Document:

Exhibit 10.2

 

MATHSTAR,
INC.

 

2002
COMBINED INCENTIVE AND NON-STATUTORY STOCK OPTION PLAN

 

 

ARTICLE I.

GENERAL

 

1.1          DEFINITIONS.  As
used in this MathStar, Inc. 2002 Combined Incentive and Nonstatutory Stock
Option Plan, the following definitions shall apply:

 

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

 

b.             “Board
of Directors” or “Board” means
the Board of Directors of the Company.

 

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

 

d.             “Committee”
means any Committee of the Board of Directors appointed by the Board to
administer the Plan.  The Committee may
be comprised of the entire Board or two or more members of the Board.

 

e.             “Common
Stock” means the common stock, par value $0.01 per share, of the
Company.

 

f.              “Company”
means MathStar, Inc.

 

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

 

h.             “Fair
Market Value” means (i) if the Common Stock is listed or admitted
to unlisted trading privileges on any national securities exchange, the average
of the closing sales prices of the Common Stock on the end of any day on all
national securities exchanges on which the Common Stock may at the time be
listed or, if there have been no sales on any such exchange on any day, the
average of the highest bid and lowest asked prices on all such exchanges at the
end of such day or, (ii) if the Common Stock is not so listed or admitted
but transactions in the Common Stock are reported on The Nasdaq Stock Market,
the closing price quoted on the The Nasdaq Stock Market on such day, or (iii) if
the Common Stock is not so listed or admitted to unlisted trading privileges or
quoted on The Nasdaq Stock Market, and bid and asked prices therefor in the
domestic over-the-counter market are reported by Pink Sheets LLC (or any
comparable reporting service), the average of the closing bid and asked prices
on such day as reported by Pink Sheets LLC (or any comparable reporting
service), or (iv) if the Common Stock is not listed on any national
securities exchange or quoted on The Nasdaq Stock Market or in the domestic
over-the-counter

 

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market, the fair
value of the Common Stock determined by the Board of Directors or the Committee
in good faith in the exercise of its reasonable discretion.

 

i.              “Incentive
Stock Option” means an Option to purchase shares of Common Stock which
is intended to qualify as an incentive stock option as defined in Section 422
of the Code.

 

j.              “Non-Statutory
Option” means an Option which is not an Incentive Stock Option.

 

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

 

l.              “Option
Agreement” means the formal written agreement to be entered into by and
between the Company and the Optionee which will contain the specific terms and
conditions upon which an Option is granted to an Optionee, as determined by the
Board of Directors or the Committee.

 

m.            “Optionee”
means a holder of an Option granted pursuant to the Plan.

 

n.             “Plan”
means the MathStar, Inc. 2002 Combined Incentive and Nonstatutory Stock
Option Plan outlined herein.

 

o.             “Shareholders”
means the holders of outstanding shares of the Company’s Common Stock.

 

1.2          PURPOSE.  The purpose of the Plan is to promote the
growth and general prosperity of the Company and its Affiliates by permitting
the Company to grant Options to employees, officers, members of the Board of
Directors, consultants, independent contractors, and other service providers,
thereby assisting the Company in its efforts to attract and retain the best
available persons for positions of substantial responsibility, and to provide
employees, officers, members of the Board of Directors, consultants,
independent contractors, and other service providers an additional incentive to
contribute, by the performance of services, to the future success of the
Company and its Affiliates.

 

1.3          ADMINISTRATION.

 

a.             Board
of Directors or Committee. 
Except as otherwise provided for in this Plan, the Plan shall be
administered by the Board of Directors or the Committee.

 

b.             Powers
and Duties.  Subject to the
provisions of this Plan, the Board of Directors or the Committee shall have
sole authority to do everything necessary or appropriate to administer the
Plan, including, without limitation, making any rules and regulations
governing the administration of the Plan; selecting the eligible employees,
officers, members of the Board of Directors, consultants, independent
contractors and other service providers to whom Options shall be granted;
determining the type, amount, size and terms of Options; determining the time
when Options shall be granted; determining whether any restrictions shall be
placed on

 

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shares of Common
Stock purchased upon exercising an Option; interpreting the Plan; and making
all other determinations necessary or advisable for the administration of the
Plan.  The determinations of the Board or
the Committee need not be uniform and may be made by it selectively among
persons who are eligible to receive Options under the Plan, whether or not such
persons are similarly situated.  All
decisions, determinations and interpretations of the Board of Directors or the
Committee regarding the Plan shall be final and binding on all Optionees.  The day-to-day administrative duties for the
Plan may be delegated by the Board of Directors or the Committee to one or more
executive officers or other employees of the Company.  All actions authorized to be taken by the
Board of Directors under this Plan may as well be taken by any appropriately
appointed committee thereof.

