Document:

exv10w2

 

Exhibit 10.2

SONICWALL, INC.

INDEMNIFICATION AGREEMENT

          This Indemnification Agreement (“Agreement”) is made as of July 27, 2005 by and between
SonicWALL, Inc., a California corporation (the “Company”), and ___(“Indemnitee”).

RECITALS

          A.          The Company desires to attract and retain the services of highly qualified individuals to
serve as officers, directors and agents of the Company.

          B.          The Company and Indemnitee recognize the increased risk of litigation and other claims
being asserted against directors, officers and other agents of the Company.

          C.          The Company desires to provide indemnification and other rights to Indemnitee in
consideration for Indemnitee’s service to the Company.

          In consideration of the covenants and promises set forth herein, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties
agree as follows:

          1.          Indemnification.

                       (a)          Third Party Proceedings. The Company shall indemnify Indemnitee if Indemnitee was or is a
party or is threatened to be made a party to any threatened, pending or completed action or
proceeding, whether civil, criminal, administrative or investigative (a “Proceeding”) (other than
an action by or in the right of the Company to procure a judgment in its favor) by reason of the
fact that Indemnitee is or was a director, officer, employee or other agent of the Company or by
reason of the fact that Indemnitee is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys’ fees), judgments, fines, settlements (if such
settlement is approved in advance by the Company, which approval shall not be unreasonably
withheld) and other amounts actually and reasonably incurred by Indemnitee in connection with the
Proceeding if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be
in the best interests of the Company, and, in the case of any criminal Proceeding, had no
reasonable cause to believe Indemnitee’s conduct was unlawful. The termination of any Proceeding
by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that (i) Indemnitee did not act in good faith and in a
manner which Indemnitee reasonably believed to be in the best interests of the Company or (ii)
Indemnitee had reasonable cause to believe that Indemnitee’s conduct was unlawful.

                       (b)          Proceedings by or in the Right of the Company. The Company shall indemnify Indemnitee if
Indemnitee was or is a party or is threatened to be made a party to any threatened, pending or
completed action by or in the right of the Company to procure a judgment in its favor by reason of
the fact that Indemnitee is or was a director, officer, employee or other agent of the Company or
by reason of the fact that Indemnitee is or was serving at the request of the Company as a
director, officer, employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys’ fees) actually and reasonably incurred by
Indemnitee in connection with the defense or settlement of such action if Indemnitee acted in good
faith, in a manner Indemnitee believed to be in the best interests of the Company and its shareholders,
except that no indemnification shall be made (i) in respect of
any claim, issue or matter as to which
 

 

Indemnitee shall have been adjudged to be liable to the
Company in the performance of Indemnitee’s duty to the Company and its shareholders unless and only
to the extent that the court in which such Proceeding is or was pending shall determine upon
application that, in view of all the circumstances of the case, Indemnitee is fairly and reasonably
entitled to indemnity for expenses and then only to the extent that the court shall determine, (ii)
of amounts paid in settling or otherwise disposing of a pending action without court approval or
(iii) of expenses incurred in defending a pending action which is settled or otherwise disposed of
without court approval.

          2.          Expenses; Indemnification Procedure.

                       (a)          Advancement of Expenses. The Company shall advance all expenses incurred by Indemnitee in
defending any Proceeding referenced in Section 1(a) or (b) hereof prior to the final disposition of
the Proceeding (but not amounts actually paid in settlement of any such Proceeding). Indemnitee
hereby undertakes to repay such amounts advanced if it shall be determined ultimately that
Indemnitee is not entitled to be indemnified by the Company as authorized hereby or by Section 317
of the California General Corporation Law. The advances to be made hereunder shall be paid by the
Company to Indemnitee within twenty (20) days following delivery of a written request therefor by
Indemnitee to the Company.

                       (b)          Notice; Cooperation by Indemnitee. Indemnitee shall, as soon as practicable and as a
condition precedent to Indemnitee’s right to be indemnified or to receive any advancement of
expenses under this Agreement, give the Company written notice of any claim made against Indemnitee
for which indemnification or advancement of expenses will or could be sought under this Agreement,
specifying the nature of such claim in reasonable detail. Notice to the Company shall be directed
to the Chief Executive Officer of the Company, or the Chief Financial Officer if Indemnitee is the
Chief Executive Officer, in accordance with Section 14 hereof. Any delay in providing notice will
not relieve the Company from its obligations under this Agreement, except to the extent such
failure is prejudicial. Indemnitee shall give the Company such information and cooperation as it
may reasonably require and as shall be within Indemnitee’s power.

