Document:

2003 Equity Incentive Plan

 Exhibit 10.6 
  
 DAYSTAR TECHNOLOGIES, INC. 
  
 EQUITY INCENTIVE PLAN 
  
 ARTICLE 1. INTRODUCTION. 
  
 The purpose of the Plan is to promote the long-term success of the Company and the creation of stockholder value by (a) encouraging Employees, Outside
Directors and Consultants to focus on critical long-range objectives, (b) encouraging the attraction and retention of Employees, Outside Directors and Consultants with exceptional qualifications and (c) linking Employees, Outside Directors and
Consultants directly to stockholder interests through increased stock ownership. The Plan seeks to achieve this purpose by providing for Awards in the form of Restricted Shares, Stock Units, Options (which may constitute incentive stock options or
nonstatutory stock options) or stock appreciation rights. 
  
 The
Plan shall be governed by, and construed in accordance with, the laws of the State of Delaware (except their choice-of-law provisions). 
  
 ARTICLE 2. ADMINISTRATION. 
  
 2.1 Committee Composition. The Committee shall administer the Plan. The Committee shall consist exclusively of two or more directors of the
Company, who shall be appointed by the Board. In addition, at all times that the Company is subject to Section 16 of the Exchange Act, the composition of the Committee shall satisfy: 
  
 (a) Such requirements as the Securities and Exchange Commission may establish for administrators acting
under plans intended to qualify for exemption under Rule 16b-3 (or its successor) under the Exchange Act; and 
  
 (b) Such requirements as the Internal Revenue Service may establish for outside directors acting under plans intended to qualify for
exemption under section 162(m)(4)(C) of the Code. 
  
 2.2
Committee Responsibilities. The Committee shall (a) select the Employees, Outside Directors and Consultants who are to receive Awards under the Plan, (b) determine the type, number, vesting requirements and other features and conditions of such
Awards, (c) interpret the Plan and (d) make all other decisions relating to the operation of the Plan. The Committee may adopt such rules or guidelines as it deems appropriate to implement the Plan. The Committee’s determinations under the Plan
shall be final and binding on all persons. 
  
 2.3 Committee
for Non-Officer Grants. The Board may also appoint a secondary committee of the Board, which shall be composed of one or more directors of the Company who need not satisfy the requirements of Section 2.1. Such secondary committee may administer
the Plan with respect to Employees and Consultants who are not considered officers or directors of the Company under section 16 of the Exchange Act, may grant Awards under the Plan to such Employees and Consultants and may determine all features and
conditions of such Awards. Within the limitations of this Section 2.3, any reference in the Plan to the Committee shall include such secondary committee. 

 ARTICLE 3. SHARES AVAILABLE FOR GRANTS. 
  
 3.1 Basic Limitation. Common Shares issued pursuant to the Plan may be authorized but unissued shares. The aggregate
number of Options, SARs, Stock Units and Restricted Shares awarded under the Plan shall not exceed 525,000, subject to adjustment pursuant to Article 10. 
  
 3.2 Additional Shares. If Restricted Shares or Common Shares issued upon the exercise of Options are forfeited, then such Common Shares shall again
become available for Awards under the Plan. If Stock Units, Options or SARs are forfeited or terminate for any other reason before being exercised, then the corresponding Common Shares shall again become available for Awards under the Plan. If Stock
Units are settled, then only the number of Common Shares (if any) actually issued in settlement of such Stock Units shall reduce the number available under Section 3.1 and the balance shall again become available for Awards under the Plan. If SARs
are exercised, then only the number of Common Shares (if any) actually issued in settlement of such SARs shall reduce the number available under Section 3.1 and the balance shall again become available for Awards under the Plan. The foregoing
notwithstanding, the aggregate number of Common Shares that may be issued under the Plan upon exercise of ISOs shall not be increased when Restricted Shares or other Common Shares are forfeited. 
  
 3.3 Dividend Equivalents. Any dividend equivalents paid or credited
under the Plan shall not be applied against the number of Restricted Shares, Stock Units, Options or SARs available for Awards, whether or not such dividend equivalents are converted into Stock Units. 
  
 ARTICLE 4. ELIGIBILITY. 
  
 4.1 Incentive Stock Options. Only Employees who are common-law employees of the Company, a Parent or a Subsidiary
shall be eligible for the grant of ISOs. In addition, an Employee who owns more than 10% of the total combined voting power of all classes of outstanding stock of the Company or any of its Parents or Subsidiaries shall not be eligible for the grant
of an ISO unless the requirements set forth in section 422(c)(6) of the Code are satisfied. 
  
 4.2 Other Grants. Only Employees, Outside Directors and Consultants shall be eligible for the grant of Restricted Shares, Stock Units, NSOs or SARs. 
  
 ARTICLE 5. OPTIONS. 
  
 5.1 Stock Option Agreement. Each grant of an Option under the Plan shall be evidenced by a Stock Option Agreement between the Optionee and the
Company. Such Option shall be subject to all applicable terms of the Plan and may be subject to any other terms that are not inconsistent with the Plan. The Stock Option Agreement shall specify whether the Option is an ISO or an NSO. The provisions
of the various Stock Option Agreements entered into under the Plan need not be identical. Options may be granted in consideration of a reduction in the Optionee’s other compensation. A Stock Option Agreement may provide that a new Option will
be granted automatically to the Optionee when he or she exercises a prior Option and pays the Exercise Price in the form described in Section 6.2. 
  
  

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 5.2 Number of Shares. Each Stock Option Agreement shall specify the number of Common Shares
subject to the Option and shall provide for the adjustment of such number in accordance with Article 10. 
  
 5.3 Exercise Price. Each Stock Option Agreement shall specify the Exercise Price; provided that the Exercise Price under an ISO shall in no event
be less than 100% of the Fair Market Value of a Common Share on the date of grant and the Exercise Price under an NSO shall in no event be less than 85% of the Fair Market Value of a Common Share on the date of grant. In the case of an NSO, a Stock
Option Agreement may specify an Exercise Price that varies in accordance with a predetermined formula while the NSO is outstanding. 
  