 

1.4          TERM
OF THE PLAN.  The Plan was
adopted by the Board of Directors and shall be effective on January 26,
2002, subject to the required approval of the Plan by the Company’s
shareholders as provided herein.  No
Options shall be granted under the Plan after the earlier of (a) the date
on which the Plan is terminated as provided in Section 1.8 hereof, or (b) January 26,
2012.  The expiration of the term of the
Plan with respect to any Options granted under the Plan shall not affect
Options then outstanding which have not yet expired.

 

1.5          STOCK
TO BE OPTIONED.  The maximum
number of shares of Common Stock which may be optioned and sold under the Plan
is three million (3,000,000) shares of Common Stock, which number of shares is
subject to adjustment in the same manner as the number of shares of Common
Stock underlying Options are subject to adjustment pursuant to Section 1.9
of this Plan.  In addition, the number of
shares of Common Stock authorized for issuance under the Plan may be increased
from time to time by approval of the Board of Directors or the Committee and,
if required by the Code, any rules or regulations adopted thereunder, or
the applicable rules of any securities exchange or the National
Association of Securities Dealers, Inc., the shareholders of the
Company.  Shares of Common Stock subject
to Options which terminate or expire prior to exercise shall be available for
the issuance of future Options.

 

1.6          GRANTING
OF OPTIONS.  An Option granted pursuant to the Plan shall
entitle the Optionee, upon vesting and exercise, to purchase shares of Common
Stock at a specified price during a specified period.  The Board or Committee may grant Options in
the form of Incentive Stock Options, Non-Statutory Options, or any combination
thereof.  Subject to the following,
Options shall be subject to such terms and conditions as the Board or Committee
shall from time to time approve and may be made exercisable in one or more
installments, upon the happening of certain events, upon the fulfillment of
certain conditions, or upon such other terms and conditions as the Board or
Committee shall determine; provided, that each Option shall be subject to the
following requirements in addition to the requirements set forth in Article II
or Article III (as the case may be):

 

a.             Type
of Option.  Each Option shall be
identified in the agreement pursuant to which it is granted as an Incentive
Stock Option or a Non-Statutory Option, as the case may be.

 

b.             Payment.  The purchase price of the shares of Common
Stock subject to an Option shall be payable in full at the time the Option is
exercised.  Payment may be

 

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made in cash or by
a cashier’s or certified check.  However,
in the sole discretion of the Board or the Committee, and subject to such terms
and conditions as the Board or Committee deems appropriate in its discretion,
payment of the exercise price or a portion thereof may be made by surrender to
the Company of previously acquired shares of Common Stock (which have been
owned by the Optionee for at least six (6) months) or shares of Common
Stock issuable upon the exercise of that Option, such shares to be credited
against the exercise price based upon the Fair Market Value thereof on the date
of exercise, or by a combination of cash and such shares.

 

c.             Termination
of Employment or Other Relationship. 
Subject to the discretion of the Board of Directors or the Committee to
determine otherwise at the time of grant of an Option, if the Optionee’s
employment or other relationship with the Company or with an Affiliate is
terminated for any reason other than by the Optionee’s death, an Option granted
to such Optionee shall immediately and automatically terminate and be
forfeited, whether or not exercisable, and neither the Optionee nor any of the
Optionee’s heirs, personal representatives, successors or assigns shall have
any rights with respect to such Option. 
Notwithstanding the foregoing, if an independent contractor or other
non-employment relationship between the Optionee and the Company or an
Affiliate is terminated due to the commencement of an employment relationship
with the Company or an Affiliate, this provision shall apply only upon
termination of both the independent contractor and employment relationship
between the Optionee and the Company or an Affiliate.

