Document:

Exhibit
10.3

 

UNIFY CORPORATION

 

1996 EMPLOYEE STOCK PURCHASE PLAN

 

(As Amended Effective
November 15, 2001)

 

1.             PURPOSE.

 

The purpose of this Plan
is to provide an opportunity for Employees of Unify Corporation (the
“Corporation”) and its Designated Subsidiaries, to purchase Common Stock of the
Corporation and thereby to have an additional incentive to contribute to the
prosperity of the Corporation.  It is
the intention of the Corporation that the Plan qualify as an “Employee Stock
Purchase Plan” under Section 423 of the Internal Revenue Code of 1986, as
amended, and the Plan shall be construed in accordance with this intention.

 

2.             DEFINITIONS.

 

(a)           “Board”
shall mean the Board of Directors of the Corporation.

 

(b)           “Code”
shall mean the Internal Revenue Code of 1986, as amended.

 

(c)           “Committee”
shall mean the committee appointed by the Board in accordance with Section 12
of the Plan.

 

(d)           “Common
Stock” shall mean the Common Stock of the Corporation, or any
stock into which such Common Stock may be converted.

 

(e)           “Compensation”
shall mean an Employee’s wages or salary and other amounts payable to an
Employee on account of personal services rendered by the Employee to the
Corporation or a Designated Subsidiary and which are reportable as wages or
other compensation on the Employee’s Form W-2, plus pre-tax contributions of
the Employee under a cash or deferred arrangement (401(k) plan) or cafeteria
plan maintained by the Corporation or a Designated Subsidiary, but excluding,
however, (1) non-cash fringe benefits, (2) special payments as determined by
the Committee (e.g., moving expenses, unused vacation, severance pay), (3)
income from the exercise of stock options or other stock purchases and (4) any
other items of Compensation as determined by the Committee.

 

(f)            “Corporation”
shall mean Unify Corporation, a Delaware corporation.

 

(g)           “Designated
Subsidiary” shall mean a Subsidiary which has been designated by
the Board as eligible to participate in the Plan.

 

(h)           “Employee”
shall mean an individual employed (within the meaning of Code section 3401(c)
and the regulations thereunder) by the Corporation or a Designated Subsidiary.

 

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(i)            “Entry
Date” shall mean the first day of each Option Period.  The first Entry Date shall be the date the
Corporation’s initial public offering registered with the Securities and
Exchange Commission is declared effective, unless otherwise determined by the
Committee.

 

(j)            “Exercise
Date” shall mean the last business day of each Exercise Period.

 

(k)           “Exercise
Period” shall mean a six-month or other period as determined by
the Committee.  The first Exercise
Period during an Option Period shall commence on the first day of such Option
Period.  Subsequent Exercise Periods, if
any, shall run consecutively after the termination of the preceding Exercise
Period.  The last Exercise Period in an
Option Period shall terminate on the last day of such Option Period.

 

(l)            “Fair Market Value”
shall mean the value of one (1) share of Common Stock on the relevant date,
determined as follows:

 

(1)           If the shares are traded on an
exchange or on the NASDAQ National Market System, the reported “closing price”
on the next preceding trading day (provided that in the case of the first Entry
Date, the Fair Market Value shall be the initial price to the public in the
Corporation’s initial public offering);

 

(2)           If the shares are traded over–the–counter
on the NASDAQ System (other than on the NASDAQ National Market System), the
mean between the bid and the ask prices on said System at the close of business
on the next preceding trading day (provided that in the case of the first Entry
Date, the Fair Market Value shall be the initial price to the public in the
Corporation’s initial public offering); and

 

(3)           If neither (1) nor (2) applies, the
fair market value as determined by the Committee in good faith.  Such determination shall be conclusive and
binding on all persons.

 

(m)          “Option Period”
shall mean a period of up to twenty-seven (27) months as determined by the
Committee.

 

(n)           “Participant” shall
mean a participant in the Plan as described in Section 4 of the Plan.

 

(o)           “Plan” shall mean
this employee stock purchase plan.

 

(p)           “Subsidiary” shall
mean any corporation (other than the Corporation) in an unbroken chain of
corporations beginning with the Corporation, as described in Code section
424(f).

 

3.             ELIGIBILITY.

 

Any Employee
regularly employed on a full–time basis by the Corporation or by any
Designated Subsidiary on an Entry Date shall be eligible to participate in the
Plan with respect to the Option Period commencing on such Entry Date, provided
that the Committee may establish administrative rules requiring that employment
commence some minimum period 

 

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(e.g., one pay
period) prior to an Entry Date to be eligible to participate with respect to
that Entry Date.  An Employee shall be
considered employed on a full–time basis unless his or her customary
employment is less than 20 hours per week or five months per year.  No Employee may participate in the Plan if
immediately after an option is granted the Employee owns or is considered to
own (within the meaning of section 424(d) of the Code), shares of stock, including
stock which the Employee may purchase by conversion of convertible securities
or under outstanding options granted by the Corporation, possessing five
percent (5%) or more of the total combined voting power or value of all classes
of stock of the Corporation or of any of its Subsidiaries.  All Employees who participate in the Plan
shall have the same rights and privileges under the Plan except for differences
which may be mandated by local law and which are consistent with Code section
423(b)(5).  The Committee may impose
restrictions on eligibility and participation of Employees who are officers and
directors to facilitate compliance with federal or state securities laws.

 

4.             PARTICIPATION.

 

4.1           An Employee who is eligible to
participate in the Plan in accordance with Section 3 may become a Participant
by filing, on a date prescribed by the Committee prior to an applicable Entry
Date, a completed payroll deduction authorization and Plan enrollment form
provided by the Corporation.  An
eligible Employee may authorize payroll deductions at the rate of any whole
percentage of the Employee’s Compensation, not to exceed fifteen percent (15%)
of the Employee’s Compensation, or such lesser percentage as specified by the
Committee as applied to an Entry Date or Option Period.  All payroll deductions may be held by the
Corporation and commingled with its other corporate funds.  No interest shall be paid or credited to the
Participant with respect to such payroll deductions except where required by
local law as determined by the Committee. 
A separate bookkeeping account for each Participant shall be maintained
by the Corporation under the Plan and the amount of each Participant’s payroll
deductions shall be credited to such account. 
A Participant may not make any additional payments into such account.

 

4.2           Under procedures established by the
Committee, a Participant may (i) reduce the rate of his or her payroll
deductions at any time during an Option Period or (ii) increase his or her rate
of payroll deductions effective on an Entry Date; provided, however, that
effective for each Option Period commencing on or after August 7, 1997, a
Participant may increase his or her rate of payroll deductions at any time
during an Option Period. 
Notwithstanding the foregoing, the Committee may, from time to time, consistent
with the Plan and the requirements of Section 423 of the Code, establish,
change or terminate such rules, guidelines, policies, procedures, limitations
or adjustments as deemed advisable by the Committee for the proper
administration of the Plan, including, without limitation, (i) a minimum
payroll deduction amount for participation in the Plan, (ii) a limitation on
the frequency or number of changes permitted in the rate of payroll deductions
during an Option Period or Exercise Period, 
(iii) a minimum period of advance notice before a Participant’s payroll
deduction change election may become effective, and (iv) a payroll deduction
greater than or less than the amount designated by the Participant in order to
adjust for the Corporation’s delay or mistake in processing the Participant’s
payroll deduction authorization and Plan enrollment form or in otherwise
effecting a Participant’s election under the Plan or as advisable to comply
with the requirements of Section 423 of the Code.  A Participant’s election to increase or decrease his or 

 

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her rate of
payroll deductions shall be made by completing and filing a new payroll
deduction authorization and Plan enrollment form with the Corporation.  If a new payroll deduction authorization and
Plan enrollment form is not filed with the Corporation, the rate of payroll
deductions shall continue at the originally elected rate throughout the Option
Period unless the Committee determines to change the permissible rate.