                       (c)          Procedure. Any indemnification provided for in Section 1 hereof shall be made no later
than forty-five (45) days after written notice by Indemnitee requesting payment. If a claim under
this Agreement, under any statute or under any provision of the Company’s Articles of Incorporation
or Bylaws providing for indemnification is not paid in full by the Company within forty-five (45)
days after such written notice, Indemnitee may, but need not, at any time thereafter bring an
action against the Company to recover the unpaid amount of the claim and, subject to Section 13
hereof, Indemnitee shall also be entitled to be paid for the expenses (including attorneys’ fees)
of bringing such action. It shall be a defense to any such action (other than an action brought to
enforce a claim for expenses incurred in connection with any Proceeding in advance of its final
disposition) that Indemnitee has not met the standards of conduct which make it permissible under
this Agreement or applicable law for the Company to indemnify Indemnitee for the amount claimed,
and Indemnitee shall be entitled to receive interim payments of expenses pursuant to Subsection
2(a) hereof unless and until such defense may be finally adjudicated by court order or judgment
from which no further right of appeal exists. It is the parties’ intention that if the Company
contests Indemnitee’s right to indemnification, the question of Indemnitee’s right to
indemnification shall be for the court to decide, and neither the failure of the Company (including
its Board of Directors, any committee or subgroup of the Board of Directors, independent legal
counsel or its shareholders) to have made a determination that indemnification of Indemnitee is
proper in the circumstances because Indemnitee has met the applicable standard of conduct required
by applicable law, nor an actual determination by the Company (including its Board of Directors,
any committee or subgroup of the Board of Directors, independent legal counsel or its shareholders)
that Indemnitee has not met such applicable standard of conduct, shall create a presumption that
Indemnitee has or has not met the applicable standard of conduct.

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                       (d)          Notice to Insurers. If, at the time of the receipt of a notice of a claim pursuant to
Section 2(b) hereof, the Company has directors’ and officers’ liability insurance in effect, the
Company shall give prompt notice of the commencement of the Proceeding to the insurers in
accordance with the procedures set forth in the respective policies. The Company shall thereafter
take all commercially reasonable action to cause such insurers to pay, on behalf of the Indemnitee,
all amounts payable as a result of such Proceeding in accordance with the terms of such policies.

                       (e)          Selection of Counsel. In the event the Company shall be obligated under Section 2(a)
hereof to pay the expenses of any Proceeding against Indemnitee, the Company, if appropriate, shall
be entitled to assume the defense of such Proceeding, with counsel approved by Indemnitee, which
approval shall not be unreasonably withheld, upon giving written notice to Indemnitee of its
election so to do. After giving such notice, approval of such counsel by Indemnitee and the
retention of such counsel by the Company, the Company will not be liable to Indemnitee under this
Agreement for any fees or expenses of counsel subsequently incurred by Indemnitee with respect to
the same Proceeding, provided that (i) Indemnitee shall have the right to employ Indemnitee’s
counsel in any such Proceeding at Indemnitee’s expense; and (ii) if (A) the Company has expressly
authorized (and continues to authorize) the employment of counsel by Indemnitee at the Company’s
expense, (B) the use of counsel chosen by the Company to represent Indemnitee would present such
counsel with a conflict of interest or (C) the Company shall not, in fact, have employed counsel
reasonably satisfactory to Indemnitee within a reasonable time after notice of the institution of
such Proceeding, then Indemnitee shall have the right to employ counsel at the expense of the
Company in accordance herewith.

          3.          Additional Indemnification Rights; Nonexclusivity.

                       (a)          Scope. Subject to Section 8 hereof and any other provision of this Agreement that
prohibits, limits or conditions indemnification by the Company, the Company hereby agrees to
indemnify Indemnitee to the fullest extent permitted by law for any acts, omissions or transactions
while acting in the capacity of, or that are otherwise related to the fact that Indemnitee was or
is serving as, a director, officer, employee or other agent of the Company or, to the extent
Indemnitee is or was serving at the request of the Company as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other enterprise, such other
corporation, partnership, joint venture, trust or other enterprise. In the event of any change,
after the date of this Agreement, in any applicable law, statute or rule which expands the right of
a California corporation to indemnify a member of its Board of Directors, an officer or other
corporate agent, such changes shall be, ipso facto, within the purview of Indemnitee’s rights and
Company’s obligations, under this Agreement. In the event of any change in any applicable law,
statute or rule which narrows the right of a California corporation to indemnify a member of its
Board of Directors, an officer or other corporate agent, such changes, to the extent required by
such law, statute or rule to be applied to this Agreement, shall have the effect on this Agreement
and the parties’ rights and obligations hereunder as is required by such law, statute or rule.

                       (b)          Nonexclusivity. The indemnification provided by this Agreement shall not be deemed
exclusive of any rights to which Indemnitee may be entitled under the Company’s Articles of
Incorporation, its Bylaws, any agreement, any vote of shareholders or disinterested directors, the
California General Corporation Law or otherwise, both as to action in Indemnitee’s official
capacity and as to action in another capacity while holding such office. The indemnification
provided under this Agreement shall continue as to Indemnitee for any action taken or not taken while serving in an indemnified
capacity even though Indemnitee may have ceased to serve in such capacity at the time of any
covered Proceeding.