 

d.             Death
of Optionee.  Subject to the
discretion of the Board of Directors or the Committee to determine otherwise at
the time of grant of an Option, upon termination of an Optionee’s employment as
a result of the death of an Optionee, all Options held by the Optionee may be
exercised to the same extent that the Optionee would have been entitled to
exercise it at the date of death and may be exercised within a period of one (1) year
after the date of death, but in no case later than the expiration date of such
Option.  In such event, this Option shall
be exercisable only by the executors or administrators of the Optionee or by
the person or persons to whom the Optionee’s rights under the Option shall pass
by will or the laws of descent and distribution.  Any portion of an Option that is not
exercisable at the time of an Optionee’s death shall automatically terminate.

 

e.             Written
Agreement.  Each Option shall be
granted pursuant to a formal written Option Agreement to be entered into by and
between the Company and the Optionee, which Option Agreement shall be in such
form as the Board of Directors or Committee may deem appropriate.  Multiple Options may be evidenced by a single
agreement.  Subject to the limitations of
the Plan, the Board or Committee may, with the consent of the Optionee, amend
any such agreement to modify the terms or conditions governing the Option.

 

1.7          ELIGIBLE
OPTIONEES.  Subject to the
requirements of Section 2.1 regarding Incentive Stock Options, Options may
be issued to any employees of the Company or of any Affiliate, including, among
others, employees who are officers of the Company and/or members of the Board
of Directors.  In addition,
notwithstanding anything to the contrary contained

 

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herein, the Board
of Directors or Committee may grant Options under the Plan which are Non-Statutory
Options to persons who are, at the time of such grant, employees of the Company
or to persons who are, at the time of such grant, not employees of the Company
but who are members of the Board of Directors or persons who are deemed by the
Board of Directors or Committee to be important to the future success of the
Company or its Affiliates, including, but not limited to, employees,
consultants, independent contractors or other providers of services to the
Company or its Affiliates.  In addition,
eligible persons may be selected to receive Options individually or by group
category (for example, by pay grade) as the Board or Committee may
determine.  A person who has been granted
an Option under the Plan or under any other plan of the Company or its
Affiliates may be granted additional Options if the Board or Committee shall so
determine.  Except to the extent
otherwise provided in an agreement evidencing an Option, the granting of an
Option under this Plan shall not affect any outstanding Options previously
granted under this Plan or under any other plan of the Company or any
Affiliate.

 

1.8          AMENDMENT
OR TERMINATION OF THE PLAN.

 

a.             Except
as hereinafter provided, notwithstanding anything to the contrary contained
herein, the Board of Directors or Committee may amend the Plan from time to
time in such respects as the Board of Directors or Committee may deem
advisable, including, without limitation, the right to amend the Plan so as to
affect Options already granted.  However,
neither the Board nor the Committee shall adopt an amendment that materially
increases the benefits accruing to participants under the Plan, increases the
Option price of Options already granted, decreases or terminates Options
already granted, or materially modifies the requirements as to eligibility for
participation in the Plan, without the affirmative vote of shareholders holding
at least a majority of the number of shares of voting stock of the Company
represented in person or by proxy at a duly-held meeting of the shareholders of
the Company.

 

b.             The
Board of Directors or the Committee may at any time terminate the Plan.  Any such termination of the Plan shall not
affect Options already granted, and such Options shall remain in full force and
effect as if the Plan had not been terminated.

 

1.9          ADJUSTMENTS
UPON CHANGES IN CAPITALIZATION.  If an Optionee exercises all
or any portion of an Option subsequent to any change in the number of
outstanding shares of Common Stock of the Company occurring by reason of any
stock dividend, stock split, reverse stock split, reclassification,
combination, exchange of shares or other similar recapitalization of the
Company, there shall be an appropriate adjustment to the number of shares of
Common Stock underlying the Option and, where applicable, to the per share
exercise price of the Option so that the Optionee shall then receive for the
aggregate price paid by him or her on such exercise of an Option the number of
shares which he or she would have held at the time of such exercise if such Option
had been exercised to the same extent prior to such stock dividend, stock
split, reverse stock split or other similar recapitalization.  Notwithstanding the foregoing, no fractional
shares shall be issued or paid for.  No
adjustment shall be made under this Section 1.9 upon the issuance by the
Company of any warrants, rights or options to acquire additional Common Stock
or of securities convertible into Common Stock unless such warrants, rights,
options or convertible securities are issued to all shareholders of the Company
on a proportionate basis.