 

4.3           Under procedures established by the
Committee, a Participant may suspend or discontinue participation in the Plan
at any time during an Option Period by completing and filing with the
Corporation’s designated office a written notice of such action on a form
provided by the Corporation for such purpose. 
If a Participant suspends participation during an Exercise Period, his
or her accumulated payroll deductions will remain in the Plan for purchase of
shares as specified in Section 6 on the following Exercise Date, but the
Participant will not again participate until he or she completes a new payroll
deduction authorization and Plan enrollment form.  The Committee may establish rules limiting the frequency with
which Participants may suspend and resume payroll deductions under the Plan and
may impose a waiting period on Participants wishing to resume suspended payroll
deductions.  If a Participant
discontinues participation in the Plan, the amount credited to the
Participant’s individual account shall be paid to the Participant without
interest (except where required by local law). 
In the event any Participant terminates employment with the Corporation
or any Subsidiary for any reason (including death) prior to the expiration of
an Option Period, the Participant’s participation in the Plan shall terminate
and all amounts credited to the Participant’s account shall be paid to the
Participant or the Participant’s estate without interest (except where required
by local law).  Whether a termination of
employment has occurred shall be determined by the Committee.  The Committee may also establish rules
regarding when leaves of absence or change of employment status (e.g., from
full-time to part-time) will be considered to be a termination of employment, and
the Committee may establish termination of employment procedures for this Plan
which are independent of similar rules established under other benefit plans of
the Corporation and its Subsidiaries.

 

In the event of a
Participant’s death, any accumulated payroll deductions will be paid, without
interest, to the estate of the Participant.

 

5.             OFFERING.

 

5.1           The maximum number of shares of
Common Stock which may be issued pursuant to the Plan shall be 2,700,000
shares.  The Committee may designate any
amount of available shares for offering for any Option Period determined
pursuant to Section 5.2.

 

5.2           Each Option Period, Entry Date and
Exercise Period shall be determined by the Committee.  The Committee shall have the power to change the duration of
future Option Periods or future Exercise Periods, and to determine whether or
not to have overlapping Option Periods, with respect to any prospective
offering, without stockholder or Board approval.

 

5.3           With respect to each Option Period,
each eligible Employee who has elected to participate as provided in Section
4.1 shall be granted an option to purchase that number of shares of Common
Stock which may be purchased with the payroll deductions accumulated on behalf
of such Employee (assuming payroll deductions at a rate of 15% of Compensation)

 

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during each
Exercise Period within such Option Period at the purchase price specified in
Section 5.4 below; provided, however, (1) in no event shall the Employee be
entitled to accrue rights to purchase shares under the Plan (and all other
employee stock purchase plans, as defined in Code section 423, of the
Corporation and its subsidiaries) at a rate which exceeds $25,000 of the Fair
Market Value of such stock (determined at the time the option is granted) for
any calendar year in which such option is outstanding at any time, and (2) the
maximum shares subject to any option shall in no event exceed 20,000.

 

5.4           The option price under each option
shall be the lower of: (i) eighty–five percent (85%) of the Fair
Market Value of the Common Stock on the Entry Date on which an option is
granted, or (ii) eighty–five percent (85%) of the Fair Market Value
on the Exercise Date on which the Common Stock is purchased.

 

5.5           If the total number of shares of
Common Stock for which options granted under the Plan are exercisable exceeds
the maximum number of shares offered on any Entry Date, the number of shares
which may be purchased under options granted on the Entry Date shall be reduced
on a pro rata basis in as nearly a uniform manner as shall be practicable and
equitable.  In this event, payroll
deductions shall also be reduced or refunded accordingly.  If an Employee’s payroll deductions during
any Exercise Period exceeds the purchase price for the maximum number of shares
permitted to be purchased under Section 5.3, the excess shall be refunded to
the Participant without interest (except where otherwise required by local
law).

 

5.6           In the event that the Fair Market
Value of the Corporation’s Common Stock is lower on the first day of an
Exercise Period within an Option Period (subsequent “Reassessment Date”) than
it was on Entry Date for such Option Period, all Employees participating in the
Plan on the Reassessment Date shall be deemed to have relinquished the
unexercised portion of the option granted on the Entry Date and to have
enrolled in and received a new option commencing on such Reassessment Date,
unless the Committee has determined not to permit overlapping Option Periods or
to restrict such transfers to lower price Option Periods.

 

6.             PURCHASE
OF STOCK.

 

Upon the
expiration of each Exercise Period, a Participant’s option shall be exercised
automatically for the purchase of that number of full shares of Common Stock
which the accumulated payroll deductions credited  to the Participant’s account at that time shall purchase at the
applicable price specified in Section 5.4.

 

7.             PAYMENT
AND DELIVERY.

 

Upon the exercise
of an option, the Corporation shall deliver to the Participant the Common Stock
purchased and the balance of any amount of payroll deductions credited to the
Participant’s account not used for the purchase.  The Committee may permit or require that shares be deposited
directly with a broker designated by the Participant (or a broker selected by
the Committee), and the Committee may utilize electronic or automated methods
of share transfer.  To the extent the
unused cash balance represents a fractional share, the unused cash balance
credited to the Participant’s account shall be carried over to the next
Exercise Period, if 

 

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the Participant is
also a Participant in the Plan at that time or refunded to the Participant, as
determined by the Committee.  The
Corporation shall retain the amount of payroll deductions used to purchase
Common Stock as full payment for the Common Stock and the Common Stock shall
then be fully paid and non–assessable. 
No Participant shall have any voting, dividend, or other stockholder
rights with respect to shares subject to any option granted under the Plan
until the option has been exercised and shares issued.

 

8.             RECAPITALIZATION.

 

If after the grant
of an option, but prior to the purchase of Common Stock under the option, there
is any increase or decrease in the number of outstanding shares of Common Stock
because of a stock split, stock dividend, combination or recapitalization of
shares subject to options, the number of shares to be purchased pursuant to an
option, the share limit of Section 5.3 and the maximum number of shares
specified in Section 5.1 shall be proportionately increased or decreased, the
terms relating to the purchase price with respect to the option shall be
appropriately adjusted by the Committee, and the Committee shall take any
further actions which, in the exercise of its discretion, may be necessary or
appropriate under the circumstances.

 

The Committee, if
it so determines in the exercise of its sole discretion, also may adjust the
number of shares specified in Section 5.1, as well as the price per share of
Common Stock covered by each outstanding option and the maximum number of
shares subject to any individual option, in the event the Corporation effects
one or more reorganizations, recapitalizations, spin-offs, split-ups, rights
offerings or reductions of shares of its outstanding Common Stock.

 

                The Committee’s determinations
under this Section 8 shall be conclusive and binding on all parties.