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          4.          Partial Indemnification. If Indemnitee is entitled under any provision of this
Agreement to indemnification by the Company for some or a portion of the expenses, judgments,
fines, settlements or other amounts actually and reasonably incurred by Indemnitee in connection
with any Proceeding, but not, however, for the total amount thereof, the Company shall nevertheless
indemnify Indemnitee for the portion of such expenses, judgments, fines, settlements or other
amounts to which Indemnitee is entitled.

          5.          Mutual Acknowledgement. Both the Company and Indemnitee acknowledge that in
certain instances, Federal law or applicable public policy may prohibit the Company from
indemnifying its directors, officers and other corporate agents under this Agreement or otherwise.
Indemnitee understands and acknowledges that the Company has undertaken or may be required in the
future to undertake with the Securities and Exchange Commission to submit the question of
indemnification to a court in certain circumstances for a determination of the Company’s right
under public policy to indemnify Indemnitee.

          6.          Directors’ and Officers’ Liability Insurance. The Company shall, from time to
time, make the good faith determination whether or not it is practicable for the Company to obtain
and maintain a policy or policies of insurance with reputable insurance companies providing the
officers and directors of the Company with coverage for losses from wrongful acts, or to insure the
Company’s performance of its indemnification obligations under this Agreement. Among other
considerations, the Company will weigh the costs of obtaining such insurance coverage against the
protection afforded by such coverage. To the extent the Company maintains an insurance policy or
policies providing directors’ and officers’ liability insurance, Indemnitee shall be named as an
insured in such a manner as to provide Indemnitee the same rights and benefits as are accorded to
the most favorably insured of the Company’s directors under such policy or policies, if Indemnitee
is a director; or of the Company’s officers under such policy or policies, if Indemnitee is not a
director of the Company but is an officer; or of the Company’s key employees under such policy or
policies, if Indemnitee is not an officer or director but is a key employee. Notwithstanding the
foregoing, the Company shall have no obligation to obtain or maintain any insurance if the Company
determines in good faith that such insurance is not reasonably available, if the premium costs for
such insurance are disproportionate to the amount of coverage provided, if the coverage provided by
such insurance is limited by exclusions so as to provide an insufficient benefit, or if Indemnitee
is covered by similar insurance maintained by a subsidiary or parent of the Company.

          7          Severability. Nothing in this Agreement is intended to require or shall be
construed as requiring the Company to do or fail to do any act in violation of applicable law. The
Company’s inability, pursuant to court order or other applicable law, to perform its obligations
under this Agreement shall not constitute a breach of this Agreement. The provisions of this
Agreement shall be severable as provided in this Section 7. If this Agreement or any portion
hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Company
shall nevertheless indemnify Indemnitee to the full extent permitted by any applicable portion of
this Agreement that shall not have been invalidated, and the balance of this Agreement not so
invalidated shall be enforceable in accordance with its terms.

          8          Exceptions. Any other provision herein to the contrary notwithstanding, the Company
shall not be obligated pursuant to the terms of this Agreement:

                       (a) Excluded Acts. To indemnify Indemnitee (i) for any acts or omissions or transactions from
which a director may not be relieved of liability under the California General Corporation Law or
(ii) for
breach of duty to the Company or its shareholders as to circumstances in which indemnity is
expressly prohibited by Section 317 of the California General Corporation Law; or

                       (b) Claims Initiated by Indemnitee. To indemnify or advance expenses to Indemnitee with
respect to proceedings or claims initiated or brought voluntarily by Indemnitee and not by way of
defense, except

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with respect to proceedings or claims initiated or brought to enforce this
Agreement or a right to indemnification under Section 317 of the California General Corporation Law
or under any other statute or law, but such indemnification or advancement of expenses may be
provided by the Company in specific cases if the Board of Directors has approved the initiation or
bringing of such suit; or

                       (c)          Lack of Good Faith. To indemnify Indemnitee for any expenses incurred by Indemnitee with
respect to proceedings or claims initiated or brought to enforce this Agreement or a right to
indemnification under Section 317 of the California General Corporation Law or under any other
statute or law, if a court of competent jurisdiction determines that each of the material
assertions made by the Indemnitee in such proceeding was not made in good faith or was frivolous;
or

                       (d)          Duplicate Payments. To indemnify Indemnitee for expenses or liabilities of any type
whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes or penalties, and
amounts paid in settlement) to the extent Indemnitee has otherwise received payment of amounts
otherwise indemnifiable under this Agreement pursuant to (i) a policy of directors’ and officers’
liability insurance maintained by the Company, (ii) the Company’s Articles of Incorporation or
Bylaws, (iii) Section 317 or any other applicable provisions of the California General Corporation
Law or (iv) any other agreement; or

                       (e)          Claims Under Section 16(b). To indemnify Indemnitee for expenses and the payment of
profits arising from the purchase and sale by Indemnitee of securities in violation of Section
16(b) of the Securities Exchange Act of 1934, as amended, or any similar successor statute.