 5.4 Exercisability and Term. Each Stock Option Agreement shall specify the date or event when all or any installment of the Option is to become
exercisable. The Stock Option Agreement shall also specify the term of the Option; provided that the term of an ISO shall in no event exceed 10 years from the date of grant. A Stock Option Agreement may provide for accelerated exercisability in the
event of the Optionee’s death, disability or retirement or other events and may provide for expiration prior to the end of its term in the event of the termination of the Optionee’s Service. Options may be awarded in combination with SARs,
and such an Award may provide that the Options will not be exercisable unless the related SARs are forfeited. 
  
 5.5 Effect of Change in Control. The Committee may determine, at the time of granting an Option or thereafter, that such Option shall become
exercisable as to all or part of the Common Shares subject to such Option in the event that a Change in Control occurs with respect to the Company or in the event that the Optionee is subject to an Involuntary Termination after a Change in Control.
However, in the case of an ISO, the acceleration of exercisability shall not occur without the Optionee’s written consent. In addition, acceleration of exercisability may be required under Section 10.3. 
  
 5.6 Modification or Assumption of Options. Within the limitations of
the Plan, the Committee may modify, extend or assume outstanding options or may accept the cancellation of outstanding options (whether granted by the Company or by another issuer) in return for the grant of new options for the same or a different
number of shares and at the same or a different exercise price. The foregoing notwithstanding, no modification of an Option shall, without the consent of the Optionee, alter or impair his or her rights or obligations under such Option. 

 
 5.7 Buyout Provisions. The Committee may at any time (a) offer to
buy out for a payment in cash or cash equivalents an Option previously granted or (b) authorize an Optionee to elect to cash out an Option previously granted, in either case at such time and based upon such terms and conditions as the Committee
shall establish. 
  

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 ARTICLE 6. PAYMENT FOR OPTION SHARES. 
  
 6.1 General Rule. The entire Exercise Price of Common Shares issued upon exercise of Options shall be payable in cash
or cash equivalents at the time when such Common Shares are purchased, except as follows: 
  
 (a) In the case of an ISO granted under the Plan, payment shall be made only pursuant to the express provisions of the applicable Stock
Option Agreement. The Stock Option Agreement may specify that payment may be made in any form(s) described in this Article 6. 
  
 (b) In the case of an NSO, the Committee may at any time accept payment in any form(s) described in this Article 6. 
  
 6.2 Surrender of Stock. To the extent that this Section 6.2 is
applicable, all or any part of the Exercise Price may be paid by surrendering, or attesting to the ownership of, Common Shares that are already owned by the Optionee. Such Common Shares shall be valued at their Fair Market Value on the date when the
new Common Shares are purchased under the Plan. The Optionee shall not surrender, or attest to the ownership of, Common Shares in payment of the Exercise Price if such action would cause the Company to recognize compensation expense (or additional
compensation expense) with respect to the Option for financial reporting purposes. 
  
 6.3 Exercise/Sale. To the extent that this Section 6.3 is applicable, all or any part of the Exercise Price and any withholding taxes may be paid by delivering (on a form prescribed by the Company) an
irrevocable direction to a securities broker approved by the Company to sell all or part of the Common Shares being purchased under the Plan and to deliver all or part of the sales proceeds to the Company. 
  
 6.4 Exercise/Pledge. To the extent that this Section 6.4 is
applicable, all or any part of the Exercise Price and any withholding taxes may be paid by delivering (on a form prescribed by the Company) an irrevocable direction to pledge all or part of the Common Shares being purchased under the Plan to a
securities broker or lender approved by the Company, as security for a loan, and to deliver all or part of the loan proceeds to the Company. 
  
 6.5 Promissory Note. To the extent that this Section 6.5 is applicable, all or any part of the Exercise Price and any withholding taxes may be paid
by delivering (on a form prescribed by the Company) a full-recourse promissory note. However, the par value of the Common Shares being purchased under the Plan, if newly issued, shall be paid in cash or cash equivalents. 
  
 6.6 Other Forms of Payment. To the extent that this Section 6.6 is
applicable, all or any part of the Exercise Price and any withholding taxes may be paid in any other form that is consistent with applicable laws, regulations and rules. 
  

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 ARTICLE 7. STOCK APPRECIATION RIGHTS. 
  
 7.1 SAR Agreement. Each grant of an SAR under the Plan shall be evidenced by an SAR Agreement between the Optionee
and the Company. Such SAR shall be subject to all applicable terms of the Plan and may be subject to any other terms that are not inconsistent with the Plan. The provisions of the various SAR Agreements entered into under the Plan need not be
identical. SARs may be granted in consideration of a reduction in the Optionee’s other compensation. 
  
 7.2 Number of Shares. Each SAR Agreement shall specify the number of Common Shares to which the SAR pertains and shall provide for the adjustment
of such number in accordance with Article 10. 
  
 7.3 Exercise
Price. Each SAR Agreement shall specify the Exercise Price. An SAR Agreement may specify an Exercise Price that varies in accordance with a predetermined formula while the SAR is outstanding. 
  
 7.4 Exercisability and Term. Each SAR Agreement shall specify the date
when all or any installment of the SAR is to become exercisable. The SAR Agreement shall also specify the term of the SAR. An SAR Agreement may provide for accelerated exercisability in the event of the Optionee’s death, disability or
retirement or other events and may provide for expiration prior to the end of its term in the event of the termination of the Optionee’s Service. SARs may be awarded in combination with Options, and such an Award may provide that the SARs will
not be exercisable unless the related Options are forfeited. An SAR may be included in an ISO only at the time of grant but may be included in an NSO at the time of grant or thereafter. An SAR granted under the Plan may provide that it will be
exercisable only in the event of a Change in Control. 
  