 

9.             MERGER,
LIQUIDATION, OTHER CORPORATION TRANSACTIONS.

 

In the event of
the proposed liquidation or dissolution of the Corporation, the Option Period
will terminate immediately prior to the consummation of such proposed
transaction, unless otherwise provided by the Committee in its sole discretion,
and all outstanding options shall automatically terminate and the amounts of
all payroll deductions will be refunded without interest to the Participants.

 

In the event of a
proposed sale of all or substantially all of the assets of the Corporation, or
the merger or consolidation of the Corporation with or into another
corporation, then in the sole discretion of the Committee, (1) each option
shall be assumed or an equivalent option shall be substituted by the successor
corporation or parent or subsidiary of such successor corporation, (2) a date
established by the Committee on or before the date of consummation of such
merger, consolidation or sale shall be treated as an Exercise Date, and all
outstanding options shall be deemed exercisable on such date or (3) all
outstanding options shall terminate and the accumulated payroll deductions
shall be returned to the Participants.

 

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10.          TRANSFERABILITY.

 

Options granted to Participants may not be voluntarily
or involuntarily assigned, transferred, pledged, or otherwise disposed of in
any way, and any attempted assignment, transfer, pledge, or other disposition
shall be null and void and without effect. 
If a Participant in any manner attempts to transfer, assign or otherwise
encumber his or her rights or interest under the Plan, other than as permitted
by the Code, such act shall be treated as an election by the participant to
discontinue participation in the Plan pursuant to Section 4.2.

 

11.          AMENDMENT
OR TERMINATION OF THE PLAN.

 

11.1         The Plan shall continue until March 25,
2006, unless previously terminated in accordance with Section 11.2.

 

11.2         The Board may, in its sole discretion,
insofar as permitted by law, terminate or suspend the Plan, or revise or amend
it in any respect whatsoever, except that, without approval of the
stockholders, no such revision or amendment shall:

 

(a) materially
increase the number of shares subject to the Plan other than an adjustment
under Section 8 of the Plan;

 

(b) materially
modify the requirements as to eligibility for participation in the Plan;

 

(c) materially
increase the benefits accruing to Participants;

 

(d) reduce the
purchase price specified in Section 5.4, except as specified in Section 8;

 

(e) extend the
term of the Plan beyond the date specified in Section 11.1; or

 

(f) amend this
Section 11.2 to defeat its purpose.

 

12.          ADMINISTRATION.

 

The Plan shall be
administered by a Committee which shall consist of at least two members
appointed by the Board.  The Committee
shall have full power and authority to promulgate any rules and regulations
which it deems necessary for the proper administration of the Plan, to
interpret the provisions and supervise the administration of the Plan, and to
take all action in connection with administration of the Plan as it deems
necessary or advisable.  Decisions of
the Committee shall be made by a majority of its members and shall be final and
binding upon all participants.  Any
decision reduced to writing and signed by a majority of the members of the
Committee shall be fully effective as if it had been made at a meeting of the
Committee duly held.  The Corporation
shall pay all expenses incurred in the administration of 

 

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the Plan.  No Committee member shall be liable for any
action or determination made in good faith with respect to the Plan or any
option granted thereunder.

 

13.          PROVISION
OF INFORMATION.

 

Each Participant
who has exercised all or part of his or her option shall receive, as soon as
practicable after the Exercise Date, a report of such Participant’s Plan
account setting forth the total payroll deductions accumulated prior to such
exercise, the number of shares purchased, the option price for such shares, the
date of purchase and the cash balance, if any, remaining immediately after such
purchase that is to be refunded or retained in the Participant’s Plan account
pursuant to Section 5.5.  The
report required by this Section may be delivered in such form and by such
means, including by electronic transmission, as the Corporation may
determine.  In addition, each
Participant shall be provided information concerning the Corporation equivalent
to that information provided generally to the Corporation’s common
stockholders.  At least annually, copies
of the Corporation’s balance sheet and income statement for the just completed
fiscal year shall be made available to each Participant.  The Corporation shall not be required to
provide such information to key employees whose duties in connection with the
Corporation assure them access to equivalent information.

 

14.          COMMITTEE
RULES FOR FOREIGN JURISDICTIONS.

 

The Committee may
adopt rules or procedures relating to te operation and administration of the
Plan in non-United States jurisdictions to accommodate the specific
requirements of local laws and procedures. 
Without limiting the generality of the foregoing, the Committee is
specifically authorized to adopt rules and procedures regarding handling of
payroll deductions, conversion of local currency, withholding procedures and
handling of stock certificates which vary with local requirements.

 

15.          SECURITIES
LAWS REQUIREMENTS.

 

The Corporation
shall not be under any obligation to issue Common Stock upon the exercise of
any option unless and until the Corporation has determined that: (i) it and the
Participant have taken all actions required to register the Common Stock under
the Securities Act of 1933, or to perfect an exemption from the registration
requirements thereof; (ii) any applicable listing requirement of any stock
exchange on which the Common Stock is listed has been satisfied; and (iii) all
other applicable provisions of state and federal law have been satisfied.

 

16.          GOVERNMENTAL
REGULATIONS.

 

This Plan and the
Corporation’s obligation to sell and deliver shares of its stock under the Plan
shall be subject to the approval of any governmental authority required in
connection with the Plan or the authorization, issuance, sale, or delivery of
stock hereunder.

 

17.          NO
ENLARGEMENT OF EMPLOYEE RIGHTS.

 

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Nothing contained
in this Plan shall be deemed to give any Employee the right to be retained in
the employ of the Corporation or any Designated Subsidiary or to interfere with
the right of the Corporation or Designated Subsidiary to discharge any Employee
at any time.

 

18.          GOVERNING
LAW.

 

This Plan shall be
governed by California law, but shall be interpreted to be consistent with the
requirements of any employee stock purchase plan under Code section 423.

 

19.          EFFECTIVE
DATE.

 

This Plan shall be
effective March 26, 1996, subject to approval of the stockholders of the
Corporation within 12 months of its adoption by the Board of Directors.

 

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PLAN HISTORY

 

	
  May 26, 1996

  	
   

  	
  Board adopts Plan, with
  an initial reserve of 400,000 shares.

  
	
   

  	
   

  	
   

  
	
  May    , 1996

  	
   

  	
  Stockholders
  approve Plan, with an initial reserve of 400,000 shares.

  
	
   

  	
   

  	
   

  
	
  August 7, 1997

  	
   

  	
  Board approved
  an increase to the Plan of 450,000 shares from 400,000 shares to 850,000
  shares.

  
	
   

  	
   

  	
   

  
	
  October 3, 1997

  	
   

  	
  Stockholders
  approve an increase to the Plan of 450,000 shares from 400,000 shares to
  850,000 shares.

  
	
   

  	
   

  	
   

  
	
  November 22,
  1999

  	
   

  	
  Board approves a
  2 for 1 stock split, thereby increasing the share reserve of the Plan to
  1,700,000.

  
	
   

  	
   

  	
   

  
	
  May 18, 2001

  	
   

  	
  Board approves
  an increase to the Plan of 1,000,000 from 1,700,000 shares to 2,700,000
  shares.