          9.          Effectiveness of Agreement. To the extent that the indemnification permitted under
the terms of certain provisions of this Agreement exceeds the scope of the indemnification
specifically provided for in the California General Corporation Law, such provisions shall not be
effective unless and until the Company’s Articles of Incorporation duly authorize such additional
rights of indemnification. In all other respects, the balance of this Agreement shall be effective
as of the date set forth on the first page of this Agreement and may apply to acts or omissions of
Indemnitee which occurred prior to such date if Indemnitee was a director, officer, employee or
other agent of the Company, or was serving at the request of the Company as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or other enterprise, at
the time such act or omission occurred.

          10.        Construction of Certain Phrases.

                       (a)          For purposes of this Agreement, references to the “Company” shall also include, in
addition to the resulting or surviving corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its directors, officers,
employees or agents, so that if Indemnitee is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent corporation as a
director, officer, employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, Indemnitee shall stand in the same position under the provisions of this
Agreement with respect to the resulting or surviving corporation as Indemnitee would have with
respect to such constituent corporation if its separate existence had continued.

                       (b)          For purposes of this Agreement, references to “other enterprise” shall include employee
benefit plans; references to “fines” shall include any excise taxes assessed on Indemnitee with
respect to an employee benefit plan; and references to “serving at the request of the Company”
shall include any service as a director, officer, employee or agent of the Company which imposes
duties on, or involves services by, such director, officer, employee or agent with respect to an
employee benefit plan, its participants or beneficiaries.

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          11.          Counterparts. This Agreement may be executed in counterparts, each of which shall
constitute an original.

          12.          Successors and Assigns. This Agreement shall be binding upon the Company and its
successors and assigns, and shall inure to the benefit of Indemnitee and Indemnitee’s estate,
heirs, executors, administrators and similar legal representatives.

          13.          Attorneys’ Fees. In the event that any action is instituted by Indemnitee under
this Agreement to enforce or interpret any of the terms hereof, Indemnitee shall be entitled to be
paid all costs and expenses, including reasonable attorneys’ fees, incurred by Indemnitee with
respect to such action, unless as a part of such action, a court of competent jurisdiction
determines that each of the material assertions made by Indemnitee as a basis for such action was
not made in good faith or was frivolous. In the event of an action instituted by or in the name of
the Company under this Agreement or to enforce or interpret any of the terms of this Agreement,
Indemnitee shall be entitled to be paid all costs and expenses, including reasonable attorneys’
fees, incurred by Indemnitee in defense of such action (including with respect to Indemnitee’s
counterclaims and cross-claims made in such action), unless as a part of such action the court
determines that each of Indemnitee’s material defenses to such action were made in bad faith or
were frivolous.

          14.          Notice. All notices, requests, demands and other communications under this
Agreement shall be in writing and shall be deemed duly given (i) if delivered by hand and receipted
for by the party addressee, on the date of such receipt, (ii) if mailed by domestic certified or
registered mail with postage prepaid, on the third business day after the date postmarked or (iii)
if sent by other means, on the date such notice is actually received by the relevant party.
Addresses for notice to either party are as shown on the signature page of this Agreement, or as
subsequently modified by written notice in accordance herewith. Notices to the Company shall be
sent to the General Counsel of the Company with a copy to Wilson Sonsini Goodrich & Rosati, 650
Page Mill Road, Palo Alto, CA 94304, attention: John Roos, Esq.

          15.          Consent to Jurisdiction. The Company and Indemnitee each hereby irrevocably
consent to the jurisdiction of the courts of the State of California for all purposes in connection
with any action or proceeding which arises out of or relates to this Agreement and agree that any
action or proceeding instituted under this Agreement shall be brought only in the state courts of
the State of California.

          16.          Choice of Law. This Agreement shall be governed by and its provisions construed
in accordance with the laws of the State of California as applied to contracts between California
residents entered into and to be performed entirely within California.

          17.          Subrogation. In the event of payment under this Agreement, the Company shall be
subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall
execute all documents required and shall do all acts that may be necessary to secure such rights
and to enable the Company effectively to bring suit to enforce such rights.

          18.          Amendment and Termination. No amendment, modification, termination or
cancellation of this Agreement shall be effective unless in writing signed by both parties hereto.

          19.          Integration and Entire Agreement. This Agreement (i) sets forth the entire
understanding between the parties with respect to the subject matter hereof, (ii) supersedes all
previous written or oral negotiations, commitments, understandings and agreements relating to the
subject matter hereof and (iii) merges all prior and contemporaneous discussions between the
parties.

(signature page follows)

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          IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above
written.

	 	 	 	 	 
	 	SonicWALL, Inc.

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 
	 	 	Title:  	

	 
	 
	 	Address:  	1143
Borregas Avenue
Sunnyvale, California 94089	
	 

Agreed to and accepted:

INDEMNITEE

 

(type or print name)

 

      (signature)

 

   (street address)

 

(city, state and zip code)

(Signature page to Indemnification agreement)<PAGE>

                                                                     EXHIBIT 4.2

                                   RTW, INC.