 

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1.10        AGREEMENT
AND REPRESENTATIONS OF OPTIONEE.  As a condition to the
exercise of any portion of an Option, if the exercise of the Option is not
registered under the federal Securities Act of 1933, as amended, or applicable
state securities laws, upon the request of the Company, the Optionee must
represent and agree that any and all shares of Common Stock purchased under an
Option will be acquired for investment and not for resale.  The Company may restrict the transfer of the
shares of Common Stock purchased and affix a legend to the certificate
representing such shares, stating that such shares may not be transferred
without an opinion of counsel satisfactory to the Company that the proposed
transfer may lawfully be made without registration under the federal Securities
Act of 1933 and registration, notice or approval under any applicable state
securities laws, or such applicable registration(s), notice(s) and approval(s).

 

1.11        EXERCISE
OF OPTIONS.  Options can be exercised only by Optionees or
other proper parties delivering written notice to the Company at its principal
office within the Option period, stating the number of shares as to which the
Option is being exercised and accompanied by payment in full of the exercise
price for all shares designated in the notice, as provided in Section 1.6(b) of
this Plan and in the Option Agreement for each Option.  Such notice shall further contain a
representation that such shares are being acquired for investment and not for
resale.  The Company shall then cause a
certificate or certificates for such shares to be delivered within a reasonable
period.

 

1.12        EFFECT
OF CERTAIN TRANSACTIONS.  Subject
to the discretion of the Board of Directors or the Committee to provide
otherwise at the time of grant of an Option, at the time of the occurrence of
any of the events described in Sections 1.12(a) through (d) below,
all Options issued under this Plan to an Optionee that are outstanding
immediately before the effective date of such event will be automatically
converted into Options to acquire the kind and amount of shares of stock or
other securities or property which the Optionee would have owned or have been
entitled to receive immediately after the occurrence of the event had the
Options been exercised in full immediately before the effective date of such
event; provided, however, that the vesting schedule of the Option shall
remain unchanged, and, in any such case, appropriate adjustment shall be made
in the application of the provisions of all outstanding Options with respect to
the rights and interests thereafter of each Optionee, to the end that the
provisions set forth in each Option shall thereafter correspondingly be made
applicable, as nearly as may reasonably be, in relation to any shares of stock
or other securities or property thereafter deliverable on the exercise of the
Option:

 

a.             The
sale, lease, exchange or other transfer, directly or indirectly, of all or substantially
all of the assets of the Company (in one transaction or in a series of related
transactions) to a person or entity that is not controlled by the Company,

 

b.             The
approval by the Company’s shareholders of any plan or proposal for the
liquidation or dissolution of the Company;

 

c.             Any
person or entity becomes the “beneficial owner” (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of more than fifty percent
(50%) of the combined voting power of the outstanding securities of the Company

 

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ordinarily having
the right to vote at elections of directors who were not beneficial owners of
at least fifty percent (50%) of such combined voting power as of the date the
Board adopted this Plan as set forth in Section 1.4; or

 

d.             A
merger or consolidation to which the Company is a party if the shareholders of
the Company immediately prior to the effective date of such merger or
consolidation have, solely on account of ownership of securities of the Company
at such time, “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 company representing less than
fifty percent (50%) of the combined voting power of the surviving corporation’s
then outstanding securities ordinarily having the right to vote at elections of
directors.

 

The provisions of this Section shall similarly
apply to successive transactions of the types described in Sections 1.12(a) through (d).

 

ARTICLE II.

INCENTIVE STOCK OPTIONS

 

2.1          ELIGIBLE
RECIPIENTS.  Incentive Stock
Options may be granted only to persons who are employees of the Company or an
Affiliate.

 

2.2          EXERCISE
PRICE.  Subject to the provisions
of Section 2.5, the exercise price of shares of Common Stock that are
subject to an Incentive Stock Option shall not be less than 100% of the Fair
Market Value of such shares at the time the Option is granted, as determined in
good faith by the Board or Committee.

 

2.3          LIMIT
ON EXERCISABILITY.  The aggregate
Fair Market Value (determined at the time the Option is granted) of the shares
of Common Stock with respect to which Incentive Stock Options are exercisable
by the Optionee for the first time during any calendar year, under this Plan or
any other plan of the Company or any Affiliate, shall not exceed $100,000.  To the extent an Incentive Stock Option
exceeds this $100,000 limit, the portion of the Incentive Stock Option in
excess of such limit shall be deemed a Non-Statutory Option.