 7.5
Effect of Change in Control. The Committee may determine, at the time of granting an SAR or thereafter, that such SAR shall become fully exercisable as to all Common Shares subject to such SAR in the event that the Company is subject to a Change
in Control or in the event that the Optionee is subject to an Involuntary Termination after a Change in Control. In addition, acceleration of exercisability may be required under Section 10.3. 
  
 7.6 Exercise of SARs. Upon exercise of an SAR, the Optionee (or any
person having the right to exercise the SAR after his or her death) shall receive from the Company (a) Common Shares, (b) cash or (c) a combination of Common Shares and cash, as the Committee shall determine. The amount of cash and/or the Fair
Market Value of Common Shares received upon exercise of SARs shall, in the aggregate, be equal to the amount by which the Fair Market Value (on the date of surrender) of the Common Shares subject to the SARs exceeds the Exercise Price. If, on the
date when an SAR expires, the Exercise Price under such SAR is less than the Fair Market Value on such date but any portion of such SAR has not been exercised or surrendered, then such SAR shall automatically be deemed to be exercised as of such
date with respect to such portion. 
  
 7.7 Modification or
Assumption of SARs. Within the limitations of the Plan, the Committee may modify, extend or assume outstanding SARs or may accept the cancellation of outstanding SARs (whether granted by the Company or by another issuer) in return for the grant
of new SARs for the same or a different number of shares and at the same or a different exercise price. The foregoing notwithstanding, no modification of an SAR shall, without the consent of the Optionee, alter or impair his or her rights or
obligations under such SAR. 
  

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 ARTICLE 8. RESTRICTED SHARES. 
  
 8.1 Restricted Stock Agreement. Each grant of Restricted Shares under the Plan shall be evidenced by a Restricted
Stock Agreement between the recipient and the Company. Such Restricted Shares shall be subject to all applicable terms of the Plan and may be subject to any other terms that are not inconsistent with the Plan. The provisions of the various
Restricted Stock Agreements entered into under the Plan need not be identical. 
  
 8.2 Payment for Awards. Subject to the following sentence, Restricted Shares may be sold or awarded under the Plan for such consideration as the Committee may determine, including (without limitation) cash,
cash equivalents, full-recourse promissory notes, past services and future services. To the extent that an Award consists of newly issued Restricted Shares, the consideration shall consist exclusively of cash, cash equivalents or past services
rendered to the Company (or a Parent or Subsidiary) or, for the amount in excess of the par value of such newly issued Restricted Shares, full-recourse promissory notes, as the Committee may determine. 
  
 8.3 Vesting Conditions. Each Award of Restricted Shares may or may not
be subject to vesting. Vesting shall occur, in full or in installments, upon satisfaction of the conditions specified in the Restricted Stock Agreement. A Restricted Stock Agreement may provide for accelerated vesting in the event of the
Participant’s death, disability or retirement or other events. The Committee may determine, at the time of granting Restricted Shares or thereafter, that all or part of such Restricted Shares shall become vested in the event that a Change in
Control occurs with respect to the Company or in the event that the Participant is subject to an Involuntary Termination after a Change in Control. 
  
 8.4 Voting and Dividend Rights. The holders of Restricted Shares awarded under the Plan shall have the same voting, dividend and other rights as
the Company’s other stockholders. A Restricted Stock Agreement, however, may require that the holders of Restricted Shares invest any cash dividends received in additional Restricted Shares. Such additional Restricted Shares shall be subject to
the same conditions and restrictions as the Award with respect to which the dividends were paid. 
  

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 ARTICLE 9. STOCK UNITS. 
  

9.1 Stock Unit Agreement. Each grant of Stock Units under the Plan shall be evidenced by a Stock Unit Agreement between the recipient and the
Company. Such Stock Units shall be subject to all applicable terms of the Plan and may be subject to any other terms that are not inconsistent with the Plan. The provisions of the various Stock Unit Agreements entered into under the Plan need not be
identical. Stock Units may be granted in consideration of a reduction in the recipient’s other compensation. 
  
 9.2 Payment for Awards. To the extent that an Award is granted in the form of Stock Units, no cash consideration shall be required of the Award
recipients. 
  
 9.3 Vesting Conditions. Each Award of Stock
Units may or may not be subject to vesting. Vesting shall occur, in full or in installments, upon satisfaction of the conditions specified in the Stock Unit Agreement. A Stock Unit Agreement may provide for accelerated vesting in the event of the
Participant’s death, disability or retirement or other events. The Committee may determine, at the time of granting Stock Units or thereafter, that all or part of such Stock Units shall become vested in the event that the Company is subject to
a Change in Control or in the event that the Participant is subject to an Involuntary Termination after a Change in Control. In addition, acceleration of vesting may be required under Section 10.3. 
  
 9.4 Voting and Dividend Rights. The holders of Stock Units shall have
no voting rights. Prior to settlement or forfeiture, any Stock Unit awarded under the Plan may, at the Committee’s discretion, carry with it a right to dividend equivalents. Such right entitles the holder to be credited with an amount equal to
all cash dividends paid on one Common Share while the Stock Unit is outstanding. Dividend equivalents may be converted into additional Stock Units. Settlement of dividend equivalents may be made in the form of cash, in the form of Common Shares, or
in a combination of both. Prior to distribution, any dividend equivalents that are not paid shall be subject to the same conditions and restrictions as the Stock Units to which they attach. 
  
 9.5 Form and Time of Settlement of Stock Units. Settlement of vested
Stock Units may be made in the form of (a) cash, (b) Common Shares or (c) any combination of both, as determined by the Committee. The actual number of Stock Units eligible for settlement may be larger or smaller than the number included in the
original Award, based on predetermined performance factors. Methods of converting Stock Units into cash may include (without limitation) a method based on the average Fair Market Value of Common Shares over a series of trading days. Vested Stock
Units may be settled in a lump sum or in installments. The distribution may occur or commence when all vesting conditions applicable to the Stock Units have been satisfied or have lapsed, or it may be deferred to any later date. The amount of a
deferred distribution may be increased by an interest factor or by dividend equivalents. Until an Award of Stock Units is settled, the number of such Stock Units shall be subject to adjustment pursuant to Article 10. 
  

