        B-10

        
          

        

      

      
        
        

      

    

     

    10.2 Stock
      Withholding.
      When,
      under applicable tax laws, a participant incurs tax liability in connection
      with
      the exercise or vesting of any Award that is subject to tax withholding and
      the
      Participant is obligated to pay the Company the amount required to be withheld,
      the Board may allow the Participant to satisfy the minimum withholding tax
      obligation by electing to have the Company withhold from the Shares to be issued
      that number of Shares having a Fair Market Value equal to the minimum amount
      required to be withheld, determined on the date that the amount of tax to be
      withheld is to be determined. All elections by a Participant to have Shares
      withheld for this purpose will be made in accordance with the requirements
      established by the Board and be in writing in a form acceptable to the
      Board.

     

    
      	
              11.

            	
              PRIVILEGES
                OF STOCK OWNERSHIP.

            

    

     

    11.1 Voting
      and Dividends.
      No
      Participant will have any of the rights of a stockholder with respect to any
      Shares until the Shares are issued to the Participant. After Shares are issued
      to the Participant, the Participant will be a stockholder and will have all
      the
      rights of a stockholder with respect to such Shares, including, the right to
      vote and receive all dividends or other distributions made or paid with respect
      to such Shares; provided, that if such Shares are Restricted Stock, then any
      new, additional or different securities the Participant may become entitled
      to
      receive with respect to such Shares by virtue of a stock dividend, stock split
      or any other change in the corporate or capital structure of the Company will
      be
      subject to the same restrictions as the Restricted Stock; provided, further,
      that the Participant will have no right to retain such stock dividends or stock
      distributions with respect to Shares that are repurchased at the Participant’s
      Purchase Price or Exercise Price pursuant to Section 12.

     

    11.2 Financial
      Statements.
      Pursuant to regulation 260.140.46 of the Rules of the California Corporations
      Commissioner, the Company will provide financial statements to each Participant
      prior to such Participant’s purchase of Shares under this Plan, and to each
      Participant annually during the period such Participant has Awards outstanding;
      provided, however, the Company will not be required to provide such financial
      statements to Participants whose services in connection with the Company assure
      them access to equivalent information.

     

    
      	
              12.

            	
              TRANSFERABILITY.

            

    

     

    Awards
      granted under this Plan, and any interest therein, will not be transferable
      or
      assignable by Participant, and may not be made subject to execution, attachment
      or similar process, other than by will or by the laws of descent and
      distribution. During the lifetime of the Participant an Award will be
      exercisable only by the Participant. During the lifetime of the Participant,
      any
      elections with respect to an Award may be made only by the Participant unless
      otherwise determined by the Board and set forth in the Award Agreement with
      respect to Awards that are not ISOs.

     

    
      
        
        

      

      
        B-11

        
          

        

      

      
        
        

      

    

     

    
      	
              13.

            	
              RESTRICTIONS
                ON SHARES.

            

    

     

    At
      the
      discretion of the Board, the Company may reserve to itself and/or its
      assignee(s) in the Award Agreement a right to repurchase a portion of or all
      Unvested Shares held by a Participant following such Participant’s Termination
      at any time within ninety (90) days after the later of (a) Participant’s
      Termination Date, or (b) the date Participant purchases Shares under this Plan.
      Such repurchase by the Company shall be for cash and/or cancellation of purchase
      money indebtedness, and the price per share shall be the Participant’s Exercise
      Price or the Purchase Price, as applicable.

     

    
      	
              14.

            	
              CERTIFICATES.

            

    

     

    All
      certificates for Shares or other securities delivered under this Plan will
      be
      subject to such stock transfer orders, legends and other restrictions as the
      Board may deem necessary or advisable, including restrictions under any
      applicable federal, state or foreign securities law, or any rules, regulations
      and other requirements of the SEC or any stock exchange or automated quotation
      system upon which the Shares may be listed or quoted.

     

    
      	
              15.

            	
              ESCROW;
                PLEDGE OF SHARES.

