Document:

Exhibit 10.1

 

FARGO ELECTRONICS, INC.

2003 STOCK INCENTIVE PLAN

 

1.             Purpose of Plan.

 

The purpose of the Fargo Electronics, Inc. 2003 Stock
Incentive Plan (the “Plan”) is to advance the interests of Fargo Electronics,
Inc. (the “Company”) and its stockholders by enabling the Company and its
Subsidiaries to attract and retain qualified individuals through opportunities
for equity participation in the Company, and to reward those individuals who
contribute to the Company’s achievement of its economic objectives.

 

2.             Definitions.

 

The following terms will have the meanings set forth
below, unless the context clearly otherwise requires:

 

2.1.   “Board” means the Company’s Board of
Directors.

 

2.2.   “Broker Exercise Notice” means a written
notice pursuant to which a Participant, upon exercise of an Option, irrevocably
instructs a broker or dealer to sell a sufficient number of shares or loan a
sufficient amount of money to pay all or a portion of the exercise price of the
Option and/or any related withholding tax obligations and remit such sums to
the Company and directs the Company to deliver stock certificates to be issued
upon such exercise directly to such broker or dealer or their nominee.

 

2.3.   “Cause” means (i) dishonesty, fraud,
misrepresentation, embezzlement or deliberate injury or attempted injury, in
each case related to the Company or any Subsidiary, (ii) any unlawful or
criminal activity of a serious nature, (iii) any intentional and deliberate
breach of a duty or duties that, individually or in the aggregate, are material
in relation to the Participant’s overall duties, or (iv) any material breach of
any confidentiality or noncompete agreement entered into with the Company or
any Subsidiary.

 

2.4.   “Change in Control” means an event
described in Section 10.1 of the Plan.

 

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

 

2.6.   “Committee” means the group of individuals
administering the Plan, as provided in Section 3 of the Plan.

 

2.7.   “Common Stock” means the common stock of
the Company, par value $0.01 per share, or the number and kind of shares of
stock or other securities into which such Common Stock may be changed in
accordance with Section 4.3 of the Plan.

 

2.8.   “Disability” means the disability of the
Participant such as would entitle the Participant to receive disability income
benefits pursuant to the long-term disability plan of the Company or
Subsidiary then covering the Participant or, if no such plan exists or is
applicable to the Participant, the permanent and total disability of the
Participant within the meaning of Section 22(e)(3) of the Code.

 

 

2.9.    “Effective
Date” means May 1, 2003 or such later date as the Plan is initially
approved by the Company’s stockholders.

 

2.10.        “Eligible Recipients” means all employees (including,
without limitation, officers and directors who are also employees) of the
Company or any Subsidiary and all non-employee directors.

 

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

 

2.12.        “Fair Market Value” means, with respect to
the Common Stock, as of any date:  (i)
the mean between the reported high and low sale prices of the Common Stock at
the end of the regular trading session, if the Common Stock is listed, admitted
to unlisted trading privileges, or reported on any national securities exchange
or on the Nasdaq National Market on such date (or, if no shares were traded on
such day, as of the next preceding day on which there was such a trade); or
(ii) if the Common Stock is not so listed, admitted to unlisted trading
privileges, or reported on any national exchange or on the Nasdaq National
Market, the closing bid price as of such date at the end of the regular trading
session, as reported by the Nasdaq SmallCap Market, OTC Bulletin Board, the
Bulletin Board Exchange (BBX) or the National Quotation Bureaus, Inc., or other
comparable service; or (iii) if the Common Stock is not so listed or reported,
such price as the Committee determines in good faith in the exercise of its
reasonable discretion.

 

2.13.        “Incentive Award” means an Option or
Restricted Stock Award granted to an Eligible Recipient pursuant to the Plan.

 

2.14.        “Incentive Stock Option” means a right to
purchase Common Stock granted to an Eligible Recipient pursuant to Section 6 of
the Plan that qualifies as an “incentive stock option” within the meaning of
Section 422 of the Code.

 

2.15.        “Non-Statutory Stock Option” means a right
to purchase Common Stock granted to an Eligible Recipient pursuant to Section 6
of the Plan that does not qualify as an Incentive Stock Option.

 

2.16.        “Option” means an Incentive Stock Option or
a Non-Statutory Stock Option.

 

2.17.        “Participant” means an Eligible Recipient
who receives one or more Incentive Awards under the Plan.

 

2.18.        “Previously Acquired Shares” means shares of
Common Stock that are already owned by the Participant or, with respect to any
Incentive Award, that are to be issued upon the grant, exercise or vesting of
such Incentive Award.

 

2.19.        “Restricted Stock Award” means an award of
Common Stock granted to an Eligible Recipient pursuant to Section 7 of the Plan
that is subject to the restrictions on transferability and the risk of
forfeiture imposed by the provisions of such Section 7.

 

2.20.        “Retirement” means normal or approved early
termination of employment or service pursuant to and in accordance with the
regular retirement/pension plan or practice of the Company or Subsidiary then
covering the Participant, provided that if the Participant is not covered by
any such plan or practice, the Participant will be deemed to be covered by the
Company’s plan or practice for purposes of this determination.

 

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

 

2.22.        “Subsidiary” means any entity that is
directly or indirectly controlled by the Company or any entity in which the
Company has a significant equity interest, as determined by the Committee.

 

3.             Plan Administration.

 

3.1.  The Committee.  The Plan will be administered by the Board or by a committee of
the Board.  So long as the Company has a
class of its equity securities registered under Section 12 of the Exchange Act,
any committee administering the Plan will consist solely of two or more members
of the Board who are “non-employee directors” within the meaning of Rule 16b-3
under the Exchange Act.  Such a
committee, if established, will act by majority approval of the members
(unanimous approval with respect to action by written consent), and a majority
of the members of such a committee will constitute a quorum.  As used in the Plan, “Committee” will refer
to the Board or to such a committee, if established.  To the extent consistent with applicable corporate law of the
Company’s jurisdiction of incorporation, the Committee may delegate to any
officers of the Company the duties, power and authority of the Committee under
the Plan pursuant to such conditions or limitations as the Committee may
establish; provided, however, that only the Committee may exercise such duties,
power and authority with respect to Eligible Recipients who are subject to
Section 16 of the Exchange Act.  The
Committee may exercise its duties, power and authority under the Plan in its
sole and absolute discretion without the consent of any Participant or other
party, unless the Plan specifically provides otherwise.  Each determination, interpretation or other
action made or taken by the Committee pursuant to the provisions of the Plan
will be conclusive and binding for all purposes and on all persons, and no
member of the Committee will be liable for any action or determination made in
good faith with respect to the Plan or any Incentive Award granted under the
Plan.

 

3.2.   Authority of the Committee.

 

(a)           In accordance with and
subject to the provisions of the Plan, the Committee will have the authority to
determine all provisions of Incentive Awards as the Committee may deem
necessary or desirable and as consistent with the terms of the Plan, including,
without limitation, the following:  (i)
the Eligible Recipients to be selected as Participants; (ii) the nature and
extent of the Incentive Awards to be made to each Participant (including the
number of shares of Common Stock to be subject to each Incentive Award, any
exercise price, the manner in which Incentive Awards will vest or become
exercisable and whether Incentive Awards will be granted in tandem with other
Incentive Awards) and the form of written agreement, if any, evidencing such
Incentive Award; (iii) the time or times when Incentive Awards will be granted;
(iv) the duration of each Incentive Award; and (v) the restrictions and other
conditions to which the payment or vesting of Incentive Awards may be
subject.  In addition, the Committee
will have the authority under the Plan in its sole discretion to pay the
economic value of any Incentive Award in the form of cash, Common Stock or any
combination of both.

 

(b)           Subject to Section
3.2(d), below, the Committee will have the authority under the Plan to amend or
modify the terms of any outstanding Incentive Award

 

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in
any manner, including, without limitation, the authority to modify the number
of shares or other terms and conditions of an Incentive Award, extend the term
of an Incentive Award, accelerate the exercisability or vesting or otherwise
terminate any restrictions relating to an Incentive Award, accept the surrender
of any outstanding Incentive Award or, to the extent not previously exercised
or vested, authorize the grant of new Incentive Awards in substitution for
surrendered Incentive Awards; provided, however that the amended or modified
terms are permitted by the Plan as then in effect and that any Participant
adversely affected by such amended or modified terms has consented to such
amendment or modification.

 

(c)           In the event of (i) any
reorganization, merger, consolidation, recapitalization, liquidation,
reclassification, stock dividend, stock split, combination of shares, rights
offering, extraordinary dividend or divestiture (including a spin-off) or
any other change in corporate structure or shares; (ii) any purchase,
acquisition, sale, disposition or write-down of a significant amount of assets
or a significant business; (iii) any change in accounting principles or
practices, tax laws or other such laws or provisions affecting reported
results; or (iv) any other similar change, in each case with respect to the
Company or any other entity whose performance is relevant to the grant or
vesting of an Incentive Award, the Committee (or, if the Company is not the
surviving corporation in any such transaction, the board of directors of the
surviving corporation) may, without the consent of any affected Participant,
amend or modify the vesting criteria of any outstanding Incentive Award that is
based in whole or in part on the financial performance of the Company (or any
Subsidiary or division or other subunit thereof) or such other entity so as
equitably to reflect such event, with the desired result that the criteria for
evaluating such financial performance of the Company or such other entity will
be substantially the same (in the sole discretion of the Committee or the board
of directors of the surviving corporation) following such event as prior to
such event; provided, however, that the amended or modified terms are permitted
by the Plan as then in effect.

 

(d)           Notwithstanding any
other provision of this Plan other than Section 4.3, the Committee may not,
without prior approval of the Company’s stockholders, seek to effect any
re-pricing of any previously granted, “underwater” Option by: (i) amending or
modifying the terms of the Option to lower the exercise price; (ii) canceling
the underwater Option and granting either replacement Options having a lower
exercise price or Restricted Stock Awards; 
in exchange; or (iii) repurchasing the underwater Options and granting
new Incentive Awards under this Plan. 
For purposes of this Section 3.2(d) and Section 10.4, an Option will be
deemed to be “underwater” at any time when the Fair Market Value of the Common Stock
is less than the exercise price of the Option.

 

4.             Shares Available for Issuance.

 

4.1.   Maximum Number of Shares Available; Certain
Restrictions on Awards. 
Subject to adjustment as provided in Section 4.3 of the Plan, the
maximum number of shares of Common Stock that will be available for issuance
under the Plan will be 1,000,000.  The
shares available for issuance under the Plan may, at the election of the
Committee, be either treasury shares or shares authorized but unissued, and, if
treasury shares are used, all references in the Plan to the issuance of shares
will, for corporate law purposes, be

 

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deemed to mean the transfer of shares from treasury.  Notwithstanding any other provisions of the
Plan to the contrary, (i) no Participant in the Plan may be granted any
Incentive Awards relating to more than 200,000 shares of Common Stock in the
aggregate during any fiscal year of the Company and (ii) no more than 100,000
shares of Common Stock may be granted as Restricted Stock Awards under the
Plan; provided, however, that a Participant who is first appointed or elected
as an officer, hired as an employee by the Company or who receives a promotion
that results in an increase in responsibilities or duties may be granted,
during the fiscal year of such appointment, election, hiring, retention or
promotion, Incentive Awards relating to up to 400,000 shares of Common Stock
(subject to adjustment as provided in Section 4.3 of the Plan).