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 9.6 Death of Recipient. Any Stock Units Award that becomes payable after the recipient’s
death shall be distributed to the recipient’s beneficiary or beneficiaries. Each recipient of a Stock Units Award under the Plan shall designate one or more beneficiaries for this purpose by filing the prescribed form with the Company. A
beneficiary designation may be changed by filing the prescribed form with the Company at any time before the Award recipient’s death. If no beneficiary was designated or if no designated beneficiary survives the Award recipient, then any Stock
Units Award that becomes payable after the recipient’s death shall be distributed to the recipient’s estate. 
  
 9.7 Creditors’ Rights. A holder of Stock Units shall have no rights other than those of a general creditor of the Company. Stock Units
represent an unfunded and unsecured obligation of the Company, subject to the terms and conditions of the applicable Stock Unit Agreement. 
  
 ARTICLE 10. PROTECTION AGAINST DILUTION. 
  
 10.1 Adjustments. In the event of a subdivision of the outstanding Common Shares, a declaration of a dividend payable in Common Shares or a
combination or consolidation of the outstanding Common Shares (by reclassification or otherwise) into a lesser number of Common Shares, corresponding adjustments shall automatically be made in each of the following: 
  
 (a) The number of Options, SARs, Restricted Shares and Stock
Units available for future Awards under Article 3; 
  
 (b) The number of Common Shares covered by each outstanding Option and SAR; 
  
 (c) The Exercise Price under each outstanding Option and SAR; or 
  
 (d) The number of Stock Units included in any prior Award that has not yet been settled. 
  
 In the event of a declaration of an extraordinary dividend payable in a form other than
Common Shares in an amount that has a material effect on the price of Common Shares, a recapitalization, a spin-off or a similar occurrence, the Committee shall make such adjustments as it, in its sole discretion, deems appropriate in one or more of
the foregoing. Except as provided in this Article 10, a Participant shall have no rights by reason of any issuance by the Company of stock of any class or securities convertible into stock of any class, any subdivision or consolidation of shares of
stock of any class, the payment of any stock dividend or any other increase or decrease in the number of shares of stock of any class. 
  
 10.2 Dissolution or Liquidation. To the extent not previously exercised or settled, Options, SARs and Stock Units shall terminate immediately prior
to the dissolution or liquidation of the Company. 
  
 10.3
Reorganizations. In the event that the Company is a party to a merger or other reorganization, outstanding Awards shall be subject to the agreement of merger or reorganization. Such agreement shall provide for (a) the continuation of the
outstanding Awards by the Company, if the Company is a surviving corporation, (b) the assumption of the outstanding Awards by the surviving corporation or its parent or subsidiary, (c) the substitution by the surviving corporation or its parent or
subsidiary of its own awards for the outstanding Awards, (d) full exercisability or vesting and accelerated expiration of the outstanding Awards, or (e) settlement of the full value of the outstanding Awards in cash or cash equivalents followed by
cancellation of such Awards. 
  

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 ARTICLE 11. DEFERRAL OF AWARDS. 
  
 The Committee (in its sole discretion) may permit or require a Participant to: 
  
 (a) Have cash that otherwise would be paid to such
Participant as a result of the exercise of an SAR or the settlement of Stock Units credited to a deferred compensation account established for such Participant by the Committee as an entry on the Company’s books; 
  
 (b) Have Common Shares that otherwise would be delivered to
such Participant as a result of the exercise of an Option or SAR converted into an equal number of Stock Units; or 
  
 (c) Have Common Shares that otherwise would be delivered to such Participant as a result of the exercise of an Option or SAR or the
settlement of Stock Units converted into amounts credited to a deferred compensation account established for such Participant by the Committee as an entry on the Company’s books. Such amounts shall be determined by reference to the Fair Market
Value of such Common Shares as of the date when they otherwise would have been delivered to such Participant. 
  
 A deferred compensation account established under this Article 11 may be credited with interest or other forms of investment return, as determined by the Committee. A Participant for whom such an account is
established shall have no rights other than those of a general creditor of the Company. Such an account shall represent an unfunded and unsecured obligation of the Company and shall be subject to the terms and conditions of the applicable agreement
between such Participant and the Company. If the deferral or conversion of Awards is permitted or required, the Committee (in its sole discretion) may establish rules, procedures and forms pertaining to such Awards, including (without limitation)
the settlement of deferred compensation accounts established under this Article 11. 
  
 ARTICLE 12. AWARDS UNDER OTHER PLANS. 
  
 The
Company may grant awards under other plans or programs. Such awards may be settled in the form of Common Shares issued under this Plan. Such Common Shares shall be treated for all purposes under the Plan like Common Shares issued in settlement of
Stock Units and shall, when issued, reduce the number of Common Shares available under Article 3. 
  

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 ARTICLE 13. PAYMENT OF DIRECTOR’S FEES IN SECURITIES. 
  
 13.1 Effective Date. No provision of this Article 13 shall be
effective unless and until the Board has determined to implement such provision. 
  
 13.2 Elections to Receive NSOs, Restricted Shares or Stock Units. An Outside Director may elect to receive his or her annual retainer payments and/or meeting fees from the Company in the form of cash, NSOs,
Restricted Shares or Stock Units, or a combination thereof, as determined by the Board. Such NSOs, Restricted Shares and Stock Units shall be issued under the Plan. An election under this Article 13 shall be filed with the Company on the prescribed
form. 
  
 13.3 Number and Terms of NSOs, Restricted Shares or
Stock Units. The number of NSOs, Restricted Shares or Stock Units to be granted to Outside Directors in lieu of annual retainers and meeting fees that would otherwise be paid in cash shall be calculated in a manner determined by the Board. The
Board shall also determine the terms of such NSOs, Restricted Shares or Stock Units. 
  