            

    

     

    To
      enforce any restrictions on a Participant’s Shares, the Board may require the
      Participant to deposit all certificates representing Shares, together with
      stock
      powers or other instruments of transfer approved by the Board appropriately
      endorsed in blank, with the Company or an agent designated by the Company to
      hold in escrow until such restrictions have lapsed or terminated, and the Board
      may cause a legend or legends referencing such restrictions to be placed on
      the
      certificates. Any Participant who is permitted to execute a promissory note
      as
      partial or full consideration for the purchase of Shares under this Plan will
      be
      required to pledge and deposit with the Company all or part of the Shares so
      purchased as collateral to secure the payment of Participant’s obligation to the
      Company under the promissory note; provided, however, that the Board may require
      or accept other or additional forms of collateral to secure the payment of
      such
      obligation and, in any event, the Company will have full recourse against the
      Participant under the promissory note notwithstanding any pledge of the
      Participant’s Shares or other collateral. In connection with any pledge of the
      Shares, Participant will ,be required to execute and deliver a written pledge
      agreement in such form as the Board will from time to time approve. The Shares
      purchased with the promissory note may be released from the pledge on a pro
      rata
      basis as the promissory note is paid.

     

    
      	
              16.

            	
              EXCHANGE
                AND BUYOUT OF AWARDS.

            

    

     

    The
      Board
      may, at any time or from time to time, authorize the Company, with the consent
      of the respective Participants, to issue new Awards in exchange for the
      surrender and cancellation of any or all outstanding Awards. The Board may
      at
      any time buy from a Participant an Award previously granted with payment in
      cash, Shares (including Restricted Stock) or other consideration, based on
      such
      terms and conditions as the Board and the Participant may agree.

     

    
      
        
        

      

      
        B-12

        
          

        

      

      
        
        

      

    

     

    
      	
              17.

            	
              SECURITIES
                LAW AND OTHER REGULATORY
                COMPLIANCE.

            

    

     

    An
      Award
      will not be effective unless such Award is in compliance with all applicable
      federal and state securities laws, rules and regulations of any governmental
      body, and the requirements of any stock exchange or automated quotation system
      upon which the Shares may then be listed or quoted, as they are in effect on
      the
      date of grant of the Award and also on the date of exercise or other issuance.
      Notwithstanding any other provision in this Plan, the Company will have no
      obligation to issue or deliver certificates for Shares under this Plan prior
      to:
      (a) obtaining any approvals from governmental agencies that the Company
      determines are necessary or advisable; and/or (b) completion of any registration
      or other qualification of such Shares under any state or federal law or ruling
      of any governmental body that the Company determines to be necessary or
      advisable. The Company will be under no obligation to register the Shares with
      the SEC or to effect compliance with the registration, qualification or listing
      requirements of any state securities laws, stock exchange or automated quotation
      system, and the Company will have no liability for any inability or failure
      to
      do so.

     

    
      	
              18.

            	
              NO
                OBLIGATION TO EMPLOY.

            

    

     

    Nothing
      in this Plan or any Award granted under this Plan will confer or be deemed
      to
      confer on any Participant any right to continue in the employ of, or to continue
      any other relationship with, the Company or any Parent or Subsidiary of the
      Company or limit in any way the right of the Company or any Parent or Subsidiary
      of the Company to terminate Participant’s employment or other relationship at
      any time, with or without cause.

     

    
      	
              19.

            	
              CORPORATE
                TRANSACTIONS.

            

    

     

    19.1 Assumption
      or Replacement of Awards by Successor.
      In the
      event of (a) a dissolution or liquidation of the Company, (b) a merger or
      consolidation in which the Company is not the surviving corporation (other
      than
      a merger or consolidation with a wholly-owned subsidiary, a reincorporation
      of
      the Company in a different jurisdiction, or other transaction in which there
      is
      no substantial change in the stockholders of the Company or their relative
      stock
      holdings and the Awards granted under this Plan are assumed, converted or
      replaced by the successor corporation, which assumption will be binding on
      all
      Participants), (c) a merger in which the Company is the surviving corporation
      but after which the stockholders of the Company immediately prior to such merger
      (other than any stockholder that merges, or which owns or controls another
      corporation that merges, with the Company in such merger) cease to own their
      shares or other equity interest in the Company, (d) the sale of substantially
      all of the assets of the Company, or (e) the acquisition, sale, or transfer
      of
      more than 50% of the outstanding shares of the Company by tender offer or
      similar transaction, any or all outstanding Awards may be assumed, converted
      or
      replaced by the successor corporation (if any), which assumption, conversion
      or
      replacement will be binding on all Participants. In the alternative, the
      successor corporation may substitute equivalent Awards or provide substantially
      similar consideration to Participants as was provided to stockholders (after
      taking into account the existing provisions of the Awards). The successor
      corporation may also issue, in place of outstanding Shares of the Company held
      by the Participant, substantially similar shares or other property subject
      to
      repurchase restrictions no less favorable to the Participant. In the event
      such
      successor corporation (if any) refuses to assume or substitute Awards, as
      provided above, pursuant to a transaction described in this Subsection 19.1,
      such Awards will expire on such transaction at such time and on such conditions
      as the Board will determine. Notwithstanding anything in this Plan to the
      contrary, the Board may provide that the vesting of any or all Awards granted
      pursuant to this Plan will accelerate upon a transaction described in this
      Section 19. If the Board exercises such discretion with respect to Options,
      such
      Options will become exercisable in full prior to the consummation of such event
      at such time and on such conditions as the Board determines, and if such Options
      are not exercised prior to the consummation of the corporate transaction, they
      shall terminate at such time as determined by the Board.