 

4.2.   Accounting for Incentive Awards.  Shares of Common Stock that are issued under
the Plan or that are subject to outstanding Incentive Awards will be applied to
reduce the maximum number of shares of Common Stock remaining available for
issuance under the Plan; provided, however, that shares subject to an Incentive
Award that lapses, expires, is forfeited (including issued shares forfeited
under a Restricted Stock Award) or for any reason is terminated unexercised or
unvested or is settled or paid in cash or any form other than shares of Common
Stock will automatically again become available for issuance under the
Plan.  To the extent that the exercise
price of any Option and/or associated tax withholding obligations are paid by
tender or attestation as to ownership of Previously Acquired Shares, or to the
extent that such tax withholding obligations are satisfied by withholding of
shares otherwise issuable upon exercise of the Option, only the number of
shares of Common Stock issued net of the number of shares tendered, attested to
or withheld will be applied to reduce the maximum number of shares of Common
Stock remaining available for issuance under the Plan.

 

4.3.    Adjustments to Shares and Incentive Awards.  In the event of any reorganization, merger,
consolidation, recapitalization, liquidation, reclassification, stock dividend,
stock split, combination of shares, rights offering, divestiture or
extraordinary dividend (including a spin-off) or any other change in the
corporate structure or shares of the Company, the Committee (or, if the Company
is not the surviving corporation in any such transaction, the board of
directors of the surviving corporation) will make appropriate adjustment (which
determination will be conclusive) as to the number and kind of securities or other
property (including cash) available for issuance or payment under the Plan and,
in order to prevent dilution or enlargement of the rights of Participants, the
number and kind of securities or other property (including cash) subject to
outstanding Incentive Awards and the exercise price of outstanding Options.

 

5.             Participation.

 

Participants in the Plan will be those Eligible
Recipients who, in the judgment of the Committee, have contributed, are
contributing or are expected to contribute to the achievement of economic
objectives of the Company or its Subsidiaries. 
Eligible Recipients may be granted from time to time one or more
Incentive Awards, singly or in combination or in tandem with other Incentive
Awards, as may be determined by the Committee in its sole discretion.  Incentive Awards will be deemed to be
granted as of the date specified in the grant resolution of the Committee,
which date will be the date of any related agreement with the Participant.

 

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6.             Options.

 

6.1.    Grant. 
An Eligible Recipient may be granted one or more Options under the Plan,
and such Options will be subject to such terms and conditions, consistent with
the other provisions of the Plan, as may be determined by the Committee in its
sole discretion.  The Committee may
designate whether an Option is to be considered an Incentive Stock Option or a
Non-Statutory Stock Option.  To the
extent that any Incentive Stock Option granted under the Plan ceases for any
reason to qualify as an “incentive stock option” for purposes of Section 422 of
the Code, such Incentive Stock Option will continue to be outstanding for
purposes of the Plan but will thereafter be deemed to be a Non-Statutory
Stock Option.

 

6.2.   Exercise Price.  The per share price to be paid by a Participant upon exercise of
an Option will be determined by the Committee in its discretion at the time of
the Option grant; provided, however, that such price will not be less than 100%
of the Fair Market Value of one share of Common Stock on the date of grant with
respect to any Option (110% of the Fair Market Value with respect to an
Incentive Stock Option if, at the time such Incentive Stock Option is granted,
the Participant owns, directly or indirectly, more than 10% of the total
combined voting power of all classes of stock of the Company or any parent or
subsidiary corporation of the Company).

 

6.3.    Exercisability and Duration.  An Option will become exercisable at such
times and in such installments and upon such terms and conditions as may be
determined by the Committee in its sole discretion at the time of grant
(including without limitation that the Participant remain in the continuous
employ or service of the Company or a Subsidiary for a certain period);
provided, however, that no Option may be exercisable prior to six months from
its date of grant (other than as provided in Section 8.1 of the Plan) or after
10 years from its date of grant (five years from its date of grant in the case
of an Incentive Stock Option if, at the time the Incentive Stock Option is
granted, the Participant owns, directly or indirectly, more than 10% of the
total combined voting power of all classes of stock of the Company or any
parent or subsidiary corporation of the Company).

 

6.4.    Payment of Exercise Price.  The total purchase price of the shares to be
purchased upon exercise of an Option will be paid entirely in cash (including
check, bank draft or money order); provided, however, that the Committee, in
its sole discretion and upon terms and conditions established by the Committee,
may allow such payments to be made, in whole or in part, by tender of a Broker
Exercise Notice, by tender, or attestation as to ownership, of Previously
Acquired Shares that have been held for the period of time necessary to avoid a
charge to the Company’s earnings for financial reporting purposes and that are
otherwise acceptable to the Committee, or by a combination of such methods. For
purposes of such payment, Previously Acquired Shares tendered or covered by an
attestation will be valued at their Fair Market Value on the exercise date.

 

6.5.  Manner of Exercise.  An Option may be exercised by a Participant
in whole or in part from time to time, subject to the conditions contained in
the Plan and in the agreement evidencing such Option, by delivery in person, by
facsimile or electronic transmission or through the mail of written notice of
exercise to the Company at its principal executive office in Eden Prairie,
Minnesota and by paying in full the total exercise price for the shares of
Common Stock to be purchased in accordance with Section 6.4 of the Plan.

 

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7.             Restricted Stock Awards.

 

7.1.    Grant. 
An Eligible Recipient may be granted one or more Restricted Stock Awards
under the Plan, and such Restricted Stock Awards will be subject to such terms
and conditions, consistent with the other provisions of the Plan, as may be
determined by the Committee in its sole discretion.  The Committee may impose such restrictions or conditions, not
inconsistent with the provisions of the Plan, to the vesting of such Restricted
Stock Awards as it deems appropriate, including, without limitation, that the
Participant remain in the continuous employ or service of the Company or a
Subsidiary for a certain period; provided, however, that other than as provided
in Section 8.1 of the Plan, no Restricted Stock Award may vest prior to six
months from its date of grant.

 

7.2.    Rights as a Stockholder; Transferability.  Except as provided in Sections 7.1, 7.3, 7.4
and 11.3 of the Plan, a Participant will have all voting, dividend, liquidation
and other rights with respect to shares of Common Stock issued to the
Participant as a Restricted Stock Award under this Section 7 upon the Participant
becoming the holder of record of such shares as if such Participant were a
holder of record of shares of unrestricted Common Stock.

 

7.3.    Dividends and Distributions.  Unless the Committee determines otherwise in
its sole discretion (either in the agreement evidencing the Restricted Stock
Award at the time of grant or at any time after the grant of the Restricted
Stock Award), any dividends or distributions (other than regular quarterly cash
dividends) paid with respect to shares of Common Stock subject to the unvested
portion of a Restricted Stock Award will be subject to the same restrictions as
the shares to which such dividends or distributions relate.  The Committee will determine in its sole
discretion whether any interest will be paid on such dividends or
distributions.

 

7.4.    Enforcement of Restrictions.  To enforce the restrictions referred to in
this Section 7, the Committee may place a legend on the stock certificates
referring to such restrictions and may require the Participant, until the restrictions
have lapsed, to keep the stock certificates, together with duly endorsed stock
powers, in the custody of the Company or its transfer agent, or to maintain
evidence of stock ownership, together with duly endorsed stock powers, in a
certificateless book-entry stock account with the Company’s transfer agent.

 

8.             Effect of Termination of Employment or Other Service.

 

8.1.    Termination Due to Death or Disability.  In the event a Participant’s employment or
other service with the Company and all Subsidiaries is terminated by reason of
death or Disability:

 

(a)           All outstanding Options
then held by the Participant will become immediately exercisable in full and
will remain exercisable for a period of one (1) year after such termination
(but in no event after the expiration date of any such Option); and

 

(b)           All Restricted Stock
Awards then held by the Participant will become fully vested.

 

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8.2.    Termination Due to Retirement.  Subject to Section 8.5 of the Plan, in the
event a Participant’s employment or other service with the Company and all
Subsidiaries is terminated by reason of Retirement:

 

(a)           All outstanding Options
then held by the Participant will, to the extent exercisable as of such
termination, remain exercisable in full for a period of three (3) months after
such termination (but in no event after the expiration date of any such
Option).  Options not exercisable as of
such Retirement will be forfeited and terminate; and

 

(b)           All Restricted Stock
Awards then held by the Participant that have not vested as of such termination
will be terminated and forfeited.

 

8.3.    Termination for Reasons Other than Death, Disability
or Retirement.  Subject to
Section 8.5 of the Plan, in the event a Participant’s employment or other
service is terminated with the Company and all Subsidiaries for any reason
other than death, Disability or Retirement, or a Participant is in the employ
of a Subsidiary and the Subsidiary ceases to be a Subsidiary of the Company
(unless the Participant continues in the employ of the Company or another
Subsidiary):

 

(a)           All outstanding Options
then held by the Participant will, to the extent exercisable as of such
termination, remain exercisable in full for a period of three months after such
termination (but in no event after the expiration date of any such
Option).  Options not exercisable as of
such termination will be forfeited and terminate; and

 

(b)           All Restricted Stock
Awards then held by the Participant that have not vested as of such termination
will be terminated and forfeited.

 

8.4.    Modification of Rights Upon Termination.  Notwithstanding the other provisions of this
Section 8, upon a Participant’s termination of employment or other service with
the Company and all Subsidiaries, the Committee may, in its sole discretion
(which may be exercised at any time on or after the date of grant, including
following such termination), cause Options (or any part thereof) then held by
such Participant to become or continue to become exercisable and/or remain
exercisable following such termination of employment or service, and Restricted
Stock Awards then held by such Participant to vest and/or continue to vest or
become free of restrictions and conditions to issuance, as the case may be, following
such termination of employment or service, in each case in the manner
determined by the Committee; provided, however, that (a) no Option will become
exercisable or vest prior to six months from its date of grant (unless such
exercisability or vesting is by reason of death or Disability), (b) no
Restricted Stock Award will vest or be issued prior to six months from its date
of grant (unless such vesting or issuance is by reason of death or Disability)
and (c) no Incentive Award may remain exercisable or continue to vest for more
than two years beyond the date such Incentive Award would have terminated if
not for the provisions of this Section 8.4 but in no event beyond its
expiration date.

 

8.5.    Effects of Actions Constituting Cause.  Notwithstanding anything in the Plan to the
contrary, in the event that a Participant is determined by the Committee,
acting in its sole discretion, to have committed any action which would
constitute Cause as defined in Section 2.3, irrespective of whether such action
or the Committee’s determination occurs

 

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before or after termination of such Participant’s employment or service
with the Company or any Subsidiary, all rights of the Participant under the
Plan and any agreements evidencing an Incentive Award then held by the
Participant shall terminate and be forfeited without notice of any kind.  The Company may defer the exercise of any
Option or the vesting of any Restricted Stock Award for a period of up to
forty-five (45) days in order for the Committee to make any determination as to
the existence of Cause.

 

8.6.    Determination of Termination of Employment or Other
Service.  Unless the
Committee otherwise determines in its sole discretion, a Participant’s
employment or other service will, for purposes of the Plan, be deemed to have
terminated on the date recorded on the personnel or other records of the
Company or the Subsidiary for which the Participant provides employment or
service, as determined by the Committee in its sole discretion based upon such
records.

 

9.             Payment of Withholding Taxes.

 

9.1.    General Rules.  The Company is entitled to (a) withhold and deduct from future
wages of the Participant (or from other amounts that may be due and owing to
the Participant from the Company or a Subsidiary), or make other arrangements
for the collection of, all legally required amounts necessary to satisfy any
and all federal, foreign, state and local withholding and employment-related
tax requirements attributable to an Incentive Award, including, without
limitation, the grant, exercise or vesting of, or payment of dividends with
respect to, an Incentive Award or a disqualifying disposition of stock received
upon exercise of an Incentive Stock Option, or (b) require the Participant
promptly to remit the amount of such withholding to the Company before taking
any action, including issuing any shares of Common Stock, with respect to an
Incentive Award.