 ARTICLE 14. LIMITATION ON RIGHTS. 
  
 14.1
Retention Rights. Neither the Plan nor any Award granted under the Plan shall be deemed to give any individual a right to remain an Employee, Outside Director or Consultant. The Company and its Parents, Subsidiaries and Affiliates reserve the
right to terminate the Service of any Employee, Outside Director or Consultant at any time, with or without cause, subject to applicable laws, the Company’s certificate of incorporation and by-laws and a written employment agreement (if any).

  
 14.2 Stockholders’ Rights. A Participant shall
have no dividend rights, voting rights or other rights as a stockholder with respect to any Common Shares covered by his or her Award prior to the time when a stock certificate for such Common Shares is issued or, if applicable, the time when he or
she becomes entitled to receive such Common Shares by filing any required notice of exercise and paying any required Exercise Price. No adjustment shall be made for cash dividends or other rights for which the record date is prior to such time,
except as expressly provided in the Plan. 
  
 14.3 Regulatory
Requirements. Any other provision of the Plan notwithstanding, the obligation of the Company to issue Common Shares under the Plan shall be subject to all applicable laws, rules and regulations and such approval by any regulatory body as may be
required. The Company reserves the right to restrict, in whole or in part, the delivery of Common Shares pursuant to any Award prior to the satisfaction of all legal requirements relating to the issuance of such Common Shares, to their registration,
qualification or listing or to an exemption from registration, qualification or listing. 
  

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 ARTICLE 15. WITHHOLDING TAXES. 
  
 15.1 General. To the extent required by applicable federal, state, local or foreign law, a Participant or his or her
successor shall make arrangements satisfactory to the Company for the satisfaction of any withholding tax obligations that arise in connection with the Plan. The Company shall not be required to issue any Common Shares or make any cash payment under
the Plan until such obligations are satisfied. 
  
 15.2 Share
Withholding. To the extent that applicable law subjects a Participant to tax withholding obligations, the Committee may permit such Participant to satisfy all or part of such obligations by having the Company withhold all or a portion of any
Common Shares that otherwise would be issued to him or her or by surrendering all or a portion of any Common Shares that he or she previously acquired. Such Common Shares shall be valued at their Fair Market Value on the date when they are withheld
or surrendered. 
  
 ARTICLE 16. FUTURE OF THE PLAN. 
  
 16.1 Term of the Plan. The Plan, as set forth herein, shall become
effective as of the date it is adopted by the Board, and shall remain in effect until it is terminated under Section 16.2, except that no ISOs shall be granted on or after the 10th anniversary of the later of (a) the date when the Board adopted the
Plan or (b) the date when the Board adopted the most recent increase in the number of Common Shares available under Article 3 that was approved by the Company’s stockholders. 
  
 16.2 Amendment or Termination. The Board may, at any time and for any reason, amend or terminate the Plan. An
amendment of the Plan shall be subject to the approval of the Company’s stockholders only to the extent required by applicable laws, regulations or rules. No Awards shall be granted under the Plan after the termination thereof. The termination
of the Plan, or any amendment thereof, shall not affect any Award previously granted under the Plan. 
  
 ARTICLE 17. LIMITATION ON PAYMENTS. 
  
 17.1 Scope of Limitation. This Article 17 shall apply to an Award only if: 
  
 (a) The independent auditors most recently selected by the Board (the “Auditors”) determine that the after-tax value of such
Award to the Participant, taking into account the effect of all federal, state and local income taxes, employment taxes and excise taxes applicable to the Participant (including the excise tax under section 4999 of the Code), will be greater after
the application of this Article 17 than it was before the application of this Article 17; or 
  
 (b) The Committee, at the time of making an Award under the Plan or at any time thereafter, specifies in writing that such Award shall be
subject to this Article 17 (regardless of the after-tax value of such Award to the Participant). 
  
 If this Article 17 applies to an Award, it shall supersede any contrary provision of the Plan or of any Award granted under the Plan. 
  

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 17.2 Basic Rule. In the event that the Auditors determine that any payment or transfer by the
Company under the Plan to or for the benefit of a Participant (a “Payment”) would be nondeductible by the Company for federal income tax purposes because of the provisions concerning “excess parachute payments” in section 280G of
the Code, then the aggregate present value of all Payments shall be reduced (but not below zero) to the Reduced Amount. For purposes of this Article 17, the “Reduced Amount” shall be the amount, expressed as a present value, which
maximizes the aggregate present value of the Payments without causing any Payment to be nondeductible by the Company because of section 280G of the Code. 
  
 17.3 Reduction of Payments. If the Auditors determine that any Payment would be nondeductible by the Company because of section 280G of the Code,
then the Company shall promptly give the Participant notice to that effect and a copy of the detailed calculation thereof and of the Reduced Amount, and the Participant may then elect, in his or her sole discretion, which and how much of the
Payments shall be eliminated or reduced (as long as after such election the aggregate present value of the Payments equals the Reduced Amount) and shall advise the Company in writing of his or her election within 10 days of receipt of notice. If no
such election is made by the Participant within such 10-day period, then the Company may elect which and how much of the Payments shall be eliminated or reduced (as long as after such election the aggregate present value of the Payments equals the
Reduced Amount) and shall notify the Participant promptly of such election. For purposes of this Article 17, present value shall be determined in accordance with section 280G(d)(4) of the Code. All determinations made by the Auditors under this
Article 17 shall be binding upon the Company and the Participant and shall be made within 60 days of the date when a Payment becomes payable or transferable. As promptly as practicable following such determination and the elections hereunder, the
Company shall pay or transfer to or for the benefit of the Participant such amounts as are then due to him or her under the Plan and shall promptly pay or transfer to or for the benefit of the Participant in the future such amounts as become due to
him or her under the Plan. 
  