  
	
   

  	
   

  	
   

  
	
  September 29,
  2001

  	
   

  	
  Stockholders
  approve an increase to the Plan of 1,000,000 from 1,700,000 shares to
  2,700,000 shares.

  
	
   

  	
   

  	
   

  
	
  November 15,
  2001

  	
   

  	
  Board approved
  the amended plan.

  

 

10EXHIBIT
10.9

 

UNIFY
CORPORATION

2001
STOCK OPTION PLAN

 

1.             Establishment, Purpose and Term of Plan.

 

1.1           Establishment.  The Unify Corporation 2001 Stock Option Plan (the “Plan”) is hereby established effective as of
May 18, 2001.

 

1.2           Purpose.  The purpose of the Plan is to advance the interests of the
Participating Company Group and its stockholders by providing an incentive to
attract, retain and reward persons performing services for the Participating
Company Group and by motivating such persons to contribute to the growth and
profitability of the Participating Company Group.

 

1.3           Term of Plan.  The Plan shall continue in effect until the earlier of its
termination by the Board or the date on which all of the shares of Stock
available for issuance under the Plan have been issued and all restrictions on
such shares under the terms of the Plan and the agreements evidencing Options
granted under the Plan have lapsed. 
However, all Options shall be granted, if at all, within ten (10)
years from the earlier of the date the Plan is adopted by the Board or the date
the Plan is duly approved by the stockholders of the Company.

 

2.             Definitions and Construction.

 

2.1           Definitions.  Whenever used herein, the following terms shall have their
respective meanings set forth below:

 

(a)           “Board”
means the Board of Directors of the Company. 
If one or more Committees have been appointed by the Board to administer
the Plan, “Board” also means such Committee(s).

 

(b)           “Code” means the Internal Revenue Code of 1986,
as amended, and any applicable regulations promulgated thereunder.

 

(c)           “Committee” means the Compensation Committee or
other committee of the Board duly appointed to administer the Plan and having
such powers as shall be specified by the Board.  Unless the powers of the Committee have been specifically
limited, the Committee shall have all of the powers of the Board granted
herein, including, without limitation, the power to amend or terminate the Plan
at any time, subject to the terms of the Plan and any applicable limitations
imposed by law.

 

(d)           “Company” means Unify Corporation, a Delaware
corporation, or any successor corporation thereto.

 

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(e)           “Consultant” means a person engaged to provide
consulting or advisory services (other than as an Employee or a Director) to a
Participating Company, provided that the identity of such person, the nature of
such services or the entity to which such services are provided would not
preclude the Company from offering or selling securities to such person
pursuant to the Plan in reliance on registration on a Form S-8 Registration
Statement under the Securities Act.

 

(f)            “Director” means a member of the Board or of the
board of directors of any other Participating Company.

 

(g)           “Disability” means the inability of the Optionee, in
the opinion of a qualified physician acceptable to the Company, to perform the
major duties of the Optionee’s position with the Participating Company Group
because of the sickness or injury of the Optionee.

 

(h)           “Employee” means any person treated as an employee
(including an Officer or a Director who is also treated as an employee) in the
records of a Participating Company and, with respect to any Incentive Stock
Option granted to such person, who is an employee for purposes of Section 422
of the Code; provided, however, that neither service as a Director nor payment
of a director’s fee shall be sufficient to constitute employment for purposes
of the Plan.  The Company shall
determine in good faith and in the exercise of its discretion whether an
individual has become or has ceased to be an Employee and the effective date of
such individual’s employment or termination of employment, as the case may
be.  For purposes of an individual’s
rights, if any, under the Plan as of the time of the Company’s determination,
all such determinations by the Company shall be final, binding and conclusive,
notwithstanding that the Company or any court of law or governmental agency
subsequently makes a contrary determination.

 

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

 

(j)            “Fair Market Value” means, as of any date, the value of a
share of Stock or other property as determined by the Board, in its discretion,
or by the Company, in its discretion, if such determination is expressly
allocated to the Company herein, subject to the following:

 

(i)            If, on such date, the Stock is
listed on a national or regional securities exchange or market system, the Fair
Market Value of a share of Stock shall be the closing price of a share of Stock
(or the mean of the closing bid and asked prices of a share of Stock if the
Stock is so quoted instead) as quoted on the Nasdaq National Market, The Nasdaq
SmallCap Market or such other national or regional securities exchange or
market system constituting the primary market for the Stock, as reported in The
Wall Street Journal or such other source as the Company deems
reliable.  If the relevant date does not
fall on a day on which the Stock has traded on such securities exchange or
market system, the date on which the Fair Market Value shall be established
shall be the last day on which the Stock was so traded prior to 

 

2

 

the relevant date,
or such other appropriate day as shall be determined by the Board, in its
discretion.

 

(ii)           If, on such date, the Stock is not
listed on a national or regional securities exchange or market system, the Fair
Market Value of a share of Stock shall be as determined by the Board in good
faith without regard to any restriction other than a restriction which, by its
terms, will never lapse.

 

(k)           “Incentive Stock Option” means an Option intended to be (as set
forth in the Option Agreement) and which qualifies as an incentive stock option
within the meaning of Section 422(b) of the Code.

 

(l)            “Insider” means an Officer, a Director of the
Company or other person whose transactions in Stock are subject to
Section 16 of the Exchange Act.

 

(m)          “Nonstatutory Stock
Option” means an Option not intended to be (as
set forth in the Option Agreement) or which does not qualify as an Incentive
Stock Option.

 

(n)           “Officer” means any person
designated by the Board as an officer of the Company.

 

(o)           “Option” means a right to purchase Stock pursuant
to the terms and conditions of the Plan. 
An Option may be either an Incentive Stock Option or a Nonstatutory
Stock Option.

 

(p)           “Option Agreement” means a written agreement between the
Company and an Optionee setting forth the terms, conditions and restrictions of
the Option granted to the Optionee and any shares acquired upon the exercise
thereof.  An Option Agreement may
consist of a form of “Notice of Grant of Stock Option” and a form of “Stock
Option Agreement” incorporated therein by reference, or such other form or forms
as the Board may approve from time to time.

 

(q)           “Optionee”
means a person who has been granted one or more Options.

 

(r)            “Parent Corporation” means any present or future “parent
corporation” of the Company, as defined in Section 424(e) of the Code.

 

(s)           “Participating Company” means the Company or any Parent
Corporation or Subsidiary Corporation.

 

(t)            “Participating Company Group” means, at any point in time, all
corporations collectively which are then Participating Companies.

 

(u)           “Rule 16b-3”
means Rule 16b–3 under the Exchange Act, as amended from time to
time, or any successor rule or regulation.

 

3

 

(v)           “Section 162(m)” means Section 162(m) of
the Code.

 

(w)          “Securities Act” means the Securities Act of 1933, as
amended.