 

9.2.   Special Rules.  The Committee may, in its sole discretion and upon terms and
conditions established by the Committee, permit or require a Participant to
satisfy, in whole or in part, any withholding or employment-related tax
obligation described in Section 9.1 of the Plan by electing to tender, or by
attestation as to ownership of, Previously Acquired Shares that have been held
for the period of time necessary to avoid a charge to the Company’s earnings
for financial reporting purposes and that are otherwise acceptable to the
Committee, by delivery of a Broker Exercise Notice or a combination of such
methods.  For purposes of satisfying a
Participant’s withholding or employment-related tax obligation, Previously
Acquired Shares tendered or covered by an attestation will be valued at their
Fair Market Value.  

 

10.           Change in Control.

 

10.1.        A
“Change in Control” shall be deemed to have occurred if the event set forth in
any one of the following paragraphs has occurred:

 

(a)           the sale, lease,
exchange or other transfer, directly or indirectly, of substantially all of the
assets of the Company (in one transaction or in a series of related
transactions) to any Successor;

 

(b)           the approval by the
stockholders of the Company of any plan or proposal for the liquidation or
dissolution of the Company;

 

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(c)           any Successor, other
than a Bona Fide Underwriter, becomes after the effective date of the Plan the
“beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of (i) 20% or more, but not 50% or more, of the combined voting
power of the Company’s outstanding securities ordinarily having the right to
vote at elections of directors, unless the transaction resulting in such
ownership has been approved in advance by the Continuity Directors (as defined
in Section 10.2 below), or (ii) more than 50% of the combined voting power of
the Company’s outstanding securities ordinarily having the right to vote at
elections of directors (regardless of any approval by the Continuity
Directors);

 

(d)           a merger or consolidation
to which the Company is a party if the stockholders of the Company immediately
prior to effective date of such merger or consolidation have “beneficial
ownership” (as defined in Rule 13d-3 under the Exchange Act), immediately
following the effective date of such merger or consolidation, of securities of
the surviving corporation representing (i) 50% or more, but not more than 80%,
of the combined voting power of the surviving corporation’s then outstanding
securities ordinarily having the right to vote at elections of directors,
unless such merger or consolidation has been approved in advance by the
Continuity Directors, or (ii) less than 50% of the combined voting power
of the surviving corporation’s then outstanding securities ordinarily having
the right to vote at elections of directors (regardless of any approval by the
Continuity Directors); or

 

(e)           the Continuity
Directors cease for any reason to constitute at least a majority of the Board.

 

10.2.        Change in Control Definitions.  For purposes of this Section 10:

 

(a)           “Continuity Directors” of the Company will
mean any individuals who are members of the Board on the effective date of the
Plan and any individual who subsequently becomes a member of the Board whose
election, or nomination for election by the Company’s stockholders, was
approved by a vote of at least a majority of the Continuity Directors (either
by specific vote or by approval of the Company’s proxy statement in which such
individual is named as a nominee for director without objection to such
nomination).

 

(b)           “Bona Fide Underwriter” means an entity
engaged in business as an underwriter of securities that acquires securities of
the Company through such entity’s participation in good faith in a firm
commitment underwriting until the expiration of 40 days after the date of such
acquisition.

 

(c)           “Successor” means any individual,
corporation, partnership, group, association or other person,” as such term is
used in Section 13(d) or Section 14(d) of the Exchange Act, other than the
Company, any “affiliate” (as defined below) or any benefit plan(s) sponsored by
the Company or any affiliate that succeeds to, or has the practical ability to
control (either immediately or solely with the passage of time), the Company’s
business directly, by merger, consolidation or other form of business
combination, or indirectly, by purchase of the Company’s outstanding securities
ordinarily having the right to vote at the election of directors or all or
substantially all of its assets or otherwise. 
For this

 

10

 

purpose,
an “affiliate” is (i) any corporation at least a majority of whose outstanding
securities ordinarily having the right to vote at elections of directors is
owned directly or indirectly by the Company or (ii) any other form of business
entity in which the Company, by virtue of a direct or indirect ownership
interest, has the right to elect a majority of the members of such entity’s
governing body.

 

10.3.        Acceleration of Vesting.  Without limiting the authority of the
Committee under Sections 3.2 and 4.3 of the Plan, if a Change in Control of the
Company occurs, then, if approved by the Committee in its sole discretion
either in an agreement evidencing an Incentive Award at the time of grant or at
any time after the grant of an Incentive Award: (a) all Options that have been
outstanding for at least six months will become immediately exercisable in full
and will remain exercisable in accordance with their terms; and (b) all
Restricted Stock Awards that have been outstanding for at least six months will
become immediately fully vested and non-forfeitable.

 

10.4.        Cash Payment.  If a Change in Control of the Company occurs, then the Committee,
if approved by the Committee in its sole discretion either in an agreement
evidencing an Incentive Award at the time of grant or at any time after the
grant of an Incentive Award, and without the consent of any Participant
affected thereby, may determine that:

 

(a)           some or all
Participants holding outstanding Options will receive, with respect to some or
all of the shares of Common Stock subject to such Options, as of the effective
date of any such Change in Control of the Company, cash in an amount equal to
the excess of the Fair Market Value of such shares immediately prior to the
effective date of such Change in Control of the Company over the exercise price
per share of such Options; and

 

(b)           any Options which, as
of the effective date of any such Change in Control, are “underwater” (as
defined in Section 3.2(d)) shall terminate as of the effective date of any such
Change in Control.

 

10.5.        Limitation on Change in Control Payments.  Notwithstanding anything in
Section 10.3 or 10.4 of the Plan to the contrary, if, with respect to a
Participant, the acceleration of the exercisability of an Option as provided in
Section 10.3 or the payment of cash in exchange for all or part of an
Option as provided in Section 10.4 (which acceleration or payment could be
deemed a “payment” within the meaning of Section 280G(b)(2) of the Code),
together with any other “payments” that such Participant has the right to
receive from the Company or any corporation that is a member of an “affiliated
group” (as defined in Section 1504(a) of the Code without regard to
Section 1504(b) of the Code) of which the Company is a member, would
constitute a “parachute payment” (as defined in Section 280G(b)(2) of the
Code), then the “payments” to such Participant pursuant to Section 10.3 or 10.4
of the Plan will be reduced to the largest amount as will result in no portion
of such “payments” being subject to the excise tax imposed by Section 4999 of
the Code; provided, however, that if a Participant is subject to a separate
agreement with the Company or a Subsidiary which specifically provides that
payments attributable to one or more forms of employee stock incentives or to
payments made in lieu of employee stock incentives will not reduce any other
payments under such agreement, even if it would constitute an excess parachute
payment, or provides that the Participant will have the discretion to determine
which

 

11

 

payments will be reduced in order to avoid an excess parachute payment,
then the limitations of this Section 10.4 will, to that extent, not apply.

 

11.           Rights of Eligible Recipients and Participants;
Transferability.

 

11.1.        Employment or Service.  Nothing in the Plan will interfere with or
limit in any way the right of the Company or any Subsidiary to terminate the
employment or service of any Eligible Recipient or Participant at any time, nor
confer upon any Eligible Recipient or Participant any right to continue in the
employ or service of the Company or any Subsidiary.

 

11.2.        Rights as a Stockholder.  As a holder of Incentive Awards (other than
Restricted Stock Awards), a Participant will have no rights as a stockholder
unless and until such Incentive Awards are exercised for, or paid in the form
of, shares of Common Stock and the Participant becomes the holder of record of
such shares.  Except as otherwise
provided in the Plan, no adjustment will be made for dividends or distributions
with respect to such Incentive Awards as to which there is a record date
preceding the date the Participant becomes the holder of record of such shares,
except as the Committee may determine in its discretion.

 

11.3.        Restrictions on Transfer.

 

(a)           Except pursuant to
testamentary will or the laws of descent and distribution or as otherwise
expressly permitted by subsections (b) and (c) below, no right or interest of
any Participant in an Incentive Award prior to the exercise (in the case of
Options) or vesting (in the case of Restricted Stock Awards) of such Incentive
Award will be assignable or transferable, or subjected to any lien, during the
lifetime of the Participant, either voluntarily or involuntarily, directly or
indirectly, by operation of law or otherwise.

 

(b)           A Participant will be
entitled to designate a beneficiary to receive an Incentive Award upon such
Participant’s death, and in the event of such Participant’s death, payment of
any amounts due under the Plan will be made to, and exercise of any Options (to
the extent permitted pursuant to Section 8 of the Plan) may be made by, such
beneficiary.  If a deceased Participant
has failed to designate a beneficiary, or if a beneficiary designated by the
Participant fails to survive the Participant, payment of any amounts due under
the Plan will be made to, and exercise of any Options (to the extent permitted
pursuant to Section 9 of the Plan) may be made by, the Participant’s legal
representatives, heirs and legatees.  If
a deceased Participant has designated a beneficiary and such beneficiary
survives the Participant but dies before complete payment of all amounts due
under the Plan or exercise of all exercisable Options, then such payments will
be made to, and the exercise of such Options may be made by, the legal
representatives, heirs and legatees of the beneficiary.

 

(c)           Upon a Participant’s
request, the Committee may, in its sole discretion, permit a transfer of all or
a portion of a Non-Statutory Stock Option, other than for value, to such
Participant’s child, stepchild, grandchild, parent, stepparent, grandparent,
spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law,
son-in-law, daughter-in-law, brother-in-law, or sister-in-law, any person
sharing such Participant’s household (other than a tenant or employee), a

 

12

 

trust
in which any of the foregoing have more than fifty percent of the beneficial
interests, a foundation in which any of the foregoing (or the Participant)
control the management of assets, and any other entity in which these persons
(or the Participant) own more than fifty percent of the voting interests.  Any permitted transferee will remain subject
to all the terms and conditions applicable to the Participant prior to the
transfer.  A permitted transfer may be
conditioned upon such requirements as the Committee may, in its sole discretion,
determine, including, but not limited to execution and/or delivery of
appropriate acknowledgements, opinion of counsel, or other documents by the
transferee.

 

11.4.        Non-Exclusivity of the Plan.  Nothing contained in the Plan is intended to
modify or rescind any previously approved compensation plans or programs of the
Company or create any limitations on the power or authority of the Board to
adopt such additional or other compensation arrangements as the Board may deem
necessary or desirable.

 

12.           Securities Law and Other Restrictions.

 

Notwithstanding any other provision of the Plan or any
agreements entered into pursuant to the Plan, the Company will not be required
to issue any shares of Common Stock under this Plan, and a Participant may not
sell, assign, transfer or otherwise dispose of shares of Common Stock issued
pursuant to Incentive Awards granted under the Plan, unless (a) there is in
effect with respect to such shares a registration statement under the
Securities Act and any applicable securities laws of a state or foreign jurisdiction
or an exemption from such registration under the Securities Act and applicable
state or foreign securities laws, and (b) there has been obtained any other
consent, approval or permit from any other U.S. or foreign regulatory body
which the Committee, in its sole discretion, deems necessary or advisable.  The Company may condition such issuance,
sale or transfer upon the receipt of any representations or agreements from the
parties involved, and the placement of any legends on certificates representing
shares of Common Stock, as may be deemed necessary or advisable by the Company
in order to comply with such securities law or other restrictions.