 17.4 Overpayments and
Underpayments. As a result of uncertainty in the application of section 280G of the Code at the time of an initial determination by the Auditors hereunder, it is possible that Payments will have been made by the Company which should not have
been made (an “Overpayment”) or that additional Payments which will not have been made by the Company could have been made (an “Underpayment”), consistent in each case with the calculation of the Reduced Amount hereunder. In the
event that the Auditors, based upon the assertion of a deficiency by the Internal Revenue Service against the Company or the Participant that the Auditors believe has a high probability of success, determine that an Overpayment has been made, such
Overpayment shall be treated for all purposes as a loan to the Participant that he or she shall repay to the Company, together with interest at the applicable federal rate provided in section 7872(f)(2) of the Code; provided, however, that no amount
shall be payable by the Participant to the Company if and to the extent that such payment would not reduce the amount that is subject to taxation under section 4999 of the Code. In the event that the Auditors determine that an Underpayment has
occurred, such Underpayment shall promptly be paid or transferred by the Company to or for the benefit of the Participant, together with interest at the applicable federal rate provided in section 7872(f)(2) of the Code. 
  
 17.5 Related Corporations. For purposes of this Article 17, the term
“Company” shall include affiliated corporations to the extent determined by the Auditors in accordance with section 280G(d)(5) of the Code. 
  

 12 

 ARTICLE 18. DEFINITIONS. 
  

18.1 “Affiliate” means any entity other than a Subsidiary, if the Company and/or one or more Subsidiaries own not less than 50% of such
entity. 
  
 18.2 “Award” means any award of an Option,
an SAR, a Restricted Share or a Stock Unit under the Plan. 
  
 18.3 “Board” means the Company’s Board of Directors, as constituted from time to time. 
  
 18.4 “Cause” means (a) the unauthorized use or disclosure of the confidential information or trade secrets of the Company, which use or
disclosure causes material harm to the Company, (b) conviction of, or a plea of “guilty” or “no contest” to, a felony under the laws of the United States or any State thereof, (c) gross negligence, (d) willful misconduct or (e) a
failure to perform assigned duties that continues after the Participant has received written notice of such failure from the Board or its designee. The foregoing, however, shall not be deemed an exclusive list of all acts or omissions that the
Company (or the Parent, Subsidiary or Affiliate employing the Participant) may consider as grounds for the discharge of the Participant without Cause. 
  
 18.5 “Change in Control” means: 
  
 (a) The consummation of a merger or consolidation of the Company with or into another entity or any other corporate reorganization, if
persons who were not stockholders of the Company immediately prior to such merger, consolidation or other reorganization own immediately after such merger, consolidation or other reorganization 50% or more of the voting power of the outstanding
securities of each of (i) the continuing or surviving entity and (ii) any direct or indirect parent corporation of such continuing or surviving entity; 
  
 (b) The sale, transfer or other disposition of all or substantially all of the Company’s assets; 
  
 (c) A change in the composition of the Board, as a result of
which fewer than 50% of the incumbent directors are directors who either (i) had been directors of the Company on the date 12 months prior to the date of the event that may constitute a Change in Control (the “original directors”) or (ii)
were elected, or nominated for election, to the Board with the affirmative votes of at least a majority of the aggregate of the original directors who were still in office at the time of the election or nomination and the directors whose election or
nomination was previously so approved; or 
  

 13 

 (d) Any transaction as a result of which any person is the “beneficial owner”
(as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing at least 30% of the total voting power represented by the Company’s then outstanding voting securities. For purposes of this
Paragraph (d), the term “person” shall have the same meaning as when used in sections 13(d) and 14(d) of the Exchange Act but shall exclude(i) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or
of a Parent or Subsidiary and (ii) a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of the common stock of the Company. 
  
 A transaction shall not constitute a Change in Control if its sole purpose is to change the
state of the Company’s incorporation or to create a holding company that will be owned in substantially the same proportions by the persons who held the Company’s securities immediately before such transaction. 
  
 18.6 “Code” means the Internal Revenue Code of 1986, as amended.

  
 18.7 “Committee” means a committee of the Board, as
described in Article 2. 
  
 18.8 “Common Share” means
one share of the common stock of the Company. 
  
 18.9
“Company” means DayStar Technologies, Inc., a Delaware corporation. 
  
 18.10 “Consultant” means a consultant or adviser who provides bona fide services to the Company, a Parent, a Subsidiary or an Affiliate as an independent contractor. Service as a Consultant shall be
considered employment for all purposes of the Plan, except as provided in Section 4.1. 
  
 18.11 “Employee” means a common-law employee of the Company, a Parent, a Subsidiary or an Affiliate. 
  
 18.12 “Exchange Act” means the Securities Exchange Act of 1934, as amended. 
  
 18.13 “Exercise Price,” in the case of an Option, means the amount for which one Common Share may be purchased
upon exercise of such Option, as specified in the applicable Stock Option Agreement. “Exercise Price,” in the case of an SAR, means an amount, as specified in the applicable SAR Agreement, which is subtracted from the Fair Market Value of
one Common Share in determining the amount payable upon exercise of such SAR. 
  
 18.14 “Fair Market Value” means the market price of Common Shares, determined by the Committee in good faith on such basis as it deems appropriate. Whenever possible, the determination of Fair Market Value
by the Committee shall be based on the prices reported in The Wall Street Journal. Such determination shall be conclusive and binding on all persons. 
  

 14 

 18.15 “Involuntary Termination” means the termination of the Participant’s Service by
reason of: 
  
 (a) The involuntary discharge of
the Participant by the Company (or the Parent, Subsidiary or Affiliate employing him or her) for reasons other than Cause; or 
  
 (b) The voluntary resignation of the Participant following (i) a material adverse change in his or her title, position, authority or
responsibilities with the Company (or the Parent, Subsidiary or Affiliate employing him or her), (ii) a material reduction in his or her base salary or (iii) receipt of notice that his or her principal workplace will be relocated by more than 30
miles. 
  