 

(x)            “Service” means an Optionee’s employment or
service with the Participating Company Group, whether in the capacity of an
Employee, a Director or a Consultant. 
An Optionee’s Service shall not be deemed to have terminated merely because
of a change in the capacity in which the Optionee renders Service to the
Participating Company Group or a change in the Participating Company for which
the Optionee renders such Service, provided that there is no interruption or
termination of the Optionee’s Service. 
Furthermore, an Optionee’s Service with the Participating Company Group
shall not be deemed to have terminated if the Optionee takes any military
leave, sick leave, or other bona fide leave of absence approved by the Company;
provided, however, that if any such leave exceeds ninety (90) days, on the
ninety-first (91st) day of such leave the Optionee’s Service shall be deemed to
have terminated unless the Optionee’s right to return to Service with the
Participating Company Group is guaranteed by statute or contract.  Notwithstanding the foregoing, unless
otherwise designated by the Company or required by law, a leave of absence
shall not be treated as Service for purposes of determining vesting under the
Optionee’s Option Agreement.  The Optionee’s
Service shall be deemed to have terminated either upon an actual termination of
Service or upon the corporation for which the Optionee performs Service ceasing
to be a Participating Company.  Subject
to the foregoing, the Company, in its discretion, shall determine whether the
Optionee’s Service has terminated and the effective date of such termination.

 

(y)           “Stock” means the common stock of the Company,
as adjusted from time to time in accordance with Section 4.2.

 

(z)            “Subsidiary Corporation” means any present or future “subsidiary
corporation” of the Company, as defined in Section 424(f) of the Code.

 

(aa)         “Ten Percent Owner
Optionee”
means an Optionee who, at the time an Option is granted to the Optionee, owns
stock possessing more than ten percent (10%) of the total combined voting power
of all classes of stock of a Participating Company within the meaning of
Section 422(b)(6) of the Code.

 

2.2           Construction.  Captions and titles contained herein are for convenience only and
shall not affect the meaning or interpretation of any provision of the
Plan.  Except when otherwise indicated
by the context, the singular shall include the plural and the plural shall
include the singular.  Use of the term
“or” is not intended to be exclusive, unless the context clearly requires
otherwise.

 

3.             Administration.

 

3.1           Administration by the Board.  The Plan shall be administered by the
Board.  All questions of interpretation
of the Plan or of any Option shall be determined by the

 

4

 

Board, and such
determinations shall be final and binding upon all persons having an interest
in the Plan or such Option.

 

3.2           Authority of Officers.  Any Officer shall have the authority to act
on behalf of the Company with respect to any matter, right, obligation,
determination or election which is the responsibility of or which is allocated
to the Company herein, provided the Officer has apparent authority with respect
to such matter, right, obligation, determination or election.

 

3.3           Powers of the Board.  In addition to any other powers set forth in the Plan and subject
to the provisions of the Plan, the Board shall have the full and final power
and authority, in its discretion:

 

(a)           to determine the persons to whom, and
the time or times at which, Options shall be granted and the number of shares
of Stock to be subject to each Option;

 

(b)           to designate Options as Incentive
Stock Options or Nonstatutory Stock Options;

 

(c)           to determine the Fair Market Value of
shares of Stock or other property;

 

(d)           to determine the terms, conditions
and restrictions applicable to each Option (which need not be identical) and
any shares acquired upon the exercise thereof, including, without limitation,
(i) the exercise price of the Option, (ii) the method of payment for shares
purchased upon the exercise of the Option, (iii) the method for satisfaction of
any tax withholding obligation arising in connection with the Option or such
shares, including by the withholding or delivery of shares of stock, (iv) the
timing, terms and conditions of the exercisability of the Option or the vesting
of any shares acquired upon the exercise thereof, (v) the time of the
expiration of the Option, (vi) the effect of the Optionee’s termination of
Service with the Participating Company Group on any of the foregoing, and (vii)
all other terms, conditions and restrictions applicable to the Option or such
shares not inconsistent with the terms of the Plan;

 

(e)           to approve one or more forms of
Option Agreement;

 

(f)            to amend, modify, extend, cancel or
renew any Option or to waive any restrictions or conditions applicable to any
Option or any shares acquired upon the exercise thereof;

 

(g)           to accelerate, continue, extend or
defer the exercisability of any Option or the vesting of any shares acquired
upon the exercise thereof, including with respect to the period following an
Optionee’s termination of Service with the Participating Company Group;

 

(h)           to prescribe, amend or rescind rules,
guidelines and policies relating to the Plan, or to adopt supplements to, or
alternative versions of, the Plan, including, 

 

5

 

without
limitation, as the Board deems necessary or desirable to comply with the laws
of, or to accommodate the tax policy or custom of, foreign jurisdictions whose
citizens may be granted Options; and

 

(i)            to correct any defect, supply any
omission or reconcile any inconsistency in the Plan or any Option Agreement and
to make all other determinations and take such other actions with respect to
the Plan or any Option as the Board may deem advisable to the extent not
inconsistent with the provisions of the Plan or applicable law.

 

3.4           Committee Complying with Section 162(m).  If a Participating Company is a “publicly
held corporation” within the meaning of Section 162(m), the Board may establish
a Committee of “outside directors” within the meaning of Section 162(m) to
approve the grant of any Option which might reasonably be anticipated to result
in the payment of employee remuneration that would otherwise exceed the limit
on employee remuneration deductible for income tax purposes pursuant to Section
162(m).

 

3.5           Administration with Respect to Insiders.  With respect to participation by Insiders in
the Plan, at any time that any class of equity security of the Company is
registered pursuant to Section 12 of the Exchange Act, the Plan shall be
administered in compliance with the requirements, if any, of Rule 16b–3.

 

3.6           Indemnification.  In addition to such other rights of indemnification as they may
have as members of the Board or officers or employees of the Participating
Company Group, members of the Board and any officers or employees of the
Participating Company Group to whom authority to act for the Board or the
Company is delegated shall be indemnified by the Company against all reasonable
expenses, including attorneys’ fees, actually and necessarily incurred in
connection with the defense of any action, suit or proceeding, or in connection
with any appeal therein, to which they or any of them may be a party by reason
of any action taken or failure to act under or in connection with the Plan, or
any right granted hereunder, and against all amounts paid by them in settlement
thereof (provided such settlement is approved by independent legal counsel
selected by the Company) or paid by them in satisfaction of a judgment in any
such action, suit or proceeding, except in relation to matters as to which it
shall be adjudged in such action, suit or proceeding that such person is liable
for gross negligence, bad faith or intentional misconduct in duties; provided,
however, that within sixty (60) days after the institution of such action, suit
or proceeding, such person shall offer to the Company, in writing, the
opportunity at its own expense to handle and defend the same.

 

4.             Shares Subject to Plan.

 

4.1           Maximum Number of Shares Issuable.  Subject to adjustment as provided in
Section 4.2, the maximum aggregate number of shares of Stock that may be
issued under the Plan shall be one million nine hundred fifty thousand
(1,950,000) and shall consist of authorized but unissued or reacquired shares
of Stock or any combination thereof.  If
an outstanding Option for any reason expires or is terminated or canceled or if
shares of Stock are acquired upon the exercise of an Option subject to a
Company repurchase option and are repurchased by the Company at the Optionee’s
exercise price, the shares of Stock allocable to the unexercised portion of
such Option or such repurchased shares of Stock shall again be available 

 

6

 

for issuance under
the Plan.  However, except as adjusted
pursuant to Section 4.2, in no event shall more than one million nine
hundred fifty thousand (1,950,000) shares of Stock be available for issuance
pursuant to the exercise of Incentive Stock Options (the “ISO Share Issuance Limit”).  Notwithstanding the foregoing, at any such
time as the offer and sale of securities pursuant to the Plan is subject to
compliance with Section 260.140.45 of Title 10 of the California Code of
Regulations (“Section
260.140.45”),
the total number of shares of Stock issuable upon the exercise of all
outstanding Options (together with options outstanding under any other stock
option plan of the Company) and the total number of shares provided for under
any stock bonus or similar plan of the Company shall not exceed thirty percent
(30%) (or such other higher percentage limitation as may be approved by the
stockholders of the Company pursuant to Section 260.140.45) of the then
outstanding shares of the Company as calculated in accordance with the
conditions and exclusions of Section 260.140.45.