                       1995 EMPLOYEE STOCK PURCHASE PLAN
                        AS AMENDED THROUGH JUNE 15, 2005

<PAGE>

                                   SECTION 1

                                    PURPOSE

      The purpose of this Employee Stock Purchase Plan is to provide a greater
community of interest between RTW, Inc. shareholders and its employees, and to
facilitate purchase by employees of additional shares of stock in the Company.
It is believed the Plan will encourage employees to remain in the employ of the
Company and will also permit the Company to compete with other corporations
offering similar plans in obtaining and retaining the services of competent
employees.  It is intended that options issued pursuant to this Plan shall
constitute options issued pursuant to an "Employee Stock Purchase Plan" within
the meaning of Section 423 of the Internal Revenue Code of 1986, as amended.

                                   SECTION 2

                                  DEFINITIONS

      (a) "Plan" means the RTW, Inc. 1995 Employee Stock Purchase Plan.

      (b) "Code" means the Internal Revenue Code of 1986, as amended.

      (c) "Company" means RTW, Inc., and any of its subsidiaries (as that term
is defined by Section 425(f) of the Code) to which RTW, Inc. and such respective
subsidiaries by action of their Boards of Directors shall make this Plan
applicable.

      (d) "Employee" means any person, including an officer, who is customarily
employed twenty (20) hours or more per week and more than five (5) months in a
calendar year by the Company.

      (e) "Eligible Employee" means an Employee of the Company who is eligible
for participation in the Plan in accordance with Section 4.

      (f) "Participant" means an Eligible Employee who has elected to
participate in the Plan in accordance with Section 5.

      (g) "Committee" means the committee provided for in Section 11.

      (h) The "Commencement Date" of the Plan means the date the Company's
initial public offering commences.

      (i) "Base Pay" means regular straight time earnings annualized as of the
date of commencement of a Phase excluding payments, if any, for overtime,
incentive compensation, incentive payments, premiums, bonuses, and any other
special remuneration.

      (j) "Termination Date" with respect to any Phase shall mean (i) the date
designated by the Company's Board of Directors for a Phase to end, or (ii) the
effective date of any merger or consolidation in which the Company is not the
surviving corporation.

      (k) "Shares" shall mean common shares of the Company, subject to
adjustments which may be made in accordance with Sections 16 and 17.

                                   SECTION 3

                          TERM AND PHASES OF THE PLAN

      (a) The Plan will commence on the Commencement Date and will terminate ten
(10) years thereafter or such sooner date as all of the Shares have been issued.
If, however, the Plan is amended to increase the number of shares issuable under
the Plan, then the Plan will terminate ten years after the date of shareholder
approval of the

<PAGE>

increase in the number of shares issuable under the Plan. Foregoing, this Plan
shall be considered of no force or effect and any options granted shall be null
and void unless the shareholders of the Company approve the Plan within twelve
(12) months before or after the date of its adoption by the Board of Directors.

      (b) The Plan shall be carried out in Phases, each Phase being for a period
of one year, or such other length of time as made be determined by the
Committee. No Phases shall run concurrently. A Phase may commence immediately
after the termination of the preceding Phase. The commencement of each Phase
shall be determined by the Committee, provided that the commencement of the
first Phase shall be within twelve (12) months before or after the date of
approval of the Plan by the shareholders of the Company. In the event all of the
stock reserved for grant of options hereunder is issued pursuant to the terms
hereof prior to the commencement of one or more Phases scheduled by the
Committee or the number of shares remaining is so small, in the opinion of the
Committee, as to render administration of any succeeding Phase impracticable,
such Phase or Phases shall be cancelled. Phases shall be numbered successively
as Phase 1, Phase 2 and Phase 3.

                                   SECTION 4

                                  ELIGIBILITY

      (a) Any Employee of the Company who has completed at least two (2) weeks
of continuous service on or prior to the commencement of a Phase of the Plan
shall be eligible to participate in the Plan, subject to the limitations imposed
by Section 423 of the Code.

      (b) Any Employee who is a member of the Board of Directors of the Company
shall be eligible to participate in the Plan.

      (c) Notwithstanding any provision of the Plan to the contrary, no Employee
shall be granted an option:

            1. If such Employee, immediately after the option is granted, owns
      shares possessing five percent (5%) or more of the total combined voting
      power or value of all classes of shares of the Company or a parent or a
      subsidiary of the Company. For purposes of determining share ownership,
      the rules of Section 425(d) of the Code shall apply, and shares which the
      Employee may purchase under outstanding options shall be treated as shares
      owned by the Employee; or

            2. Which permits the Employee to purchase shares under such plans of
      the Company or a parent or a subsidiary of the Company to accrue at a rate
      which exceeds $25,000 of the fair market value-of such shares (determined
      at the time such option is granted) for each calendar year in which such
      option is outstanding at any time.

                                   SECTION 5

                                 PARTICIPATION

      (a) An Eligible Employee may elect to enroll as and become a Participant
in any Phase of the Plan by completing a payroll deduction authorization on the
form provided by the Company and filing it with the personnel office at least
three (3) days prior the date the Phase commences.