 

13.           Plan Amendment, Modification and Termination.

 

The Board may suspend or terminate the Plan or any
portion thereof at any time, and may amend the Plan from time to time in such
respects as the Board may deem advisable in order that Incentive Awards under
the Plan will conform to any change in applicable laws or regulations or in any
other respect the Board may deem to be in the best interests of the Company;
provided, however, that no such amendments to the Plan will be effective
without approval of the Company’s stockholders if: (i) stockholder approval of
the amendment is then required pursuant to Section 422 of the Code or the rules
of any stock exchange or Nasdaq or similar regulatory body; or (ii) such
amendment seeks to modify Section 3.2(d) hereof.   No termination,
suspension or amendment of the Plan may adversely affect any outstanding
Incentive Award without the consent of the affected Participant; provided,
however, that this sentence will not impair the right of the Committee to take
whatever action it deems appropriate under Sections 3.2(c), 4.3 and 10 of the
Plan.

 

14.           Effective Date and Duration of the Plan.

 

The Plan is effective as of the Effective Date.  The Plan will terminate at midnight on April
30, 2013, and may be terminated prior to such time by Board action.  No Incentive Award

 

13

 

will be granted after
termination of the Plan.  Incentive
Awards outstanding upon termination of the Plan may continue to be exercised,
or become free of restrictions, according to their terms.

 

15.           Miscellaneous.

 

15.1.        Governing Law.  Except to the extent expressly provided herein or in connection
with other matters of corporate governance and authority (all of which shall be
governed by the laws of the Company’s jurisdiction of incorporation), the
validity, construction, interpretation, administration and effect of the Plan
and any rules, regulations and actions relating to the Plan will be governed by
and construed exclusively in accordance with the laws of the State of
Minnesota, notwithstanding the conflicts of laws principles of any
jurisdictions.

 

15.2.        Successors and Assigns.  The Plan will be binding upon and inure to
the benefit of the successors and permitted assigns of the Company and the
Participants.

 

14Exhibit
10.54

 

PHARSIGHT
CORPORATION

 

AMENDED
AND RESTATED 2000 EQUITY INCENTIVE PLAN

 

Adopted by Board of
Directors April 7, 2000

Approved by Stockholders June 4, 2000

Amended by Board of
Directors July 29, 2002

Approved by Stockholders
September 6, 2002

Amended by Board of
Directors June 13, 2003

Amended by Board of
Directors July 17, 2003

Effective Date: Date of
Initial Public Offering

Termination Date:  April 7, 2010

 

1.                                      PURPOSES.

 

(a)                                  Eligible
Stock Award Recipients.  The persons
eligible to receive Stock Awards are the Employees, Directors and Consultants
of the Company and its Affiliates.

 

(b)                                  Available
Stock Awards.  The purpose of the
Plan is to provide a means by which eligible recipients of Stock Awards may be
given an opportunity to benefit from increases in value of the Common Stock
through the granting of the following Stock Awards:  (i) Incentive Stock Options, (ii) Nonstatutory Stock Options,
(iii) stock bonuses and (iv) rights to acquire restricted stock.  The Plan also provides for non-discretionary
grants of Nonstatutory Stock Options to Non-Employee Directors of the Company.

 

(c)                                  General
Purpose.  The Company, by means of
the Plan, seeks to retain the services of the group of persons eligible to
receive Stock Awards, to secure and retain the services of new members of this
group and to provide incentives for such persons to exert maximum efforts for
the success of the Company and its Affiliates.

 

2.                                      DEFINITIONS.

 

(a)                                  “Affiliate”
means any parent corporation or subsidiary corporation of the Company, whether
now or hereafter existing, as those terms are defined in Sections 424(e) and
(f), respectively, of the Code.

 

(b)                                  “Board”
means the Board of Directors of the Company.

 

(c)                                  “Cause” means the
occurrence of any one or more of the following:  (i) the Participant’s conviction of any felony or any crime
involving moral turpitude or dishonesty which results in material harm to the
business of the Company; (ii) the Participant’s participation in a fraud or act
of dishonesty against the Company which results in material harm to the
business of the Company; or (iii) the Participant’s intentional, material
violation of any material contract between the Company and the Participant or
any statutory duty the Participant owes to the Company that the Participant
does not correct within thirty (30) days after written notice thereof has been
provided to the Participant and which results in material harm to the business
of the Company.

 

(d)                                  “Change in
Control” means the occurrence of any one or more of the following:

 

 

(i)                                    a
Corporate Transaction after which persons who were not stockholders of the
Company immediately prior to such Corporate Transaction own, directly or
indirectly, immediately following such Corporate Transaction, fifty percent
(50%) or more of the outstanding voting power of each of (a) the continuing or
surviving entity and (b) any direct or indirect parent corporation of the
continuing or surviving entity;

 

(ii)                                after
the IPO Date, an acquisition by any person, entity or group within the meaning
of Section 13(d) or 14(d) of the Exchange Act, or any comparable successor
provisions (excluding any employee benefit plan, or related trust, sponsored or
maintained by the Company or an Affiliate) of the beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act, or comparable
successor rule) of securities of the Company representing at least fifty
percent (50%) of the combined voting power entitled to vote in the election of
Directors; provided that such acquisition does not occur in connection with, in
contemplation of or as a result of a Corporate Transaction; or

 

(iii)                            after
the IPO Date, during any consecutive two (2) year period the individuals who,
as of the start of such period, are members of the Board (the “Incumbent
Board”), cease for any reason to constitute at least fifty percent (50%) of the
Board, provided that such change in the Incumbent Board does not occur in
connection with, in contemplation of or as a result of a Corporate Transaction,
and further provided that if the election, or nomination for election, by the
Company’s stockholders of any new Director was approved by a vote of at least
fifty percent (50%) of the Incumbent Board, such new Director shall be
considered as a member of the Incumbent Board.

 

(e)                                  “Code”
means the Internal Revenue Code of 1986, as amended.

 

(f)                                    “Committee”
means a committee of one or more members of the Board appointed by the Board in
accordance with subsection 3(c).

 

(g)                                 “Common
Stock” means the common stock of the Company.

 

(h)                                 “Company”
means Pharsight Corporation, a Delaware corporation.

 

(i)                                    “Consultant”
means any person, including an advisor, (i) engaged by the Company or an
Affiliate to render consulting or advisory services and who is compensated for
such services or (ii) who is a member of the Board of Directors of an
Affiliate.  However, the term
“Consultant” shall not include either Directors who are not compensated by the
Company for their services as Directors or Directors who are merely paid a
director’s fee by the Company for their services as Directors.

 

(j)                                    “Continuous
Service” means that the Participant’s service with the Company
or an Affiliate, whether as an Employee, Director or Consultant, is not
interrupted or terminated.  The
Participant’s Continuous Service shall not be deemed to have terminated merely
because of a change in the capacity in which the Participant renders service to
the Company or an Affiliate as an Employee, Consultant or Director or a change
in the entity for which the Participant renders such service, provided that
there is no interruption or termination of the Participant’s Continuous
Service.  For example, a change in
status from an Employee of the Company to a Consultant of an Affiliate or a Director
will not constitute an interruption of Continuous Service.

 

2

 

The Board or the chief
executive officer of the Company, in that party’s sole discretion, may
determine whether Continuous Service shall be considered interrupted in the
case of any leave of absence approved by that party, including sick leave,
military leave or any other personal leave.

 

(k)                                “Corporate
Transaction” means the occurrence of any one or more of the
following:

 

(i)                                    a
sale, lease or other disposition of all or substantially all of the securities
or assets of the Company;

 

(ii)                                a
merger or consolidation following which the Company is not the surviving
corporation;

 

(iii)                            a
reverse merger following which the Company is the surviving corporation but the
shares of Common Stock outstanding immediately preceding the merger are
converted by virtue of the merger into other property, whether in the form of
securities, cash or otherwise; or

 

(iv)                               any
other transaction described as a “corporate transaction” in Treasury Regulations
§1.425-1(a)(1)(ii).

 

(l)                                    “Covered
Employee” means the chief executive officer and the four (4)
other highest compensated officers of the Company for whom total compensation
is required to be reported to stockholders under the Exchange Act, as
determined for purposes of Section 162(m) of the Code.

 

(m)                              “Director”
means a member of the Board of Directors of the Company.

 

(n)                                 “Disability”
means the inability of a person, in the opinion of a qualified physician
acceptable to the Company, to perform the major duties of that person’s
position with the Company or an Affiliate because of the sickness or injury of
the person and such inability results in termination of employment by the
Company or Affiliate.

 

(o)                                  “Eligible
Director” means a Non-Employee Director or any other Director
who is not an Employee or Consultant at the time of grant of an Nonstatutory
Stock Option under section 7 hereof.

 

(p)                                  “Employee”
means any person employed by the Company or an Affiliate.  Mere service as a Director or payment of a
director’s fee by the Company or an Affiliate shall not be sufficient to
constitute “employment” by the Company or an Affiliate.

 

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

 

(r)                                  “Fair Market
Value” means, as of any date, the value of the Common Stock
determined as follows and in each case in a manner consistent with
Section 260.140.50 of Title 10 of the California Code of Regulations:

 

3

 

(i)                                    If
the Common Stock is listed on any established stock exchange or traded on the
Nasdaq National Market, the Nasdaq
SmallCap Market or the Over The Counter Bulletin Board system the Fair Market
Value of a share of Common Stock shall be the closing sales price for such
stock (or the closing bid, if no sales were reported) as quoted on such
exchange, market or system (or the exchange, market or system with the greatest
volume of trading the Common Stock) on the last market trading day prior to
determination, as reported in The Wall Street Journal  or such other
source as the Board deems reliable.

 

(ii)                                In
the absence of an established market or system for the Common Stock, the Fair
Market Value shall be determined in good faith by the Board.

 

(s)                                  “Good
Reason” means that one or more of the following are undertaken
by the Company without the Participant’s 
express written consent:  (i) the
assignment to the Participant of any duties or responsibilities that results in
a diminution in the Participant’s position or function as in effect immediately
prior to the effective date of the Change in Control; provided, however, that a
mere change in the Participant’s title or reporting relationships shall not
constitute Good Reason;  (ii) a
reduction by the Company in the Participant’s annual base salary, as in effect
on the effective date of the Change in Control; (iii) any failure by the
Company to continue in effect any benefit plan or program, including incentive
plans or plans with respect to the receipt of securities of the Company, in
which the Participant was participating immediately prior to the effective date
of the Change in Control (hereinafter referred to as “Benefit Plans”), or the
taking of any action by the Company that would adversely affect the
Participant’s participation in or reduce the Participant’s benefits under the
Benefit Plans or deprive the Participant of any fringe benefit that the
Participant enjoyed immediately prior to the effective date of the Change in
Control; provided,
however, that Good Reason shall not be deemed to have occurred if
the Company provides for the Participant’s participation in benefit plans and
programs that, taken as a whole, are comparable to the Benefit Plans; (iv) a
relocation of the Participant’s business office to a location more than thirty
(30) miles from the location at which the Participant performs duties as of the
effective date of the Change in Control, except for required travel by the
Participant on the Company’s business to an extent substantially consistent
with the Participant’s business travel obligations prior to the Change in
Control; (v) a material breach by the Company of any provision of the Plan or
the Stock Award Agreement or any other material agreement between the
Participant and the Company concerning the terms and conditions of the Participant’s
employment; or (vi) any failure by the Company to obtain the assumption of the
Plan and Stock Award Agreement by any successor or assign of the Company.