 

4.2           Adjustments for Changes in Capital Structure.  In the event of any stock dividend, stock
split, reverse stock split, recapitalization, combination, reclassification or
similar change in the capital structure of the Company, appropriate adjustments
shall be made in the number and class of shares subject to the Plan and to any
outstanding Options, in the ISO Share Issuance Limit set forth in
Section 4.1, in the Section 162(m) Grant Limit set forth in Section 5.4
and in the exercise price per share of any outstanding Options.  If a majority of the shares which are of the
same class as the shares that are subject to outstanding Options are exchanged
for, converted into, or otherwise become (whether or not pursuant to an
Ownership Change Event, as defined in Section 8.1) shares of another
corporation (the “New Shares”), the Board may unilaterally amend the
outstanding Options to provide that such Options are exercisable for New
Shares.  In the event of any such
amendment, the number of shares subject to, and the exercise price per share
of, the outstanding Options shall be adjusted in a fair and equitable manner as
determined by the Board, in its discretion. 
Notwithstanding the foregoing, any fractional share resulting from an
adjustment pursuant to this Section 4.2 shall be rounded down to the
nearest whole number, and in no event may the exercise price of any Option be
decreased to an amount less than the par value, if any, of the stock subject to
the Option.  The adjustments determined
by the Board pursuant to this Section 4.2 shall be final, binding and
conclusive.

 

5.             Eligibility and Option Limitations.

 

5.1           Persons Eligible for Options.  Options may be granted only to Employees,
Consultants, and Directors.  For
purposes of the foregoing sentence, “Employees,”“Consultants” and “Directors” shall include prospective Employees,
prospective Consultants and prospective Directors to whom Options are granted
in connection with written offers of an employment or other service
relationship with the Participating Company Group.  Eligible persons may be granted more than one (1) Option.  However, eligibility in accordance with this
Section shall not entitle any person to be granted an Option, or, having been
granted an Option, to be granted an additional Option.

 

5.2           Option Grant Restrictions.  Any person who is not an Employee on the
effective date of the grant of an Option to such person may be granted only a
Nonstatutory Stock Option.  An Incentive
Stock Option granted to a prospective Employee upon the condition that 

 

7

 

such person become
an Employee shall be deemed granted effective on the date such person commences
Service with a Participating Company, with an exercise price determined as of
such date in accordance with Section 6.1.

 

5.3           Fair Market Value Limitation.  To the extent that options designated as
Incentive Stock Options (granted under all stock option plans of the
Participating Company Group, including the Plan) become exercisable by an
Optionee for the first time during any calendar year for stock having a Fair
Market Value greater than One Hundred Thousand Dollars ($100,000), the portions
of such options which exceed such amount shall be treated as Nonstatutory Stock
Options.  For purposes of this
Section 5.3, options designated as Incentive Stock Options shall be taken
into account in the order in which they were granted, and the Fair Market Value
of stock shall be determined as of the time the option with respect to such
stock is granted.  If the Code is
amended to provide for a different limitation from that set forth in this
Section 5.3, such different limitation shall be deemed incorporated herein
effective as of the date and with respect to such Options as required or
permitted by such amendment to the Code. 
If an Option is treated as an Incentive Stock Option in part and as a
Nonstatutory Stock Option in part by reason of the limitation set forth in this
Section 5.3, the Optionee may designate which portion of such Option the
Optionee is exercising.  In the absence
of such designation, the Optionee shall be deemed to have exercised the
Incentive Stock Option portion of the Option first.  Separate certificates representing each such portion shall be
issued upon the exercise of the Option.

 

5.4           Section 162(m) Grant Limit.  Subject to adjustment as provided in Section
4.2, no Employee shall be granted one or more Options within any fiscal year of
the Company which in the aggregate are for the purchase of more than one
million (1,000,000) shares (the “Section 162(m) Grant Limit”).  An Option which is canceled in the same fiscal year in which it
was granted shall continue to be counted against the Section 162(m) Grant Limit
for such period.

 

6.             TERMS AND CONDITIONS OF OPTIONS.

 

Options shall be
evidenced by Option Agreements specifying the number of shares of Stock covered
thereby, in such form as the Board shall from time to time establish.  No Option or purported Option shall be a
valid and binding obligation of the Company unless evidenced by a fully
executed Option Agreement.  Option Agreements
may incorporate all or any of the terms of the Plan by reference and shall
comply with and be subject to the following terms and conditions:

 

6.1           Exercise Price.  The exercise price for each Option shall be established in the
discretion of the Board; provided, however, that (a) the exercise price
per share for an Incentive Stock Option shall be not less than the Fair Market
Value of a share of Stock on the effective date of grant of the Option,
(b) the exercise price per share for a Nonstatutory Stock Option shall be
not less than eighty–five percent (85%) of the Fair Market Value of a
share of Stock on the effective date of grant of the Option, and (c) no
Option granted to a Ten Percent Owner Optionee shall have an exercise price per
share less than one hundred ten percent (110%) of the Fair Market Value of a
share of Stock on the effective date of grant of the Option. 

 

8

 

Notwithstanding
the foregoing, an Option (whether an Incentive Stock Option or a Nonstatutory
Stock Option) may be granted with an exercise price lower than the minimum
exercise price set forth above if such Option is granted pursuant to an
assumption or substitution for another option in a manner qualifying under the
provisions of Section 424(a) of the Code.

 

6.2           Exercisability and Term of Options.  Options shall be exercisable at such time or
times, or upon such event or events, and subject to such terms, conditions,
performance criteria and restrictions as shall be determined by the Board and
set forth in the Option Agreement evidencing such Option; provided, however,
that (a) no Option shall be exercisable after the expiration of ten (10)
years after the effective date of grant of such Option, (b) no Incentive
Stock Option granted to a Ten Percent Owner Optionee shall be exercisable after
the expiration of five (5) years after the effective date of grant of such
Option, (c) no Option granted to a prospective Employee, prospective
Consultant or prospective Director may become exercisable prior to the date on
which such person commences Service with a Participating Company, and (d) with
the exception of an Option granted to an Officer, a Director or a Consultant,
no Option shall become exercisable at a rate less than twenty percent (20%) per
year over a period of five (5) years from the effective date of grant of such
Option, subject to the Optionee’s continued Service.  Subject to the foregoing, unless otherwise specified by the Board
in the grant of an Option, any Option granted hereunder shall terminate ten
(10) years after the effective date of grant of the Option, unless earlier
terminated in accordance with its provisions.