      (b) Payroll deductions for a Participant shall commence on the date when
his payroll deduction authorization becomes effective and shall end on the last
payday immediately prior to or coinciding with the Termination Date of the
particular Phase unless sooner terminated by the Participant as provided in
Section 9 or as otherwise provided herein.

      (c) A participant who ceases to be an Eligible Employee, although still
employed by the Company, thereupon shall be deemed to discontinue his
participation in the Plan and shall have the rights provided in Section 9.

      (d) Participation in the Plan shall be voluntary.

<PAGE>

                                   SECTION 6

                               PAYROLL DEDUCTIONS

      (a) Upon enrollment in any particular Phase, of the Plan, a Participant
shall elect to make contributions to the Plan by payroll deductions (in full
dollar amounts calculated to be as uniform as practicable throughout the period
of the Phase), in the aggregate amount not in excess of the sum of 10% of such
Participant's Base Pay for the term of the Phase, as determined on the basis of
his annual or annualized Base Pay at the commencement of the Phase. The minimum
authorized payroll deduction shall be $10 per month.

      (b) All payroll deductions made for a Participant shall be credited to the
Participant's account under the Plan. The Participant may not make any separate
cash payments into such account.

      (c) A Participant may discontinue his participation in the Phase and
terminate, his payroll deduction authorized at any time as provided in Section
9.

      (d) A Participant may reduce the amount of his payroll deduction by
completing an amended payroll deduction authorization on the form provided and
filing it with the personnel office, but no change can be made during a Phase of
the Plan which would either change the time or increase the rate of his payroll
deductions.

                                   SECTION 7

                        TERMS AND CONDITIONS OF OPTIONS

      (a) Stock options granted pursuant to the Plan may be evidenced by
agreements in such form as the Committee shall recommend and the Board of
Directors shall approve; provided that all Employees shall have the same rights
and privileges and provided further that such options shall comply with and be
subject to the following terms and conditions.

      (b) As of the commencement of a Phase when a Participant's payroll
deduction authorization becomes effective, the Participant shall be granted an
option for as many full shares as he will be able to purchase with the payroll
deduction credited to the Participant's account during his participation in the
Phase, subject to the limitations of Section 10. The maximum number of shares
subject to purchase by a Participant shall equal the total amount to be credited
to the Participant's account under Section 6 hereof divided by the option price
set forth in Section 7, paragraph (c)(1) hereof.

      (c) The option price of shares to be purchased with payroll deductions for
an Employee who becomes a Participant as of the commencement of a Phase shall be
the lower of:

          1.    100% of the fair market value of the Shares on the date the
      Phase commences, or

          2.    100% of the fair market value of the Shares on the Termination
      Date of the Phase.

      (d) The Committee shall have the right to lower the option price for
shares in any Phase to as low as 85% of the fair market value of the Shares at
the beginning date or the Terminated Dated of any Phase, provided, the price
must be set prior to the commencement of a Phase.

      (e) The fair market value of the shares shall be determined by the
Committee for each valuation date in a manner consistent with Section 423 of
the Code.

<PAGE>

                                   SECTION 8

                               EXERCISE OF OPTION

      (a) Unless a Participant gives written notice to the Company as provided
in Section 9, an option for the purchase of shares will be exercised
automatically as of the Termination Date of the Phase for the purchase of the
number of full shares which the accumulated payroll deductions in the
Participant's account at that time will purchase at the applicable option price,
but in no event shall the number of full shares be greater than the number of
full shares which the Participant is eligible to purchase under Section 7,
paragraph (b).

      (b) By written notice to the Company within one week prior to the
Termination Date of the Phase a Participant may elect, effective at the
Termination Date, to:

            1. withdraw all the accumulated payroll deductions in the
      Participant's account at the time, without interest;

            2. exercise his option for a specified number of full shares less
      than the number of full shares which the accumulated payroll deductions in
      his account will purchase at the applicable option price, and withdraw the
      balance in the Participant's account without interest, but in no event
      shall the number of full shares be greater than the number of full shares
      to which a Participant is eligible to purchase under Section 7, paragraph
      (b).

                                   SECTION 9

                        DEATH, WITHDRAWAL OR TERMINATION

      (a) In the event of the death of a Participant during any Phase of the
Plan, the person or persons specified in Section 18 may give notice to the
Company within sixty (60) days of the death of the Participant, but in no event
later than the end of the period specified in Section 8, paragraph (b), electing
to purchase the number of full shares which the accumulated payroll deductions
in the account of such deceased Participant will purchase at the option price
specified in paragraph (c) of Section 7 and have the balance in the account
distributed in cash without interest. If no such notice is received by the
Company within the period described in the preceding sentence, the accumulated
payroll deductions will be distributed in cash.

      (b) Upon termination of the Participant's employment during any Phase of
the Plan for any reason other than the death of the Participant, the payroll
deductions credited to his account without interest shall be returned to such
Participant promptly.

      (c) A Participant may withdraw all or any part of the payroll deductions
credited to his account under the Plan at any time by giving written notice to
the Company. The Participant's payroll deductions credited to his account shall
be paid to him promptly after receipt of his notice of withdrawal and no further
payroll deductions shall be made from his compensation. Any amounts not
withdrawn shall remain in the Participants account.