     

    
      
        
        

      

      
        B-13

        
          

        

      

      
        
        

      

    

     

    19.2 Other
      Treatment of Awards.
      Subject
      to any greater rights granted to Participants under the foregoing provisions
      of
      this Section 19, in the event of the occurrence of any transaction described
      in
      Section 19.1, any outstanding Awards will be treated as provided in the
      applicable agreement or plan of merger, consolidation, dissolution, liquidation,
      or sale of assets.

     

    19.3 Assumption
      of Awards by the Company.
      The
      Company, from time to time, also may substitute or assume outstanding awards
      granted by another company, whether in connection with an acquisition of such
      other company or otherwise, by either: (a) granting an Award under this Plan
      in
      substitution of such other company’s award; or (b) assuming such award as if it
      had been granted under this Plan if the terms of such assumed award could be
      applied to an Award granted under this Plan. Such substitution or assumption
      will be permissible if the holder of the substituted or assumed award would
      have
      been eligible to be granted an Award under this Plan if the other company had
      applied the rules of this Plan to such grant. In the event the Company assumes
      an award granted by another company, the terms and conditions of such award
      will
      remain unchanged (except that the exercise price and the number and nature
      of
      Shares issuable upon exercise of any such option will be adjusted appropriately
      pursuant to Section 424(a) of the Code). In the event the Company elects to
      grant a new Option rather than assuming an existing option, such new Option
      may
      be granted with a similarly adjusted Exercise Price.

     

    
      	
              20.

            	
              ADOPTION
                AND STOCKHOLDER APPROVAL.

            

    

     

    This
      Plan
      will become effective on the date on which it is adopted by the Board (the
      “EFFECTIVE DATE”). This Plan shall be approved by the stockholders of the
      Company within twelve (12) months before or after the date this Plan is adopted
      by the Board. Upon the Effective Date, the Board may grant Awards pursuant
      to
      this Plan. In the event that stockholder approval of this Plan is not obtained
      within the time period provided herein, all Awards granted hereunder shall
      be
      cancelled, any Shares issued pursuant to any Awards shall be cancelled and
      any
      purchase of Shares issued hereunder shall be rescinded.

     

    
      	
              21.

            	
              TERM
                OF PLAN/GOVERNING LAW.

            

    

     

    Unless
      earlier terminated as provided herein, this Plan will terminate ten (10) years
      from the date this Plan is adopted by the Board or, if earlier, the date of
      stockholder approval. This Plan and all agreements thereunder shall be governed
      by and construed in accordance with the laws of the State of
      California.

     

    
      
        
        

      

      
        B-14

        
          

        

      

      
        
        

      

    

     

    
      	
              22.

            	
              AMENDMENT
                OR TERMINATION OF PLAN.

            

    

     

    The
      Board
      may at any time terminate or amend this Plan in any respect, including without
      limitation amendment of any form of Award Agreement or instrument to be executed
      pursuant to this Plan; provided, however, that the Board will not, without
      the
      approval -of the stockholders of the Company, amend this Plan in any manner
      that
      requires such stockholder approval.

     

    
      	
              23.

            	
              NONEXCLUSIVITY
                OF THE PLAN.

            

    

     

    Neither
      the adoption of this Plan by the Board, the submission of this Plan to the
      stockholders of the Company for approval, nor any provision of this Plan will
      be
      construed as creating any limitations on the power of the Board to adopt such
      additional compensation arrangements as it may deem desirable, including,
      without limitation, the granting of stock options and bonuses otherwise than
      under this Plan, and such arrangements may be either generally applicable or
      applicable only in specific cases.

     

    
      	
              24.

            	
              ACTION
                BY BOARD.

            

    

     

    Any
      action permitted or required to be taken by the Board or any decision or
      determination permitted or required to be made by the Board pursuant to this
      Plan shall be taken or made in the Board’s sole and absolute
      discretion.

     

    
      
        
        

      

      
        B-15

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