 

6.3           Payment of Exercise Price.

 

(a)           Forms of Consideration Authorized.  Except as otherwise provided below, payment
of the exercise price for the number of shares of Stock being purchased
pursuant to any Option shall be made (i) in cash, by check or cash
equivalent, (ii) by tender to the Company, or attestation to the
ownership, of shares of Stock owned by the Optionee having a Fair Market Value
not less than the exercise price, (iii) by the assignment of the proceeds
of a sale or loan with respect to some or all of the shares being acquired upon
the exercise of the Option (including, without limitation, through an exercise
complying with the provisions of Regulation T as promulgated from time to
time by the Board of Governors of the Federal Reserve System) (a “Cashless Exercise”), (iv) provided that the Optionee is an
Employee (unless otherwise not prohibited by law, including, without
limitation, any regulation promulgated by the Board of Governors of the Federal
Reserve System) and in the Company’s sole discretion at the time the Option is
exercised, by delivery of the Optionee’s promissory note in a form approved by
the Company for the aggregate exercise price, provided that, if the Company is
incorporated in the State of Delaware, the Optionee shall pay in cash that
portion of the aggregate exercise price not less than the par value of the
shares being acquired, (v) by such other consideration as may be approved
by the Board from time to time to the extent permitted by applicable law, or
(vi) by any combination thereof. 
The Board may at any time or from time to time, by approval of or by
amendment to the standard forms of Option Agreement described in
Section 7, or by other means, grant Options which do not permit all of the
foregoing forms of consideration to be used in payment of the exercise price or
which otherwise restrict one or more forms of consideration.

 

9

 

(b)           Limitations on Forms of Consideration.

 

(i)            Tender of Stock.  Notwithstanding the foregoing, an Option may not be exercised by
tender to the Company, or attestation to the ownership, of shares of Stock to
the extent such tender or attestation would constitute a violation of the
provisions of any law, regulation or agreement restricting the redemption of
the Company’s stock.  Unless otherwise
provided by the Board, an Option may not be exercised by tender to the Company,
or attestation to the ownership, of shares of Stock unless such shares either
have been owned by the Optionee for more than six (6) months (and not used for
another Option exercise by attestation during such period) or were not
acquired, directly or indirectly, from the Company.

 

(ii)           Cashless Exercise.  The Company reserves, at any and all times,
the right, in the Company’s sole and absolute discretion, to establish, decline
to approve or terminate any program or procedures for the exercise of Options
by means of a Cashless Exercise.

 

(iii)          Payment by Promissory Note.  No promissory note shall be permitted if the
exercise of an Option using a promissory note would be a violation of any
law.  Any permitted promissory note
shall be on such terms as the Board shall determine.  The Board shall have the authority to permit or require the
Optionee to secure any promissory note used to exercise an Option with the
shares of Stock acquired upon the exercise of the Option or with other
collateral acceptable to the Company. 
Unless otherwise provided by the Board, if the Company at any time is
subject to the regulations promulgated by the Board of Governors of the Federal
Reserve System or any other governmental entity affecting the extension of
credit in connection with the Company’s securities, any promissory note shall comply
with such applicable regulations, and the Optionee shall pay the unpaid
principal and accrued interest, if any, to the extent necessary to comply with
such applicable regulations.

 

6.4           Tax Withholding.  The Company shall have the right, but not the obligation, to
deduct from the shares of Stock issuable upon the exercise of an Option, or to
accept from the Optionee the tender of, a number of whole shares of Stock
having a Fair Market Value, as determined by the Company, equal to all or any
part of the federal, state, local and foreign taxes, if any, required by law to
be withheld by the Participating Company Group with respect to such Option or
the shares acquired upon the exercise thereof. 
Alternatively or in addition, in its discretion, the Company shall have
the right to require the Optionee, through payroll withholding, cash payment or
otherwise, to make adequate provision for any such tax withholding obligations
of the Participating Company Group arising in connection with the Option or the
shares acquired upon the exercise thereof. 
The Fair Market Value of any shares of Stock withheld or tendered to
satisfy any such tax withholding obligations shall not exceed the amount
determined by the applicable minimum statutory withholding rates.  The Company shall have no obligation to
deliver shares of Stock or to release shares of Stock from an escrow
established pursuant to the Option Agreement until the Participating Company
Group’s tax withholding obligations have been satisfied by the Optionee.

 

10

 

6.5           Effect of Termination of Service.

 

(a)           Option Exercisability.  Subject to earlier termination of the Option
as otherwise provided herein and unless otherwise provided by the Board in the
grant of an Option and set forth in the Option Agreement, an Option shall be
exercisable after an Optionee’s termination of Service only during the
applicable time period determined in accordance with this Section 6.6 and
thereafter shall terminate:

 

(i)            Disability.  If the Optionee’s Service terminates because of the Disability of
the Optionee, the Option, to the extent unexercised and exercisable on the date
on which the Optionee’s Service terminated, may be exercised by the Optionee
(or the Optionee’s guardian or legal representative) at any time prior to the
expiration of twelve (12) months (or such longer period of time as determined
by the Board, in its discretion) after the date on which the Optionee’s Service
terminated, but in any event no later than the date of expiration of the
Option’s term as set forth in the Option Agreement evidencing such Option (the “Option
Expiration Date”).

 

(ii)           Death. 
If the Optionee’s Service terminates because of the death of the
Optionee, the Option, to the extent unexercised and exercisable on the date on
which the Optionee’s Service terminated, may be exercised by the Optionee’s
legal representative or other person who acquired the right to exercise the
Option by reason of the Optionee’s death at any time prior to the expiration of
twelve (12) months (or such longer period of time as determined by the Board,
in its discretion) after the date on which the Optionee’s Service terminated,
but in any event no later than the Option Expiration Date.  The Optionee’s Service shall be deemed to have
terminated on account of death if the Optionee dies within ninety (90) days (or
such longer period of time as determined by the Board, in its discretion) after
the Optionee’s termination of Service.

 

(iii)          Other Termination of Service.  If the Optionee’s Service terminates for any
reason, except Disability or death, the Option, to the extent unexercised and
exercisable by the Optionee on the date on which the Optionee’s Service
terminated, may be exercised by the Optionee at any time prior to the expiration
of ninety (90) days (or such longer period of time as determined by the Board,
in its discretion) after the date on which the Optionee’s Service terminated,
but in any event no later than the Option Expiration Date.

 

(b)           Extension if Exercise Prevented by Law.  Notwithstanding the foregoing, if the
exercise of an Option within the applicable time periods set forth in
Section 6.5(a) is prevented by the provisions of Section 10 below,
the Option shall remain exercisable until three (3) months (or such longer
period of time as determined by the Board, in its discretion) after the date
the Optionee is notified by the Company that the Option is exercisable, but in
any event no later than the Option Expiration Date.

 

(c)           Extension if Optionee Subject to Section 16(b).  Notwithstanding the foregoing, if a sale
within the applicable time periods set forth in Section 6.5(a) of shares
acquired upon the exercise of the Option would subject the Optionee to suit
under Section 16(b)

 

11

 

of the Exchange
Act, the Option shall remain exercisable until the earliest to occur of
(i) the tenth (10th) day following the date on which a sale of such shares
by the Optionee would no longer be subject to such suit, (ii) the one hundred
and ninetieth (190th) day after the Optionee’s termination of Service, or
(iii) the Option Expiration Date.