                                   SECTION 10

                              SHARES UNDER OPTION

      (a) The shares to be sold to a Participant under the Plan may, at the
election of the Company, be either authorized but unissued shares or shares
acquired in the open market by the Company. The maximum number of shares which
shall be made available for sale under the Plan shall be 250,000 shares subject
to adjustment upon changes in capitalization of the Company as provided in
Sections 16 and 17.(1) If the total number of shares for

------------------
(1) When adopted, the 1995 Plan reserved 50,000 shares. The Company effected a
three-for-two stock split on May 17, 1996 and a one-for-two stock split on
November 22, 2002, resulting in 37,500 shares being reserved. On April 7, 1998,
the Board of Directors increased the number of shares reserved by 62,500 (as
affected by the one-for-two

<PAGE>

which options are to be granted on any date in accordance with Section 7 exceeds
the number of shares then available under the Plan (after deduction of all
shares for which options have been exercised or are then outstanding), the
Committee shall make a pro rata allocation of the shares remaining available in
as nearly a uniform manner as shall be practicable and as it shall determine to
be equitable. In such event, payroll deductions to be made shall be reduced
accordingly and the Committee shall give written notice of such reduction to
each Participant affected thereby.

      (b) As promptly as practicable after the Termination Date of a Phase, the
Company shall deliver to each Participant the full shares purchased under
exercise of his option, together with -a cash payment equal to the balance
(without interest) of any payroll deductions credited to his account which were
not used for the purchase of shares.

      (c) The Participant will have no interest in shares covered by his option
until such option has been exercised.

                                   SECTION 11

                                 ADMINISTRATION

      The Plan shall be administered by the Board of Directors of the Company,
or in its discretion, by a Committee consisting of not less than two (2) members
who shall be appointed by the Board of Directors of the Company. Each member of
such Committee shall be either a director, an officer or an employee of the
Company. Unless the Board of Directors limits the authority delegated to the
Committee in its appointment, the Committee shall be vested with full authority
to make, administer, and interpret such rules and regulations as it deems
necessary to administer the Plan, and any such determination, decision or action
of such Committee with respect to any action in connection with the
construction, interpretation administration or application of the Plan shall be
final, conclusive and binding on all Participants and any and all other persons
claiming under or through any Participant. It is provided, however, that the
provisions of the Plan shall be construed so as to extend and limit
participation in the Plan only in a manner consistent with the requirements of
Section 423 of the Code. For all purposes of this Plan other than this Section
11, references to the Committee shall also refer to the Board of Directors.

                                   SECTION 12

                             AMENDMENT OF THE PLAN

      The Board of Directors of the Company may at any time amend the Plan,
except that no amendment may make any change in any option theretofore granted
which would adversely affect the rights of any Participant, and no amendment
shall be made without prior approval of the shareholders of the Company if such
amendment would require sale of more shares than are authorized under Section 10
of the Plan or change the qualifications of Eligible Employees under the Plan.

-----------------
stock split) to 100,000 shares. This amendment was approved by shareholders on
May 21, 1998. On April 23, 2003, the Board of Directors further increased the
number of shares reserved by 50,000 to 150,000 shares. This amendment was
approved by shareholders on December 11, 2003. On April 27, 2005, the Board of
Directors further increased the number of shares reserved by 50,000 to 200,000
shares. This amendment was approved by shareholders on June 15, 2005.

<PAGE>

                                   SECTION 13

                               NONTRANSFERABILITY

      Neither payroll deductions credited to a Participant's account nor any
rights with regard to the exercise of an option or to receive shares under the
Plan may be assigned, transferred, pledged or otherwise disposed of in any way
by the Participant and any such attempted assignment, transfer, pledge or other
disposition shall be null and void and without effect, but the Company may treat
such act as an election to withdraw funds in accordance with Section 9.

                                   SECTION 14

                                  USE OF FUNDS

      All payroll deductions received or held by the Company under this Plan may
be used by the Company for any corporate purposes and the Company shall not be
obligated to segregate such payroll deductions.

                                   SECTION 15

                                    INTEREST

      No, interest will be paid on any amounts in any Participant's account.

                                   SECTION 16

                    CHANGES IN CAPITALIZATION, MERGER, ETC.

      (a) Subject to any required action by the shareholders, the number of
shares covered by each outstanding option, and the price per share thereof in
each such option, shall be proportionately adjusted for any increase or decrease
in the number of issued shares of the Company resulting from a subdivision or
consolidation of shares or the payment of a share dividend (but only on the
shares) or any other increase or decrease in the number of such shares effected
without receipt of consideration by the Company.

      (b) Subject to any required action by the shareholders, if the Company
shall be involved in any merger or consolidation, in which it is the surviving
corporation, each outstanding option shall pertain to and apply to the
securities to which a holder of the number of shares subject to the option would
have been entitled. A dissolution or liquidation of the Company shall cause each
outstanding option to terminate, provided in such event that, immediately prior
to such dissolution or liquidation, each Participant shall be repaid the payroll
deductions credited to his account without interest.