 

(t)                                    “Incentive
Stock Option” means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and
the regulations promulgated thereunder.

 

(u)                                 “Independent Director”
means each Director of the Company who is (i) not an Employee of the Company,
(ii) is not acting in the capacity of a Consultant to the Company, and (iii)
cannot exercise, individually or in affiliation with any entity or group of
entities that exercises, voting control over more than 20% of the Company’s
voting stock.

 

4

 

(v)                                   “IPO Date”
means the effective date of the Company’s Form S-1 Registration Statement filed
under the Securities Act in connection with the initial public offering of the
Common Stock.

 

(w)                                “Non-Employee
Director”  means a Director who either (i) is not a current
Employee or Officer of the Company or its parent or a subsidiary, does not
receive compensation (directly or indirectly) from the Company or its parent or
a subsidiary for services rendered as a consultant or in any capacity other
than as a Director (except for an amount as to which disclosure would not be
required under Item 404(a) of Regulation S-K promulgated pursuant to the
Securities Act (“Regulation S-K”)), does not possess an interest in any other
transaction as to which disclosure would be required under Item 404(a) of
Regulation S-K and is not engaged in a business relationship as to which
disclosure would be required under Item 404(b) of Regulation S-K; or (ii)
is otherwise considered a “non-employee director” for purposes of Rule 16b-3.

 

(x)                                  “Non-Employee
Director Option” shall have the meaning subscribed in
section 7 hereof.

 

(y)                                  “Non-Employee
Director Option Agreement” means a written agreement between the
Company and an Eligible Director, evidencing the terms and conditions of a
Non-Employee Director Option grant. 
Each Non-Employee Director Option Agreement shall be subject to the
terms and conditions of the Plan.

 

(z)                                  “Nonstatutory
Stock Option” means an Option not intended to qualify as an
Incentive Stock Option.

 

(aa)                            “Officer”
means a person who is an officer of the Company within the meaning of
Section 16 of the Exchange Act and the rules and regulations promulgated
thereunder.

 

(bb)                            “Option”
means an Incentive Stock Option or a Nonstatutory Stock Option granted pursuant
to the Plan.

 

(cc)                            “Option Agreement”
means a written agreement between the Company and an Optionholder evidencing
the terms and conditions of an individual Option grant.  Each Option Agreement shall be subject to
the terms and conditions of the Plan.

 

(dd)                            “Optionholder”
means a person to whom an Option is granted pursuant to the Plan or, if
applicable, such other person who holds an outstanding Option.

 

(ee)                            “Outside
Director” means a Director who either (i) is not a current
employee of the Company or an “affiliated corporation” (within the meaning of
Treasury Regulations promulgated under Section 162(m) of the Code), is not
a former employee of the Company or an “affiliated corporation” receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an “affiliated corporation”
at any time and is not currently receiving direct or indirect remuneration from
the Company or an “affiliated corporation” for services in any capacity other
than as a Director or (ii) is otherwise considered an “outside director” for
purposes of Section 162(m) of the Code.

 

5

 

(ff)                                “Participant”
means a person to whom a Stock Award is granted pursuant to the Plan or, if
applicable, such other person who holds an outstanding Stock Award.

 

(gg)                          “Plan”
means this Pharsight Corporation Amended and Restated 2000 Equity Incentive
Plan.

 

(hh)                          “Predecessor
Plans” means the Company’s 1995 Stock Option Plan and the 1997
Stock Option Plan.

 

(ii)                                “Rule 16b-3”
means Rule 16b-3 promulgated under the Exchange Act or any successor to Rule
16b-3, as in effect from time to time.

 

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

 

(kk)                        “Stock
Award” means any right granted under the Plan, including an
Option, a Non-Employee Director Option, a stock bonus and a right to acquire
restricted stock.

 

(ll)                                “Stock Award
Agreement” means a written agreement between the Company and a
holder of a Stock Award evidencing the terms and conditions of an individual
Stock Award grant.  Each Stock Award
Agreement shall be subject to the terms and conditions of the Plan.

 

(mm)                    “Ten Percent
Stockholder” means a person who owns (or is deemed to own
pursuant to Section 424(d) of the Code) stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company or of any of its Affiliates.

 

3.                                      Administration.

 

(a)                                  Administration
by Board.  The Board shall
administer the Plan unless and until the Board delegates administration to a
Committee, as provided in subsection 3(c).

 

(b)                                  Powers
of Board.  The Board shall have the
power, subject to, and within the limitations of, the express provisions of the
Plan:

 

(i)                                    To
determine from time to time which of the persons eligible under the Plan shall
be granted Stock Awards; when and how each Stock Award shall be granted; what
type or combination of types of Stock Award shall be granted; the provisions of
each Stock Award granted (which need not be identical), including the time or
times when a person shall be permitted to receive Common Stock pursuant to a
Stock Award; and the number of shares of Common Stock with respect to which a
Stock Award shall be granted to each such person.

 

(ii)                                To
construe and interpret the Plan and Stock Awards granted under it, and to
establish, amend and revoke rules and regulations for its administration.  The Board, in the exercise of this power,
may correct any defect, omission or inconsistency in the Plan or in any Stock
Award Agreement, in a manner and to the extent it shall deem necessary or
expedient to make the Plan fully effective.

 

(iii)                            To
amend the Plan or a Stock Award as provided in Section 13.

 

6

 

(iv)                               Generally,
to exercise such powers and to perform such acts as the Board deems necessary
or expedient to promote the best interests of the Company which are not in
conflict with the provisions of the Plan.

 

(c)                                  Delegation
to Committee.

 

(i)                                    General.  The Board may delegate administration of the
Plan to a Committee or Committees of one (1) or more members of the Board, and
the term “Committee” shall apply to any person or persons to whom such
authority has been delegated.  If
administration is delegated to a Committee, the Committee shall have, in connection
with the administration of the Plan, the powers theretofore possessed by the
Board, including the power to delegate to a subcommittee any of the
administrative powers the Committee is authorized to exercise (and references
in this Plan to the Board shall thereafter be to the Committee or
subcommittee), subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board.  The Board may abolish the Committee at any
time and revest in the Board the administration of the Plan.

 

(ii)                                Committee
Composition when Common Stock is Publicly Traded.  At such time as the Common Stock is publicly traded, in the
discretion of the Board, a Committee may consist solely of two or more Outside
Directors, in accordance with Section 162(m) of the Code, and/or solely of
two or more Non-Employee Directors, in accordance with Rule 16b-3.  Within the scope of such authority, the
Board or the Committee may (1) delegate to a committee of one or more members
of the Board who are not Outside Directors the authority to grant Stock Awards
to eligible persons who are either (a) not then Covered Employees and are not
expected to be Covered Employees at the time of recognition of income resulting
from such Stock Award or (b) not persons with respect to whom the Company
wishes to comply with Section 162(m) of the Code and/or) (2) delegate to a
committee of one or more members of the Board who are not Non-Employee
Directors the authority to grant Stock Awards to eligible persons who are not
then subject to Section 16 of the Exchange Act.

 

(d)                                  Effect of Board’s Decision.  All
determinations, interpretations and constructions made by the Board in good
faith shall not be subject to review by any person and shall be final, binding
and conclusive on all persons.

 

4.                                      Shares Subject to the Plan.

 

(a)                                  Share
Reserve.  Subject to the provisions
of Section 12 relating to adjustments upon changes in stock and
Section 4(d) below, the Common Stock that may be issued pursuant to Stock
Awards shall not exceed in the aggregate four million seven hundred ninety two
thousand six hundred eleven (4,792,611) shares of Common Stock (the “Reserved
Shares”).  As of each January 1,
beginning with January 1, 2004 and continuing through and including January 1,
2010 (the “Anniversary Date”), the number of Reserved Shares will be increased
automatically by the least of (i) 5 % of the total number of share of Common
Stock outstanding on such Anniversary Date, (ii) two million (2,000,000)
shares, (iii) such fewer number of shares as determined by the Board prior to
such Anniversary Date or (iv) such fewer number of shares as permitted pursuant
to Section 4(d) below.

 

7

 

(b)                                  Reversion
of Shares to the Share Reserve.  If
any Stock Award shall for any reason expire or otherwise terminate, in whole or
in part, without having been exercised in full, the shares of Common Stock not
acquired under such Stock Award shall revert to and again become available for
issuance under the Plan.

 

(c)                                  Source
of Shares.  The shares of Common
Stock subject to the Plan may be unissued shares or reacquired shares, bought
on the market or otherwise.

 

(d)                                  Reserve
Limitation.  Notwithstanding
Section 4(a), if at the time of each grant of a Stock Award under the
Plan, the Company is subject to Section 260.140.45 of Title 10 of the
California Code of Regulations (“Section 260.140.45”), the total number of
securities issuable upon exercise of all outstanding options of the Company and
the total number of shares provided for under this Plan or any other equity
incentive, stock bonus or similar plan or agreement of the Company or outside
any such plan shall not exceed 30% of the then outstanding capital stock of the
Company (as measured as set forth in Section 260.140.45), unless
stockholder approval to exceed 30% has been obtained in compliance with
Section 260.140.45, in which case the limit shall be such higher
percentage as approved by the stockholders.

 

5.                                      Eligibility.

 

(a)                                  Eligibility
for Specific Stock Awards. 
Incentive Stock Options may be granted only to Employees.  Stock Awards other than Incentive Stock
Options may be granted to Employees, Directors (whether or not an Eligible
Director for purposes of section 7 hereof) and Consultants.

 

(b)                                  Ten
Percent Stockholders.

 

(i)                                    A
Ten Percent Stockholder shall not be granted an Option unless the exercise
price of such Option is at least one hundred ten percent (110%) of the Fair
Market Value of the Common Stock at the date of grant and the Option is not
exercisable after the expiration of five (5) years from the date of grant.

 

(ii)                                So
long as the Company is subject to Section 260.140.41 of Title 10 of the
California Code of Regulations, a Ten Percent Stockholder shall not be granted
a restricted stock award unless the purchase price of the restricted stock is
at least (A) one hundred percent (100%) of the Fair Market Value of the Common
Stock on the date of grant or (B) such lower percentage of the Fair Market
Value of the Common Stock on the date of grant as is permitted by
Section 260.140.41 of Title 10 of the California Code of Regulations at
the time of the grant of the restricted stock award.

 

(c)                                  Section 162(m)
Limitation.  Subject to the
provisions of Section 12 relating to adjustments upon changes in the
shares of Common Stock, no Employee shall be eligible to be granted Options
covering more than One Million (1,000,000) shares of Common Stock during any
calendar year.

 

8

 

(d)                                  Consultants.

 

(i)                                    A
Consultant shall not be eligible for the grant of a Stock Award if, at the time
of grant, a Form S-8 Registration Statement under the Securities Act (“Form
S-8”) is not available to register either the offer or the sale of the
Company’s securities to such Consultant because of the nature of the services
that the Consultant is providing to the Company, or because the Consultant is
not a natural person, or as otherwise provided by the rules governing the use
of Form S-8, unless the Company determines both (i) that such grant (A) shall
be registered in another manner under the Securities Act (e.g., on a Form S-3
Registration Statement) or (B) does not require registration under the
Securities Act in order to comply with the requirements of the Securities Act,
if applicable, and (ii) that such grant complies with the securities laws of
all other relevant jurisdictions.

 

(ii)                                Form
S-8 generally is available to consultants and advisors only if (i) they are
natural persons; (ii) they provide bona fide services to the issuer, its
parents, its majority-owned subsidiaries or majority-owned subsidiaries of the
issuer’s parent; and (iii) the services are not in connection with the offer or
sale of securities in a capital-raising transaction, and do not directly or indirectly
promote or maintain a market for the issuer’s securities.