 

6.6           Transferability of Options.  During
the lifetime of the Optionee, an Option shall be exercisable only by the
Optionee or the Optionee’s guardian or legal representative.  No Option shall be assignable or
transferable by the Optionee, except by will or by the laws of descent and
distribution.  Notwithstanding the foregoing,
to the extent permitted by the Board, in its discretion, and set forth in the
Option Agreement evidencing such Option, a Nonstatutory Stock Option shall be
assignable or transferable subject to the applicable limitations, if any,
described in Section 260.140.41 of Title 10 of the California Code of
Regulations and the General Instructions to Form S-8 Registration Statement
under the Securities Act.

 

7.             STANDARD FORMS OF
OPTION AGREEMENT.

 

7.1           Option Agreement.  Unless otherwise provided by the Board at the time the Option is
granted, an Option shall comply with and be subject to the terms and conditions
set forth in the form of Option Agreement approved by the Board concurrently
with its adoption of the Plan and as amended from time to time.

 

7.2           Authority to Vary Terms.  The Board shall have the authority from time
to time to vary the terms of any standard form of Option Agreement described in
this Section 7 either in connection with the grant or amendment of an
individual Option or in connection with the authorization of a new standard
form or forms; provided, however, that the terms and conditions of any such
new, revised or amended standard form or forms of Option Agreement are not
inconsistent with the terms of the Plan.

 

8.             CHANGE IN CONTROL.

 

8.1           Definitions.

 

(a)           An “Ownership Change Event” shall be deemed
to have occurred if any of the following occurs with respect to the
Company:  (i) the direct or indirect
sale or exchange in a single or series of related transactions by the
stockholders of the Company of more than fifty percent (50%) of the voting
stock of the Company; (ii) a merger or consolidation in which the Company is a
party; (iii) the sale, exchange, or transfer of all or substantially all of the
assets of the Company; or (iv) a liquidation or dissolution of the Company.

 

(b)           A “Change in Control” shall mean an
Ownership Change Event or a series of related Ownership Change Events
(collectively, a “Transaction”)
wherein the stockholders of the Company immediately before the Transaction do
not retain immediately after the Transaction, in substantially the same proportions
as their ownership of shares of the Company’s voting stock immediately before the
Transaction, direct or indirect beneficial ownership of more than fifty percent
(50%) of the total combined voting power of the 

 

12

 

outstanding voting
securities of the Company or, in the case of a Transaction described in Section
8.1(a)(iii), the corporation or other business entity to which the assets of
the Company were transferred (the “Transferee”), as the case may
be.  For purposes of the preceding
sentence, indirect beneficial ownership shall include, without limitation, an
interest resulting from ownership of the voting securities of one or more
corporations or other business entities which own the Company or the
Transferee, as the case may be, either directly or through one or more
subsidiary corporations or other business entities.  The Board shall have the right to determine whether multiple
sales or exchanges of the voting securities of the Company or multiple
Ownership Change Events are related, and its determination shall be final,
binding and conclusive.

 

8.2           Effect of Change in Control on Options.  In the event of a Change in Control, the
surviving, continuing, successor, or purchasing corporation or other business
entity or parent thereof, as the case may be (the “Acquiring
Corporation”),
may, without the consent of the Optionee, either assume the Company’s rights
and obligations under outstanding Options or substitute for outstanding Options
substantially equivalent options for the Acquiring Corporation’s stock.  Any Options which are neither assumed or
substituted for by the Acquiring Corporation in connection with the Change in
Control nor exercised as of the date of the Change in Control shall terminate
and cease to be outstanding effective as of the date of the Change in
Control.  Notwithstanding the foregoing,
shares acquired upon exercise of an Option prior to the Change in Control and
any consideration received pursuant to the Change in Control with respect to
such shares shall continue to be subject to all applicable provisions of the
Option Agreement evidencing such Option except as otherwise provided in such
Option Agreement.  Furthermore,
notwithstanding the foregoing, if the corporation the stock of which is subject
to the outstanding Options immediately prior to an Ownership Change Event
described in Section 8.1(a)(i) constituting a Change in Control is the
surviving or continuing corporation and immediately after such Ownership Change
Event less than fifty percent (50%) of the total combined voting power of its
voting stock is held by another corporation or by other corporations that are
members of an affiliated group within the meaning of Section 1504(a) of
the Code without regard to the provisions of Section 1504(b) of the Code,
the outstanding Options shall not terminate unless the Board otherwise provides
in its discretion.

 

9.             Provision of Information.

 

At least annually,
copies of the Company’s balance sheet and income statement for the just
completed fiscal year shall be made available to each Optionee and purchaser of
shares of Stock upon the exercise of an Option.  The Company shall not be required to provide such information to
key employees whose duties in connection with the Company assure them access to
equivalent information.

 

10.           Compliance with Securities Law.

 

The grant of
Options and the issuance of shares of Stock upon exercise of Options shall be
subject to compliance with all applicable requirements of federal, state and
foreign law with respect to such securities. 
Options may not be exercised if the issuance of shares of Stock upon
exercise would constitute a violation of any applicable federal, state or
foreign securities 

 

13

 

laws or other law
or regulations or the requirements of any stock exchange or market system upon
which the Stock may then be listed.  In
addition, no Option may be exercised unless (a) a registration statement under
the Securities Act shall at the time of exercise of the Option be in effect
with respect to the shares issuable upon exercise of the Option or (b) in
the opinion of legal counsel to the Company, the shares issuable upon exercise
of the Option may be issued in accordance with the terms of an applicable
exemption from the registration requirements of the Securities Act.  The inability of the Company to obtain from
any regulatory body having jurisdiction the authority, if any, deemed by the
Company’s legal counsel to be necessary to the lawful issuance and sale of any
shares hereunder shall relieve the Company of any liability in respect of the
failure to issue or sell such shares as to which such requisite authority shall
not have been obtained.  As a condition
to the exercise of any Option, the Company may require the Optionee to satisfy
any qualifications that may be necessary or appropriate, to evidence compliance
with any applicable law or regulation and to make any representation or
warranty with respect thereto as may be requested by the Company.

 

11.           Termination or Amendment of Plan.

 

The Board may terminate or amend the Plan at any
time.  However, subject to changes in
applicable law, regulations or rules that would permit otherwise, without the
approval of the Company’s stockholders, there shall be (a) no increase in
the maximum aggregate number of shares of Stock that may be issued under the
Plan (except by operation of the provisions of Section 4.2), (b) no
change in the class of persons eligible to receive Incentive Stock Options, and
(c) no other amendment of the Plan that would require approval of the
Company’s stockholders under any applicable law, regulation or rule.  No termination or amendment of the Plan
shall affect any then outstanding Option unless expressly provided by the
Board.  In any event, no termination or
amendment of the Plan may adversely affect any then outstanding Option without
the consent of the Optionee, unless such termination or amendment is required
to enable an Option designated as an Incentive Stock Option to qualify as an
Incentive Stock Option or is necessary to comply with any applicable law,
regulation or rule.

 

12.           Stockholder Approval.

 

The Plan or any
increase in the maximum aggregate number of shares of Stock issuable thereunder
as provided in Section 4.1 (the “Authorized Shares”) shall be approved by the stockholders
of the Company within twelve (12) months of the date of adoption thereof by the
Board.  Options granted prior to
stockholder approval of the Plan or in excess of the Authorized Shares previously
approved by the stockholders shall become exercisable no earlier than the date
of stockholder approval of the Plan or such increase in the Authorized Shares,
as the case may be.

 

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