 

2.4          LIMIT
ON TERM.  An Incentive Stock
Option shall not be exercisable more than ten (10) years after the date on
which it is granted.

 

2.5          RESTRICTIONS
FOR CERTAIN SHAREHOLDERS.  The
purchase price of shares of Common Stock that are subject to an Incentive Stock
Option granted to an employee of the Company or any Affiliate who, at the time
such Option is granted, owns 10% or more of the total combined voting power of
all classes of stock of the Company or of any Affiliate, shall not be less than
110% of the Fair Market Value of such shares on the date such Option is
granted, and such Option may not be exercisable more than five (5) years
after the date on which it is granted. 
For the purposes of this subparagraph, the rules of Section 424(d)

 

7

 

of the Code shall apply
in determining the stock ownership of any employee of the Company or any
Affiliate.

 

2.6          INCENTIVE
STOCK OPTIONS NOT TRANSFERABLE. 
Incentive Stock Options shall not be transferable except by will or the
laws of descent and distribution, and Incentive Stock Options shall be
exercisable during an Optionee’s lifetime only by such Optionee.

 

2.7          EFFECT
OF NOT MEETING REQUIREMENTS. 
Subject to the discretion of the Board of Directors or the Committee to
provide otherwise, if the terms of an Incentive Stock Option do not meet any
requirements of this Plan or the Code necessary to be treated as an Incentive
Stock Option under the Code, such Option shall not terminate but shall be a
Non-Statutory Option granted under this Plan.

 

ARTICLE III.

NON-STATUTORY OPTIONS

 

3.1          SECTION 83(b) ELECTION.  The Company recognizes that certain persons
who receive Non-Statutory Options may be subject to restrictions regarding
their right to trade Common Stock under Section 16(b) of the
Securities Exchange Act of 1934.  Such
restrictions may cause Optionees not to be taxable when they exercise their
Non-Statutory Options.  However, it may
be more beneficial to an Optionee to be taxed upon exercise of an Option as
opposed to when trading restrictions lapse. 
Accordingly, Optionees exercising such Non-Statutory Options may
consider making an election to be taxed upon exercise of the Option under Section 83(b) of
the Code.  If requested, the Company
shall provide reasonable assistance to such Optionees to effect a Section 83(b) election.

 

3.2          TRANSFERABILITY.  Subject to the discretion of the Board of
Directors or the Committee to provide otherwise upon the grant of a
Non-Statutory Option, Non-Statutory Options shall not be transferable other
than by will or the laws of descent and distribution, and Non-Statutory Options
shall be exercisable during an Optionee’s lifetime only by such Optionee.

 

ARTICLE IV.

ADDITIONAL PROVISIONS

 

4.1          SHAREHOLDER
APPROVAL.  The Plan shall be
submitted for the approval of the Shareholders of the Company at the first
meeting of Shareholders held subsequent to the adoption of the Plan but no
later than one year after the date of its approval by the Board of Directors,
and any Option granted under the Plan prior to the date of such approval shall
be contingent upon such approval.  If, at
said meeting, the Shareholders of the Company do not approve the Plan, the Plan
shall terminate.

 

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4.2          NO
RIGHTS AS SHAREHOLDER.  No
Optionee shall have any rights as a Shareholder with respect to any share of
Common Stock subject to his or her Option prior to the date of issuance to him
or her of a certificate or certificates for such shares.

 

4.3          WITHHOLDING.  Whenever the Company proposes or is required
to issue or transfer shares of Common Stock under the Plan, the Company shall
have the right to require the Optionee to remit to the Company an amount
sufficient to satisfy any federal, state or local withholding tax liability
prior to the delivery of any certificate or certificates for such shares.  Whenever under the Plan payments are to be
made in cash, such payments shall include an amount sufficient to satisfy any
federal, state, or local withholding tax liability.

 

4.4          RESERVATION
OF SHARES OF COMMON STOCK.  The Company, during the term of
the Plan and all Options issued under the Plan, will at all times reserve and
keep available, and will use its commercially reasonable best efforts to seek
or obtain approval from any regulatory body having jurisdiction over the
transactions contemplated by this Plan necessary in order to issue and sell,
such number of shares of Common Stock as shall be sufficient to satisfy the
requirements of the Plan.