 

6.                                      Option Provisions.

 

Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate.  All Options shall be separately designated Incentive Stock
Options or Nonstatutory Stock Options at the time of grant, and, if
certificates are issued, a separate certificate or certificates will be issued
for shares of Common Stock purchased on exercise of each type of Option.  The provisions of separate Options need not
be identical, but each Option shall include (through incorporation of
provisions hereof by reference in the Option or otherwise) the substance of
each of the following provisions:

 

(a)                                  Term.  Subject to the provisions of
subsection 5(b) regarding Ten Percent Stockholders, no Option shall be
exercisable after the expiration of ten (10) years from the date it was
granted.

 

(b)                                  Exercise
Price of an Incentive Stock Option. 
Subject to the provisions of subsection 5(b) regarding Ten Percent Stockholders,
the exercise price of each Incentive Stock Option shall be not less than one
hundred percent (100%) of the Fair Market Value of the Common Stock subject to
the Option on the date the Option is granted.

 

(c)                                  Exercise
Price of a Nonstatutory Stock Option. 
Subject to the provisions of subsection 5(b) regarding Ten Percent
Stockholders, the exercise price of each Nonstatutory Stock Option shall be not
less than eighty-five percent (85%) of the Fair Market Value of the Common
Stock subject to the Option on the date the Option is granted.

 

(d)                                  Consideration.  The purchase price of Common Stock acquired
pursuant to an Option shall be paid, to the extent permitted by applicable
statutes and regulations, either (i) in cash at the time the Option is exercised
or (ii) at the discretion of the Board at the time of the grant of the Option
(or subsequently in the case of a Nonstatutory Stock Option) (1) by delivery to
the Company of other Common Stock, (2) according to a deferred payment or other
similar arrangement with the Optionholder or (3) in any other form of legal
consideration that may be

 

9

 

acceptable to the
Board.  Unless otherwise specifically
provided in the Option, the purchase price of Common Stock acquired pursuant to
an Option that is paid by delivery to the Company of other Common Stock
acquired, directly or indirectly from the Company, shall be paid only by shares
of the Common Stock of the Company that have been held for more than six (6) months
(or such longer or shorter period of time required to avoid a charge to
earnings for financial accounting purposes). 
At any time that the Company is incorporated in Delaware, payment of the
Common Stock’s “par value,” as defined in the Delaware General Corporation Law,
shall not be made by deferred payment.

 

(e)                                  Transferability
of an Incentive Stock Option.  An
Incentive Stock Option shall not be transferable except by will or by the laws
of descent and distribution and shall be exercisable during the lifetime of the
Optionholder only by the Optionholder. 
Notwithstanding the foregoing, the Optionholder may, by delivering
written notice to the Company, in a form satisfactory to the Company, designate
a third party who, in the event of the death of the Optionholder, shall
thereafter be entitled to exercise the Option.

 

(f)                                    Transferability
of a Nonstatutory Stock Option.  A
Nonstatutory Stock Option shall be transferable to the extent provided in the
Option Agreement; provided however, to the extent that the Company is subject
to Section 260.140.41(d) of Title 10 of the California Code of Regulations
at the time of the grant of the Nonstatutory Stock Option, the Nonstatutory
Stock Option shall not be transferable except by will or by the laws of descent
and distribution and shall be exercisable during the lifetime of the
Optionholder only by the Optionholder. 
If the Nonstatutory Stock Option does not provide for transferability,
then the Nonstatutory Stock Option shall not be transferable except by will or by
the laws of descent and distribution and shall be exercisable during the
lifetime of the Optionholder only by the Optionholder.  Notwithstanding the foregoing, the
Optionholder may, by delivering written notice to the Company, in a form
satisfactory to the Company, designate a third party who, in the event of the
death of the Optionholder, shall thereafter be entitled to exercise the Option.

 

(g)                                 Vesting
Generally.  The total number of
shares of Common Stock subject to an Option may, but need not, vest and
therefore become exercisable in periodic installments that may, but need not,
be equal.  The Option may be subject to
such other terms and conditions on the time or times when it may be exercised
(which may be based on performance or other criteria) as the Board may deem
appropriate.  The vesting provisions of
individual Options may vary.  The
provisions of this subsection 6(g) are subject to any Option provisions
governing the minimum number of shares of Common Stock as to which an Option
may be exercised.  Notwithstanding
the foregoing, to the extent that the Company is subject to the following
restrictions on vesting under Section 260.140.41(f) of Title 10 of the
California Code of Regulations at the time of the grant of the Option, then
options granted to an Employee who is not an Officer, Director or Consultant on
the date of grant shall provide for vesting of the total number of shares of
Common Stock at a rate of at least twenty percent (20%) per year over five (5)
years from the date the Option was granted, subject to reasonable conditions
such as continued employment.

 

(h)                                 Termination
of Continuous Service.  In the event
an Optionholder’s Continuous Service terminates (other than upon the
Optionholder’s death or Disability), the Optionholder may exercise his or her
Option (to the extent that the Optionholder was entitled to exercise such

 

10

 

Option as of the date of
termination) but only within such period of time ending on the earlier of (i)
the date three (3) months following the termination of the Optionholder’s
Continuous Service (or such longer or shorter period specified in the Option
Agreement, which period, for so long as the Company is subject to
Section 260.140.41 of Title 10 of the California Code of Regulations,
shall not be less than thirty (30) days unless such termination is for Cause),
or (ii) the expiration of the term of the Option as set forth in the Option
Agreement.  If, after termination, the
Optionholder does not exercise his or her Option within the time specified in
the Option Agreement, the Option shall terminate.

 

(i)                                    Extension
of Termination Date.  An
Optionholder’s Option Agreement may also provide that if the exercise of the
Option following the termination of the Optionholder’s Continuous Service
(other than upon the Optionholder’s death or Disability) would be prohibited at
any time solely because the issuance of shares of Common Stock would violate
the registration requirements under the Securities Act, then the Option shall
terminate on the earlier of (i) the expiration of the term of the Option set
forth in subsection 6(a) or (ii) the expiration of a period of three (3)
months after the termination of the Optionholder’s Continuous Service during
which the exercise of the Option would not be in violation of such registration
requirements.

 

(j)                                    Disability
of Optionholder.  In the event that
an Optionholder’s Continuous Service terminates as a result of the
Optionholder’s Disability, the Optionholder may exercise his or her Option (to
the extent that the Optionholder was entitled to exercise such Option as of the
date of termination), but only within such period of time ending on the earlier
of (i) the date twelve (12) months following such termination (or such longer
or shorter period specified in the Option Agreement, which period, for so long
as the Company is subject to Section 260.140.41 of Title 10 of the
California Code of Regulations, shall not be less than six (6) months) or (ii)
the expiration of the term of the Option as set forth in the Option
Agreement.  If, after termination, the
Optionholder does not exercise his or her Option within the time specified
herein, the Option shall terminate.

 

(k)                                Death
of Optionholder.  In the event (i)
an Optionholder’s Continuous Service terminates as a result of the
Optionholder’s death or (ii) the Optionholder dies within the period (if any)
specified in the Option Agreement after the termination of the Optionholder’s
Continuous Service for a reason other than death, then the Option may be
exercised (to the extent the Optionholder was entitled to exercise such Option
as of the date of death) by the Optionholder’s estate, by a person who acquired
the right to exercise the Option by bequest or inheritance or by a person
designated to exercise the Option upon the Optionholder’s death pursuant to
subsection 6(e) or 6(f), but only within the period ending on the earlier
of (1) the date eighteen (18) months following the date of death (or such
longer or shorter period specified in the Option Agreement, which period, for
so long as the Company is subject to Section 260.140.41 of Title 10 of the
California Code of Regulations, shall not be less than six (6) months) or (2)
the expiration of the term of such Option as set forth in the Option Agreement.  If, after death, the Option is not exercised
within the time specified herein, the Option shall terminate.

 

(l)                                    Early
Exercise.  The Option may, but need
not, include a provision whereby the Optionholder may elect at any time before
the Optionholder’s Continuous Service terminates to

 

11

 

exercise the Option as to
any part or all of the shares of Common Stock subject to the Option prior to
the full vesting of the Option.  Subject
to the “Repurchase Limitation” in Section 11(g), any unvested shares of
Common Stock so purchased may be subject to a repurchase option in favor of the
Company or to any other restriction the Board determines to be appropriate.

 

(m)                              Re-Load
Options.

 

(i)                                    Without
in any way limiting the authority of the Board to make or not to make grants of
Options hereunder, the Board shall have the authority (but not an obligation)
to include as part of any Option Agreement a provision entitling the
Optionholder to a further Option (a “Re-Load Option”) in the event the
Optionholder exercises the Option evidenced by the Option Agreement, in whole
or in part, by surrendering other shares of Common Stock in accordance with
this Plan and the terms and conditions of the Option Agreement.  Unless otherwise specifically provided in
the Option, the Optionholder shall not surrender shares of Common Stock
acquired, directly or indirectly from the Company, unless such shares have been
held for more than six (6) months (or such longer or shorter period of time
required to avoid a charge to earnings for financial accounting purposes).

 

(ii)                                Any
such Re-Load Option shall (1) provide for a number of shares of Common Stock
equal to the number of shares of Common Stock surrendered as part or all of the
exercise price of such Option; (2) have an expiration date which is the same as
the expiration date of the Option the exercise of which gave rise to such
Re-Load Option; and (3) have an exercise price which is equal to one hundred
percent (100%) of the Fair Market Value of the Common Stock subject to the
Re-Load Option on the date of exercise of the original Option.  Notwithstanding the foregoing, a Re-Load
Option shall be subject to the same exercise price and term provisions
heretofore described for Options under the Plan.

 

(iii)                            Any
such Re-Load Option may be an Incentive Stock Option or a Nonstatutory Stock
Option, as the Board may designate at the time of the grant of the original
Option; provided, however, that the designation of any Re-Load Option as an
Incentive Stock Option shall be subject to the one hundred thousand dollar
($100,000) annual limitation on the exercisability of Incentive Stock Options
described in subsection 11(d) and in Section 422(d) of the Code.  There shall be no Re-Load Options on a Re-Load
Option.  Any such Re-Load Option shall
be subject to the availability of sufficient shares of Common Stock under
subsection 4(a) and the “Section 162(m) Limitation” on the grants of
Options under subsection 5(c) and shall be subject to such other terms and
conditions as the Board may determine which are not inconsistent with the
express provisions of the Plan regarding the terms of Options.

 

7.                                      Non-Employee Director Stock Options

 

Without any further
action from the Board, each Eligible Director, other than an Independent
Director, shall be granted Nonstatutory Stock Options as described in
subsections 7(a) and 7(b) (collectively, the “Non-Employee Director
Options”).  Each Non-Employee Director
Option shall include the substance of the terms set forth in
subsection 7(c) through 7(k) and such other terms and conditions as shall
be determined by the Board as appropriate.

 

12

 

(a)                                  Initial
Grants and Interim Grants.

 

(i)                                    On
the IPO Date, each Eligible Director, other than an Independent Director, who
has not received a Stock Award under any of the Company’s Predecessor Plans
shall, upon the IPO Date, be granted an Nonstatutory Stock Option to purchase
Five Thousand (5,000) shares of Common Stock on the terms and conditions set
forth herein (the “Initial Grant”).