      (c) In the event of a change in the shares of the Company as presently
constituted, which is limited to a change of all its authorized shares with par
value into the same number of shares with a different par value or without par
value, the shares resulting from any such change shall be deemed to be the
shares within the meaning of this Plan.

                                   SECTION 17

                             ADJUSTMENTS TO SHARES

      (a) To the extent that the foregoing adjustments relate to shares or
securities of the Company, such adjustments shall be made by the Committee, and
its determination in that respect shall be final, binding and conclusive,
provided that each option granted pursuant to this Plan shall not be adjusted in
a manner that causes the option to fail to continue to qualify as an option
issued pursuant to an "employee stock purchase plan" within the meaning of
Section 423 of the Code.

<PAGE>

      (b) Except as hereinbefore expressly provided in Sections 16 and 17, the
optionee shall have no right by reason of any subdivision or consolidation of
shares of any class or the payment of any stock dividend or any other increase
or decrease in the number of shares of any class or by reason of any
dissolution, liquidation, merger, or consolidation or spin-off of assets or
stock of another corporation, and any issue by the Company of shares of any
class, or securities convertible into shares of any class, shall not affect, and
no adjustment by reason thereof shall be made with respect to, the number or
price of shares subject to the option.

      (c) The grant of an option pursuant to this Plan shall not affect in any
way the right or power of the Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure or to merge or
to consolidate or to dissolve, liquidate or sell, or transfer all or any part of
its business or assets.

                                   SECTION 18

                            BENEFICIARY DESIGNATION

      A Participant may file a written designation of a beneficiary who may
elect to purchase shares or receive cash to the Participant's credit under the
Plan in the event of such Participant's death prior to delivery to him of such
shares and cash. Such designation of beneficiary may be changed by the
Participant at any time by written notice delivered to the Company. Upon the
death of a Participant and upon receipt by the Company of proof deemed adequate
by it of the identity and existence at the Participant's death of a beneficiary
validly designated by him under the Plan, the Company shall deliver such shares
and cash to such beneficiary in accordance with paragraph (a) of Section 9. If
upon the death of a Participant there is no surviving beneficiary duly
designated as above provided, the Company shall deliver accumulated payroll
deductions to the executor or administrator of the estate of the Participant, or
if no such executor or administrator has been appointed (to the knowledge of
the Company) within sixty (60) days following the Participant's death, the
Company shall deliver such accumulated payroll deductions to the surviving
spouse, if any, as though named as the designated beneficiary hereunder, or if
there is no such surviving spouse or child, then to such relatives of the
Participant as would be entitled to such amounts, under the laws of intestacy in
the deceased Participant's domicile as though named as the designated
beneficiary hereunder. The Company shall not be liable for any distribution made
of shares or cash pursuant to any will or other testamentary disposition made by
such Participant, or because of the provisions of law concerning intestacy, or
otherwise. No designated beneficiary shall, prior to the death of the
Participant by whom he has been designated, acquire any interest in the shares
or cash credited to the Participant under the Plan.

                                   SECTION 19

                    REGISTRATION AND QUALIFICATION OF SHARES

      The offering of the shares hereunder shall be subject to the effecting by
the Company of any registration or qualification of the shares under any federal
or state law or the obtaining of the consent or approval of any governmental
regulatory body which the Company shall determine, in its sole discretion, is
necessary or desirable as a condition to or in connection with, the offering or
the issue or purchase of the shares covered thereby. The Company shall make
every reasonable effort to effect such registration or qualification or to
obtain such consent or approval.

                                   SECTION 20

                               PLAN PRECONDITIONS

      The Plan is expressly made subject to (i) the approval by shareholders of
the Company, and (ii) at its election, the receipt by the Company from the
Internal Revenue Service of a determination letter or ruling, in scope and
content satisfactory to counsel, respecting the qualification of the Plan within
the meaning of Section 423 of the Code. If the Plan is not so approved by the
shareholders and if, at the election of the Company, the aforesaid determination
letter or ruling from the Internal Revenue Service is not received on or before
one year after this Plan's adoption by the Board of Directors, this Plan shall
not come into effect. In such case, the accumulated payroll deductions credited
to the account of each Participant shall forthwith be repaid to him without
interest.
<PAGE>

ADOPTED BY BOARD OF DIRECTORS:  JANUARY 10, 1995
APPROVED BY SHAREHOLDERS:  JANUARY 26, 1995
AMENDED BY BOARD OF DIRECTORS:  APRIL 7, 1998
APPROVED BY SHAREHOLDERS:  MAY 21, 1998
AMENDED BY BOARD OF DIRECTORS:  APRIL 23, 2003
APPROVED BY SHAREHOLDRS:  DECEMBER 11, 2003
AMENDED BY BOARD OF DIRECTORS: APRIL 27, 2005
APPROVED BY SHAREHOLDERS: JUNE 15, 2005

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