 

4.5          INCOME
TAX TREATMENT.  Government jurisdiction, income reporting and
tax withholding requirements will be complied with by the Company whenever the
Options are exercised and any income tax payment and any income tax prepayment
requirements (including any tax withholding requirements imposed upon the
Company) will be effectively borne by the Optionee.  SINCE FEDERAL INCOME TAX LAW IS SUBJECT TO
CHANGE AND INCOME TAX LAWS VARY FROM STATE TO STATE, THE COMPANY STRONGLY
RECOMMENDS THAT OPTIONEES CONSULT WITH THEIR INDIVIDUAL TAX ADVISORS PRIOR TO
EXERCISE OF AN OPTION.

 

4.6          EXCEPTIONS
TO TERMINATION OF EMPLOYMENT. 
Whether military, government or other service or other leave of absence
shall constitute a termination of employment or other relationship with the
Company shall be determined in each case by the Board of Directors or the
Committee at its discretion, and any determination by the Board of Directors or
the Committee shall be final and conclusive. 
A termination of employment or other relationship with the Company shall
not occur where the Optionee transfers from the Company to one of its
Affiliates or transfers from an Affiliate to the Company or another Affiliate.

 

4.7          NO
RIGHT TO CONTINUED EMPLOYMENT.  Nothing in this Plan or in
any agreement entered into in accordance with the Plan shall confer on an
Optionee any right to continuance of employment by or with the Company or its
Affiliates, or any right to continue to provide services to the Company or an
Affiliate as a consultant, independent contractor, or other service provider,
nor shall this Plan or such agreements interfere in any way with the Optionee’s
or the Company’s right to terminate such employment or other such relationship
at any time for any reason or no reason.

 

4.8          EXPENSES
OF PLAN.  The expenses of
administering this Plan shall be borne by the Company and its Affiliates.

 

9

 

4.9          RELIANCE
ON REPORTS.  Each member of the
Board or Committee and each member of the Board of Directors shall be fully
justified in relying or acting in good faith upon any report made by the
independent public accountants of the Company and its Affiliates and upon any
other information furnished in connection with this Plan by any person or
persons other than himself or herself. 
In no event shall any person who is or shall have been a member of the
Board of Directors or of a Committee of the Board of Directors be liable for
any determination made or other action taken or omitted in reliance upon any
such report or information, or for any action taken or omitted, including the
furnishing of information, in good faith.

 

4.10        GENERAL
RESTRICTIONS. Each Option granted pursuant to the Plan shall be subject
to the requirement that if, in the opinion of the Board or Committee, the
listing, registration, or qualification of any shares of Common Stock related
thereto upon any securities exchange or under any state or federal law, the
consent or approval of any regulatory body, or an agreement by the recipient
with respect to the disposition of any such shares, is necessary or desirable
as a condition of the issuance or sale of such shares, such Option shall not be
exercised and/or such shares shall not be sold unless and until such listing,
registration, qualification, consent, approval, or agreement is effected or
obtained in form satisfactory to the Board or Committee.

 

4.11        SUCCESSORS
AND ASSIGNS.  This Plan will be binding upon and inure to the
benefit of the successors and permitted assigns of the Company and the Optionees,
and agreements entered into in accordance with the Plan shall be binding upon
the heirs, successors and assigns of the Company and the Optionees.

 

4.12        MINNESOTA
LAW.  The validity, construction, interpretation,
administration and effect of the Plan, any rules, regulations and actions
relating to the Plan, and the agreements evidencing Options granted under the
Plan, will be governed by and construed exclusively in accordance with the laws
of the State of Minnesota.

 

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MATHSTAR,
INC.

2002
COMBINED INCENTIVE AND NONSTATUTORY STOCK OPTION PLAN

 

INCENTIVE
STOCK OPTION AGREEMENT

 

 

	
  OPTIONEE:

  	
                                                           

  
	
   

  	
   

  
	
  GRANT DATE:

  	
                      

  
	
   

  	
   

  
	
  NUMBER OF OPTION SHARES:

  	
               Shares

  
	
   

  	
   

  
	
  EXERCISE PRICE PER SHARE:

  	
  $           per
  Share

  
	
   

  	
   

  
	
  EXPIRATION DATE:

  	
             

  

 

 

THIS
AGREEMENT is made as of the Grant Date set forth above by and
between MathStar, Inc., a Minnesota corporation (the “Company”), and the
Optionee named above, who is an employee of the Company or an Affiliate of the
Company (the “Optionee”).