 

(ii)                                After
the IPO Date, each Eligible Director, other than an Independent Director, who
is elected or appointed to the Board less than six (6) months from the prior
annual meeting of the stockholders of the Company (the “Annual Meeting”), shall
receive a Nonstatutory Stock Option to purchase Five Thousand (5,000) shares of
Common Stock on the terms and conditions set forth herein (the “Interim
Grant”); provided, however, that the Interim Grant shall be reduced to Two
Thousand Five Hundred (2,500) shares of Common Stock if the Eligible Director
is elected or appointed to serve on the Board six (6) months or more from the
prior Annual Meeting.

 

(b)                                  Annual
Grants.  On the day following each
Annual Meeting commencing with the Annual Meeting in calendar year 2001, each
person who is then an Eligible Director, other than an Independent Director,
automatically shall be granted an Annual Grant to Purchase Ten Thousand
(10,000) shares of Common Stock on the terms and conditions set forth herein.

 

(c)                                  Term.  Each Non-Employee Director Option shall have
a term of ten (10) years from the date it is granted.

 

(d)                                  Exercise
Price.  Subject to the provisions of
Section 5(b) regarding Ten Percent Stockholders, the exercise price of
each Non-Employee Director Option shall be one hundred percent (100%) of the
Fair Market Value of the stock subject to the Non-Employee Director Option on
the date of grant.

 

(e)                                  Vesting.  Non-Employee Director Options shall vest and
become exercisable as follows:

 

(i)                                    Initial
Grants shall vest in full on the day of the Company’s Annual Meeting
immediately following the IPO Date; provided however, that the Initial Grant
shall terminate in the event the Eligible Director is not providing service to
the Company at the time of the commencement of such Annual Meeting.

 

(ii)                                Interim
Grants shall vest in full on the day of the Company’s Annual Meeting next
following the date of grant; provided, however, that the Interim Grant
shall terminate if the Eligible Director is not providing service to the
Company at the time of the commencement of such Annual Meeting.

 

(iii)                            Annual
Grants shall vest in full on the day of the Annual Meeting next following the
date of grant was made; provided, however, that the Annual Grant
shall terminate in the event the Eligible Director is not providing service to
the Company at the time of such Annual Meeting.

 

(f)                                    Consideration.  The purchase price of stock acquired
pursuant to a Non-Employee Director Option may be paid, to the extent permitted
by applicable statutes and

 

13

 

regulations, in any
combination of (i) cash or check, (ii) delivery to the Company of other Common
Stock owned by the Director for at least six (6) months; (iii) deferred payment
or (iv) any other form of legal consideration that may be acceptable to the
Board and provided in the Non-Employee Director Option Agreement; provided,
however, that at any time that the Company is incorporated in Delaware, payment
of the Common Stock’s “par value,” as defined in the Delaware Corporation Law,
shall not be made by deferred payment.

 

(g)                                 Transferability.  A Non-Employee Director Option shall be
transferable to the extent provided in the Non-Employee Director Option Agreement;
provided however, to the extent that the Company is subject to
Section 260.140.41(d) of Title 10 of the California Code of Regulations at
the time of the grant of the Non-Employee Director Option, the Eligible
Director shall not be transferable except by will or by the laws of descent and
distribution and shall be exercisable during the lifetime of the Eligible
Director only by the Eligible Director. 
If the Non-Employee Director Option Agreement does not provide for
transferability, then the Non-Employee Director Option shall not be
transferable except by will or by the laws of descent and distribution and
shall be exercisable during the lifetime of the Eligible Director only by the
Eligible Director.  Notwithstanding the
foregoing, the Eligible Director may, by delivering written notice to the
Company, in a form satisfactory to the Company, designate a third party who, in
the event of the death of the Eligible Director, shall thereafter be entitled
to exercise the Non-Employee Director Option.

 

(h)                                 Termination
of Continuous Service.  In the event
an Eligible Director’s Continuous Service terminates (other than upon the
Eligible Director’s death or Disability), the Eligible Director may exercise
his or her Non-Employee Director Option (to the extent that the Eligible
Director was entitled to exercise it as of the date of termination) but only
within such period of time ending on the earlier of (i) the date six (6) months
following the termination of the Eligible Director’s Continuous Service, or (ii)
the expiration of the term of the Non-Employee Director Option as set forth in
the Non-Employee Director Option Agreement. 
If, after termination, the Eligible Director does not exercise his or
her Non-Employee Director Option within the time specified herein, the
Non-Employee Director Option shall terminate.

 

(i)                                    Extension
of Termination Date. If the exercise of the Non-Employee Director Option
following the termination of the Eligible Director’s Continuous Service (other
than upon the Eligible Director’s death or Disability) would be prohibited at
any time solely because the issuance of shares would violate the registration
requirements under the Securities Act, then the Non-Employee Director Option
shall terminate on the earlier of (i) the expiration of the term of the
Non-Employee Director Option set forth in subsection 7(c) or (ii) the
expiration of a period of three (3) months after the termination of the
Eligible Director’s Continuous Service during which the exercise of the
Non-Employee Director Option would not violate such registration requirements.

 

(j)                                    Disability
of Eligible Director.  In the event
an Eligible Director’s Continuous Service terminates as a result of the
Eligible Director’s Disability, the Eligible Director may exercise his or her
Non-Employee Director Option (to the extent that the Eligible Director was
entitled to exercise it as of the date of termination), but only within such
period of time ending on the earlier of (i) the date twelve (12) months
following such termination or (ii) the expiration of the term of the
Non-Employee Director Option as set forth in the Non-Employee Director

 

14

 

Option Agreement.  If, after termination, the Eligible Director
does not exercise his or her Non-Employee Director Option within the time
specified herein, the Non-Employee Director Option shall terminate.

 

(k)                                Death
of Eligible Director.  In the event
(i) an Eligible Director’s Continuous Service terminates as a result of the
Eligible Director’s death or (ii) the Eligible Director dies within the
six-month period after the termination of the Eligible Director’s Continuous
Service for a reason other than death, then the Non-Employee Director Option
may be exercised (to the extent the Eligible Director was entitled to exercise
the Non-Employee Director Option as of the date of death) by the Eligible
Director’s estate, by a person who acquired the right to exercise the
Non-Employee Director Option by bequest or inheritance or by a person
designated to exercise the Non-Employee Director Option upon the Eligible
Director’s death, but only within the period ending on the earlier of (1) the
date eighteen (18) months following the date of death or (2) the expiration of
the term of such Non-Employee Director Option as set forth in the Non-Employee
Director Option Agreement.  If, after
death, the Non-Employee Director Option is not exercised within the time
specified herein, the Non-Employee Director Option shall terminate.

 

8.                                      Provisions of Stock Awards other than Options.

 

(a)                                  Stock
Bonus Awards.  Each stock bonus
agreement shall be in such form and shall contain such terms and conditions as
the Board shall deem appropriate.  The
terms and conditions of stock bonus agreements may change from time to time,
and the terms and conditions of separate stock bonus agreements need not be
identical, but each stock bonus agreement shall include (through incorporation
of provisions hereof by reference in the agreement or otherwise) the substance
of each of the following provisions:

 

(i)                                    Consideration.  A stock bonus may be awarded in
consideration for past services actually rendered to the Company or an
Affiliate for its benefit.

 

(ii)                                Vesting.  Subject to the “Repurchase Limitation” in
Section 11(g), shares of Common Stock awarded under the stock bonus
agreement may, but need not, be subject to a share reacquisition right in favor
of the Company in accordance with a vesting schedule to be determined by
the Board.

 

(iii)                            Termination
of Participant’s Continuous Service. 
Subject to the “Repurchase Limitation” in Section 11(g), in the
event a Participant’s Continuous Service terminates, the Company may reacquire
any or all of the shares of Common Stock held by the Participant which have not
vested as of the date of termination under the terms of the stock bonus
agreement.

 

(iv)                               Transferability.  Rights to acquire shares of Common Stock
under a stock bonus agreement shall be transferable by the Participant only
upon such terms and conditions as are set forth in the stock bonus agreement,
as the Board shall determine in its discretion, so long as Common Stock awarded
under the stock bonus agreement remains subject to the terms of the stock bonus
agreement; provided however, to the extent that the Company is subject to
Section 260.140.41(d) of Title 10 of the California Code of Regulations at
the time of the award, such rights to acquire shares of Common Stock under a
stock bonus agreement shall not be

 

15

 

transferable except by
will or by the laws of descent and distribution and shall be exercisable during
the lifetime of the Participant only by the Participant.

 

(b)                                  Restricted
Stock Purchase Awards.  Each
restricted stock purchase agreement shall be in such form and shall contain
such terms and conditions as the Board shall deem appropriate.  The terms and conditions of the restricted
stock purchase agreements may change from time to time, and the terms and
conditions of separate restricted stock purchase agreements need not be identical,
but each restricted stock purchase agreement shall include (through
incorporation of provisions hereof by reference in the agreement or otherwise)
the substance of each of the following provisions:

 

(i)                                    Purchase
Price.  Subject to the provisions of
Section 5(b) regarding Ten Percent Stockholders, the purchase price under
each restricted stock purchase agreement shall be such amount as the Board
shall determine and designate in such restricted stock purchase agreement.  The purchase price shall not be less than
eighty-five percent (85%) of the Common Stock’s Fair Market Value on the date
such award is made or at the time the purchase is consummated.

 

(ii)                                Consideration.  The purchase price of Common Stock acquired
pursuant to the restricted stock purchase agreement shall be paid either:  (i) in cash at the time of purchase; (ii) at
the discretion of the Board, according to a deferred payment or other similar
arrangement with the Participant; or (iii) in any other form of legal
consideration that may be acceptable to the Board in its discretion; provided,
however, that at any time that the Company is incorporated in Delaware, then
payment of the Common Stock’s “par value,” as defined in the Delaware General
Corporation Law, shall not be made by deferred payment.

 

(iii)                            Vesting.  Subject to the “Repurchase Limitation” in
Section 11(g), shares of Common Stock acquired under the restricted stock
purchase agreement may, but need not, be subject to a share repurchase option
in favor of the Company in accordance with a vesting schedule to be
determined by the Board.

 

(iv)                               Termination
of Participant’s Continuous Service. 
Subject to the “Repurchase Limitation” in Section 11(g), in the
event a Participant’s Continuous Service terminates, the Company may repurchase
or otherwise reacquire any or all of the shares of Common Stock held by the
Participant which have not vested as of the date of termination under the terms
of the restricted stock purchase agreement.

 

(v)                                   Transferability.  Rights to acquire shares of Common Stock
under a restricted stock purchase agreement shall be transferable by the
Participant only upon such terms and conditions as are set forth in the
restricted stock purchase agreement, as the Board shall determine in its
discretion, so long as Common Stock awarded under the restricted stock purchase
agreement remains subject to the terms of the restricted stock purchase
agreement; provided however, to the extent that the Company is subject to
Section 260.140.41(d) of Title 10 of the California Code of Regulations at
the time of the award, such rights to acquire shares of Common Stock under a
restricted stock purchase agreement shall not be transferable except by will or
by the laws of descent and distribution and shall be exercisable during the
lifetime of the Participant only by the Participant.

 

16

 

9.                                      Covenants of the Company.

 

(a)                                  Availability
of Shares.  During the terms of the
Stock Awards, the Company shall keep available at all times the number of shares
of Common Stock required to satisfy such Stock Awards.

 

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

 

10.                               Use of Proceeds from Stock.

 

Proceeds from the sale of Common Stock pursuant to Stock Awards shall
constitute general funds of the Company.