 18.16 “ISO” means an incentive stock option
described in section 422(b) of the Code. 
  
 18.17 “NSO”
means a stock option not described in sections 422 or 423 of the Code. 
  
 18.18 “Option” means an ISO or NSO granted under the Plan and entitling the holder to purchase Common Shares. 
  
 18.19 “Optionee” means an individual or estate who holds an Option or SAR. 
  
 18.20 “Outside Director” means a member of the Board who is not an Employee. Service as an Outside Director shall
be considered employment for all purposes of the Plan, except as provided in Section 4.1. 
  
 18.21 “Parent” means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company, if each of the 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. A corporation that attains the status of a Parent on a date after the adoption of the Plan shall be considered a Parent commencing as of
such date. 
  
 18.22 “Participant” means an individual
or estate who holds an Award. 
  
 18.23 “Plan” means
this DayStar Technologies, Inc. Equity Incentive Plan, as amended from time to time. 
  
 18.24 “Restricted Share” means a Common Share awarded under the Plan. 
  
 18.25 “Restricted Stock Agreement” means the agreement between the Company and the recipient of a Restricted Share that contains the terms,
conditions and restrictions pertaining to such Restricted Share. 
  
 18.26 “SAR” means a stock appreciation right granted under the Plan. 
  
 18.27 “SAR Agreement” means the agreement between the Company and an Optionee that contains the terms, conditions and restrictions pertaining to his or her SAR. 
  
 18.28 “Service” means service as an Employee, Outside Director or
Consultant. 
  
 18.29 “Stock Option Agreement” means the
agreement between the Company and an Optionee that contains the terms, conditions and restrictions pertaining to his or her Option. 
  

 15 

 18.30 “Stock Unit” means a bookkeeping entry representing the equivalent of one Common Share,
as awarded under the Plan. 
  
 18.31 “Stock Unit
Agreement” means the agreement between the Company and the recipient of a Stock Unit that contains the terms, conditions and restrictions pertaining to such Stock Unit. 
  
 18.32 “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. A
corporation that attains the status of a Subsidiary on a date after the adoption of the Plan shall be considered a Subsidiary commencing as of such date. 
  
 ARTICLE 19. EXECUTION. 
  
 To record the adoption of the Plan by the Board on September 30, 2003, the Company has caused its duly authorized officer to execute this document in the
name of the Company. 
  

	 DAYSTAR TECHNOLOGIES, INC.

		
	 By:
	 	 /s/    John R. Tuttle

	 	 	 John R. Tuttle, President, Chairman
 and
Chief Executive Officer

  
  

 16Form of Employee Incentive Stock Option Agreement

 EXHIBIT 10.7 
  
 DAYSTAR TECHNOLOGIES, INC. 
 EQUITY INCENTIVE PLAN 
  
 NOTICE OF STOCK OPTION GRANT 
  
 You have been
granted the following option to purchase Common Stock of DayStar Technologies, Inc. (the “Company”): 
  

		
	 Optionee:
	  	

		
	 Grant Date:
	  	

		
	 Vesting Commencement Date:
	  	

		
	 Type of Stock:
	  	Common Stock
		
	 Exercise Price:
	  	$         per share
		
	 Number of Option Shares:
	  	_____
		
	 Expiration Date:
	  	10 years from Grant Date. This option expires earlier if your Service terminates earlier, as described in the Stock Option Agreement.
		
	 Type of Option:
	  	                Nonstatutory
		
	 	  	                 Incentive

		
	 Vesting Schedule:
	  	This option becomes exercisable with respect to the first     % of the Shares subject to this option when you complete     
months of continuous Services (as defined in the Plan) from the Vesting Commencement Date. Thereafter, this option becomes exercisable with respect to an additional     % of the Shares subject to this option when you
complete each month of Service.

  
 You and the Company
agree that this option is granted under and governed by the terms of the Equity Incentive Plan (the “Plan”) and the Stock Option Agreement, both of which are attached to and made a part of this document. 
  

 Notice of Stock Option Grant 
 Page 1 

 You further agree that the Company may deliver by email all documents relating to the Plan or this option
(including, without limitation, prospectuses required by the Securities and Exchange Commission) and all other documents that the Company is required to deliver to its security holders (including, without limitation, annual reports and proxy
statements). You also agree that the Company may deliver these documents by posting them on a web site maintained by the Company or by a third party under contract with the Company. If the Company posts these documents on a web site, it will notify
you by email. 
  

	OPTIONEE:	 	 	 	DAYSTAR TECHNOLOGIES, INC.
				
	
	 	 	 	 By:
	 	  

				
	
	 	 	 	 Title:
	 	  

				
	
	 	 	 	 	 	 
	 Address
	 	 	 	 	 	 

  

 Notice of Stock Option Grant 
 Page 2 

 DAYSTAR TECHNOLOGIES, INC. 
 EQUITY INCENTIVE PLAN 
  
 STOCK OPTION AGREEMENT 
  
 Tax Treatment

  
 This option is intended to be an incentive stock option under section 422
of the Internal Revenue Code or a nonstatutory stock option, as provided in the Notice of Stock Option Grant. 
  
 Vesting 
  
 This option becomes
exercisable in installments, as shown in the Notice of Stock Option Grant. In addition, this option becomes exercisable in full if either of the following events occurs: 
  

	 	•	Your Service terminates because of retirement at or after age 65, total and permanent disability, or death; or 

  

	 	•	The Company is subject to a “Change in Control” (as defined in the Plan) before your Service terminates, and you are subject to an “Involuntary Termination” (as
defined in the Plan) within 12 months after the Change in Control. 

  
 This option will in no event become exercisable for additional shares after your Service has terminated for any reason. 
  
 Term 
  
 This option expires in any event at the close of business at Company headquarters on the date before the 10th anniversary of the Date of Grant, as shown in the Notice of Stock Option Grant. It will expire earlier if your Service terminates, as described below. 
  

	 	•	Regular Termination 

  
 If your Service terminates for any reason except termination for Cause or by reason of death or total and permanent disability, then this option will
expire at the close of business at Company headquarters on the date three months after your termination date. 
  

	 	•	Termination for Cause 

  
 If your Service is terminated for Cause, then this option will expire at the close of business at Company headquarters on your termination date.

  

 Stock Option Agreement 
 Page 1 

	 	•	Death 

  
 If you die before your Service terminates, then this option will expire at the close of business at Company headquarters on the date 12 months after the
date of death. 
  

	 	•	Disability 

  
 If your Service terminates because of your total and permanent disability, then this option will expire at the close of business at Company headquarters
on the date 12 months after your termination date. 
  
 For all
purposes under this Agreement, “total and permanent disability” means that you are unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result
in death or which has lasted, or can be expected to last, for a continuous period of not less than one year. 
  
 Leaves of Absence and Part-Time Work 
  
 For purposes of this option, your Service does not terminate when you go on a military leave, a sick leave, or another bona fide leave of absence, if the leave was approved by the Company in writing and if continued crediting of
Service is required by the terms of the leave or by applicable law. 
  
 Notice
Concerning Leaves of Absence and ISO Treatment 
  
 Even if this option is
designated as an ISO in the Notice of Stock Option Grant, it ceases to qualify for favorable tax treatment as an ISO to the extent that it is exercised more than three months after the date when you have been on a leave of absence for 90 days,
unless your right to be reemployed following the leave of absence is guaranteed by statute or by contract. 
  
 Restriction on Exercise 
  
 The Company
will not permit you to exercise this option if the issuance of shares at that time would violate any law or regulation. 
  
 Notice of Exercise 
  
 When you wish to exercise this option, you must notify the Company by completing and delivering to the Company a “Notice of Exercise” form. Your purchase of shares will be effective when the Company receives
a properly completed Notice of Exercise form with payment of the exercise price in one of the forms described below. 
  

 Stock Option Agreement 
 Page 2 

 Form of Payment 
  
 When you submit your Notice of Exercise, you must include payment of the option exercise price for the shares that you are purchasing. Payment may be made in one (or a
combination of two or more) of the following forms: 
  

	 	•	Your personal check, a cashier’s check or a money order. 

  

	 	•	Certificates for shares of Company stock that you own, along with any forms needed to effect a transfer of those shares to the Company. The value of the shares, determined as of the
effective date of the option exercise, will be applied to the option exercise price. Instead of surrendering your shares of Company stock, you may attest to the ownership of those shares on a form provided by the Company and have the same number of
shares subtracted from the option shares issued to you. However, you may not surrender, or attest to the ownership of, shares of Company stock in payment of the exercise price if you have not owned the shares of stock for at least six months, or if
doing so would cause the Company to recognize compensation expense (or additional compensation expense) with respect to this option for financial reporting purposes. 

  

	 	•	Irrevocable directions to a securities broker approved by the Company to sell all or part of the shares and to deliver to the Company from the sale proceeds an amount sufficient to
pay the option exercise price and any withholding taxes. (The balance of the sale proceeds, if any, will be delivered to you.) The directions must be given by signing a special “Notice of Exercise” form provided by the Company.

  
 Withholding Taxes and Stock Withholding 
  
 You will not be allowed to exercise this option unless you make arrangements acceptable to
the Company to pay any withholding taxes that may be due as a result of the option exercise. With the Company’s consent, these arrangements may include withholding shares of Company stock that otherwise would be issued to you when you exercise
this option. The value of these shares, determined as of the effective date of the option exercise, will be applied to the withholding taxes. 
  
 Restrictions on Resale 
  
 You agree not to sell any option shares at a time when applicable laws, Company policies or an agreement between the Company and its underwriters prohibit a sale. This restriction will apply as long as your Service
continues and for such period of time after the termination of your Service as the Company may specify. 
  
 Transfer of Option 
  
 Prior to death,
only you may exercise this option. You cannot transfer or assign this option. For instance, you may not sell this option or use it as security for a loan. If you attempt to do any of these things, this option will immediately become invalid. You
may, however, dispose of this 

  

 Stock Option Agreement 
 Page 3 

 
option in your will or by a beneficiary designation. Regardless of any marital property settlement agreement, the Company is not obligated to honor a Notice
of Exercise from your former spouse, nor is the Company obligated to recognize your former spouse’s interest in your option in any other way. 
  
 Stockholder Rights 
  
 You, or your estate or heirs, have no rights as a stockholder of the Company until you have exercised this option by giving the required notice to the Company and paying the exercise price. No adjustments are made for
dividends or other rights if the applicable record date occurs before you exercise this option, except as described in the Plan. 
  
 Adjustments 
  
 In the event of a stock split, a reverse stock split, a stock dividend or a similar change in Company stock, the number of shares covered by this option and the exercise price per share may be adjusted pursuant to the
Plan. 
  
 Applicable Law 
  
 This Agreement will be interpreted and enforced under the laws of the state of Delaware
(without regard to their choice of law provisions). 
  
 The Plan and Other
Agreements 
  
 The text of the Plan and the terms of the Notice of Stock
Option Grant are incorporated in this Agreement by reference. This Agreement, including the Notice of Stock Option Grant, and the Plan constitute the entire understanding between you and the Company regarding this option. Any prior agreements,
commitments or negotiations concerning this option are superseded. This Agreement may be amended only by another written agreement between the parties. 
  
 BY SIGNING THE NOTICE OF STOCK OPTION GRANT ATTACHED AS A COVER  
 SHEET TO THIS AGREEMENT, YOU AGREE TO ALL OF THE TERMS AND  
 CONDITIONS DESCRIBED ABOVE AND IN
THE PLAN. 
  

 Stock Option Agreement 
 Page 4

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