 

11.                               Miscellaneous.

 

(a)                                  Acceleration
of Exercisability and Vesting.  The
Board shall have the power to accelerate the time at which a Stock Award may
first be exercised or the time during which a Stock Award or any part thereof
will vest in accordance with the Plan, notwithstanding the provisions in the
Stock Award stating the time at which it may first be exercised or the time
during which it will vest.

 

(b)                                  Stockholder
Rights.  No Participant shall be
deemed to be the holder of, or to have any of the rights of a holder with
respect to, any shares of Common Stock subject to such Stock Award unless and
until such Participant has satisfied all requirements for exercise of the Stock
Award pursuant to its terms.

 

(c)                                  No
Employment or other Service Rights. 
Nothing in the Plan or any instrument executed or Stock Award granted
pursuant thereto shall confer upon any Participant any right to continue to
serve the Company or an Affiliate in the capacity in effect at the time the
Stock Award was granted or shall affect the right of the Company or an
Affiliate to terminate (i) the employment of an Employee with or without notice
and with or without cause, (ii) the service of a Consultant pursuant to the
terms of such Consultant’s agreement with the Company or an Affiliate or (iii)
the service of a Director pursuant to the Bylaws of the Company or an
Affiliate, and any applicable provisions of the corporate law of the state in
which the Company or the Affiliate is incorporated, as the case may be.

 

(d)                                  Incentive
Stock Option $100,000 Limitation. 
To the extent that the aggregate Fair Market Value (determined at the
time of grant) of Common Stock with respect to which Incentive Stock Options
are exercisable for the first time by any Optionholder during any

 

17

 

calendar year (under all
plans of the Company and its Affiliates) exceeds one hundred thousand dollars
($100,000), the Options or portions thereof which exceed such limit (according
to the order in which they were granted) shall be treated as Nonstatutory Stock
Options.

 

(e)                                  Investment
Assurances.  The Company may require
a Participant, as a condition of exercising or acquiring Common Stock under any
Stock Award, (i) to give written assurances satisfactory to the Company as to
the Participant’s knowledge and experience in financial and business matters
and/or to employ a purchaser representative reasonably satisfactory to the
Company who is knowledgeable and experienced in financial and business matters
and that he or she is capable of evaluating, alone or together with the
purchaser representative, the merits and risks of exercising the Stock Award;
and (ii) to give written assurances satisfactory to the Company stating that
the Participant is acquiring Common Stock subject to the Stock Award for the
Participant’s own account and not with any present intention of selling or
otherwise distributing the Common Stock. 
The foregoing requirements, and any assurances given pursuant to such
requirements, shall be inoperative if (1) the issuance of the shares of Common
Stock upon the exercise or acquisition of Common Stock under the Stock Award
has been registered under a then currently effective registration statement
under the Securities Act or (2) as to any particular requirement, a
determination is made by counsel for the Company that such requirement need not
be met in the circumstances under the then applicable securities laws.  The Company may, upon advice of counsel to
the Company, place legends on stock certificates issued under the Plan as such
counsel deems necessary or appropriate in order to comply with applicable
securities laws, including, but not limited to, legends restricting the
transfer of the Common Stock.

 

(f)                                    Withholding
Obligations.  To the extent provided
by the terms of a Stock Award Agreement, the Participant may satisfy any
federal, state or local tax withholding obligation relating to the exercise or
acquisition of Common Stock under a Stock Award by any of the following means
(in addition to the Company’s right to withhold from any compensation paid to
the Participant by the Company) or by a combination of such means:  (i) tendering a cash payment; (ii)
authorizing the Company to withhold shares of Common Stock from the shares of
Common Stock otherwise issuable to the Participant as a result of the exercise
or acquisition of Common Stock under the Stock Award, provided, however, that
the Company shall not be authorized to withheld shares of Common Stock in
excess if the minimum statutory rates for federal or state tax purposes
including payroll taxes; or (iii) delivering to the Company owned and
unencumbered shares of Common Stock.

 

(g)                                 Repurchase Limitation.  The terms of any repurchase option shall be
specified in the Stock Award, and the repurchase price shall be the original
purchase price.  To the extent required
by Section 260.140.41 and Section 260.140.42 of Title 10 of the
California Code of Regulations at the time a Stock Award is made, any
repurchase option contained in a Stock Award granted to a person who is not an
Officer, Director or Consultant shall be upon the terms described below:

 

(i)                                    Fair
Market Value.  If the repurchase
option gives the Company the right to repurchase the shares of Common Stock
upon termination of Continuous Status at not less than the Fair Market Value of
the shares of Common Stock to be purchased on the date of termination of
Continuous Status, then (A) the right to repurchase shall be exercised for cash
or

 

18

 

cancellation of purchase
money indebtedness for the shares of Common Stock within ninety (90) days of
termination of Continuous Status (or in the case of shares of Common Stock
issued upon exercise of Stock Awards after such date of termination, within
ninety (90) days after the date of the exercise) or such longer period as may
be agreed to by the Company and the Participant (for example, for purposes of
satisfying the requirements of Section 1202(c)(3) of the Code regarding
“qualified small business stock”) and (B) the right terminates when the shares
of Common Stock become publicly traded.

 

(ii)                                Original
Purchase Price.  If the repurchase
option gives the Company the right to repurchase the shares of Common Stock
upon termination of Continuous Status at the lower of (A) the Fair Market Value
of the shares of Common Stock on the date of repurchase or (B) their original
purchase price, then (x) the right to repurchase at the original purchase price
shall lapse at the rate of at least twenty percent (20%) of the shares of
Common Stock per year over five (5) years from the date the Stock Award is
granted (without respect to the date the Stock Award was exercised or became
exercisable) and (y) the right to repurchase shall be exercised for cash or
cancellation of purchase money indebtedness for the shares of Common Stock
within ninety (90) days of termination of Continuous Status (or in the case of
shares of Common Stock issued upon exercise of Options after such date of
termination, within ninety (90) days after the date of the exercise) or such
longer period as may be agreed to by the Company and the Participant (for
example, for purposes of satisfying the requirements of Section 1202(c)(3)
of the Code regarding “qualified small business stock”).

 

(h)                                 Information Obligation.  To the extent required by
Section 260.140.46 of Title 10 of the California Code of Regulations, the
Company shall deliver financial statements to Participants at least annually.  This Section 11(h) shall not apply to
key Employees whose duties in connection with the Company assure them access to
equivalent information.

 

12.                               Adjustments upon Changes in Common Stock.

 

(a)                                  Capitalization
Adjustments.  If any change is made
in the Common Stock subject to the Plan, or subject to any Stock Award, without
the receipt of consideration by the Company (through merger, consolidation,
reorganization, recapitalization, reincorporation, stock dividend, dividend in
property other than cash, stock split, liquidating dividend, combination of
shares, exchange of shares, change in corporate structure or other transaction
not involving the receipt of consideration by the Company), the Plan will be
appropriately adjusted in the class(es) and maximum number of securities
subject to the Plan pursuant to subsection 4(a) and the maximum number of
securities subject to award to any person pursuant to subsection 5(c), and
the outstanding Stock Awards will be appropriately adjusted in the class(es) and
number of securities and price per share of Common Stock subject to such
outstanding Stock Awards.  The Board
shall make such adjustments, and its determination shall be final, binding and
conclusive.  (The conversion of any
convertible securities of the Company shall not be treated as a transaction
“without receipt of consideration” by the Company.)

 

(b)                                  Dissolution
or Liquidation.  In the event of a
dissolution or liquidation of the Company, then all outstanding Stock Awards
shall terminate immediately prior to such event.

 

19

 

(c)                                  Corporate
Transaction.  In the event of a
Corporate Transaction, any surviving corporation or acquiring corporation may
assume any Stock Awards outstanding under the Plan or may substitute similar
stock awards (including an award to acquire the same consideration paid to the
stockholders pursuant to the Corporate Transaction).  In the event any surviving corporation or acquiring corporation
refuses to assume such Stock Awards or to substitute similar stock awards for
those outstanding under the Plan, then with respect to Stock Awards held by
Participants whose Continuous Service has not terminated as of the effective
date of the Corporate Transaction, the vesting of such Stock Awards (and, if
applicable, the time during which such Stock Awards may be exercised) shall be
accelerated in full, and  the Stock Awards shall terminate
if not exercised (if applicable) at or prior to such effective date.  With respect to any other Stock Awards
outstanding under the Plan, such Stock Awards shall terminate if not exercised
(if applicable) prior the effective date of the Corporate Transaction.

 

(d)                                  Change
in Control. If a Change in Control occurs and within thirteen (13) months
after the effective date of such Change in Control the Continuous Service of a
Participant terminates due to an involuntary termination (not including death
or Disability) without Cause or due to a voluntary termination with Good
Reason, then the vesting and exercisability of all Stock Awards held by such
Participant shall be accelerated in full.

 

13.                               Amendment of the Plan and Stock Awards.

 

(a)                                  Amendment
of Plan.  The Board at any time, and
from time to time, may amend the Plan. 
However, except as provided in Section 12 relating to adjustments
upon changes in Common Stock, no amendment shall be effective unless approved
by the stockholders of the Company to the extent stockholder approval is
necessary to satisfy the requirements of Section 422 of the Code, Rule
16b-3 or any Nasdaq or securities exchange listing requirements.

 

(b)                                  Stockholder
Approval.  The Board may, in its
sole discretion, submit any other amendment to the Plan for stockholder
approval, including, but not limited to, amendments to the Plan intended to
satisfy the requirements of Section 162(m) of the Code and the regulations
thereunder regarding the exclusion of performance-based compensation from the
limit on corporate deductibility of compensation paid to certain executive
officers.

 

(c)                                  Contemplated
Amendments.  It is expressly
contemplated that the Board may amend the Plan in any respect the Board deems
necessary or advisable to provide eligible Employees with the maximum benefits
provided or to be provided under the provisions of the Code and the regulations
promulgated thereunder relating to Incentive Stock Options and/or to bring the
Plan and/or Incentive Stock Options granted under it into compliance therewith.

 

(d)                                  No
Impairment of Rights.  Rights under
any Stock Award granted before amendment of the Plan shall not be impaired by
any amendment of the Plan unless (i) the Company requests the consent of the
Participant and (ii) the Participant consents in writing.

 

(e)                                  Amendment
of Stock Awards.  The Board at any
time, and from time to time, may amend the terms of any one or more Stock
Awards; provided, however, that the rights under any Stock Award shall not be
impaired by any such amendment unless (i) the Company requests the consent of
the Participant and (ii) the Participant consents in writing.

 

20

 

14.                               TERMINATION
OR SUSPENSION OF THE PLAN.

 

(a)                                  Plan
Term.  The Board may suspend or
terminate the Plan at any time.  Unless
sooner terminated, the Plan shall terminate on the day before the tenth (10th)
anniversary of the date the Plan is adopted by the Board or approved by the
stockholders of the Company, whichever is earlier.  No Stock Awards may be granted under the Plan while the Plan is
suspended or after it is terminated.

 

(b)                                  No
Impairment of Rights.  Suspension or
termination of the Plan shall not impair rights and obligations under any Stock
Award granted while the Plan is in effect except with the written consent of
the Participant.

 

15.                               Effective Date of Plan.

 

The Plan shall become effective on the IPO Date, but no Stock Award
shall be exercised (or, in the case of a stock bonus, shall be granted) unless
and until the Plan has been approved by the stockholders of the Company, which
approval shall be within twelve (12) months before or after the date the Plan
is adopted by the Board.

 

16.                               Choice of Law.

 

The law of the State of California shall govern all questions
concerning the construction, validity and interpretation of this Plan, without
regard to such state’s conflict of laws rules.

 

21

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