 

The Company desires, by affording the Optionee an
opportunity to purchase shares of its Common Stock, par value $.01 per share
(the “Common Stock”), as hereinafter provided, to carry out the purpose of the
MathStar, Inc. 2002 Combined Incentive and Nonstatutory Stock Option Plan
(the “Option Plan”).

 

NOW,
THEREFORE, in consideration of the mutual covenants
hereinafter set forth, and for other good and valuable consideration, the
parties hereby agree as follows:

 

1.             Grant
of Option.  The Company hereby grants
to the Optionee the right and option (the “Option”) to purchase all or any part
of the aggregate number of shares of Common Stock set forth above (the “Option
Shares”) (such number being subject to adjustment as provided in Section 9
hereof) on the terms and subject to the conditions set forth in this
Agreement.  This Option is intended to be
an “incentive stock option” within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the “Code”).

 

2.             Purchase
Price.  The per share purchase price
of the Option Shares shall be the Exercise Price Per Share set forth above
(such Exercise Price Per Share being subject to adjustment as provided in Section 9
hereof).

 

3.             Term
and Exercise of Option.

 

(a)           The term of this Option
shall commence on the Grant Date set forth above and shall continue until the
Expiration Date set forth above, unless earlier terminated as provided herein.

 

1

 

(b)           Subject to the earlier
termination of this Option pursuant to its terms and to the terms of the Plan,
this Option shall vest and become exercisable as follows but only if the
Optionee then is an employee of the Company or an Affiliate:  the Option shall vest as to twenty-five
percent (25%) of the Option Shares on the first anniversary date of the Grant
Date and as to an additional twenty-five percent (25%) on each of the second,
third and fourth anniversary dates of the Grant Date.

 

(c)           To
exercise this Option, the Optionee shall give written notice to the Company, to
the attention of its President or other designated agent, in substantially the
form attached hereto as Exhibit A, and the Optionee shall deliver
payment in full for the Option Shares with respect to which this Option is then
being exercised, as provided in Section 4(a) below.

 

(d)           Neither the Optionee
nor the Optionee’s legal representatives, legatees or distributees, as the case
may be, will be, or will be deemed to be, a holder of any Option Shares for any
purpose unless and until certificates for such Option Shares are issued to the
Optionee or the Optionee’s legal representatives, legatees or distributees,
under the terms of the Option Plan.

 

4.             Limitations
on Exercise of Option.

 

(a)           The exercise of this
Option will be contingent upon receipt from the Optionee (or the purchaser
acting under Section 7 below) of the full Exercise Price of such Option
Shares.  Payment of the Exercise Price
shall be made in cash or by a certified or cashier’s check.  However, in its sole discretion, the Company
may accept previously acquired shares of Common Stock of the Company that have
been owned by the Optionee for at least six (6) months, which shares have
an aggregate Fair Market Value on the date of exercise which is not less than
the total Exercise Price, or shares of Common Stock issuable upon the exercise
of that Option, or a combination of cash and such shares of Common Stock, in
payment of the Exercise Price.  No Option
Shares will be issued until full payment therefor has been made and the
Optionee has executed any and all agreements that the Company may require the
Optionee to execute.

 

(b)           The issuance of Option
Shares upon the exercise of this Option shall be subject to all applicable
laws, rules, and regulations.  If, in the
opinion of the Board of Directors of the Company or a Committee of the Board of
Directors, (i) the listing, registration, or qualification of the Option
Shares upon any securities exchange or under any state or federal law, (ii) the
consent or approval of any regulatory body, or (iii) an agreement of the
Optionee with respect to the disposition of the Option Shares, is necessary or
desirable as a condition to the issuance or sale of the Option Shares, this
Option shall not be exercised and/or the Option Shares shall not be sold unless
and until such listing, registration, qualification, consent, approval or
agreement is effected or obtained in form satisfactory to the Board of Directors
or the Committee.

 

5.             Nontransferability
of Option.  This Option shall not be
transferable by the Optionee other than by will or the laws of descent and
distribution, and during the lifetime of the Optionee, this Option shall be
exercisable only by the Optionee.

 

2

 

6.             Termination
of Employment.  Upon termination of
the Optionee’s employment with the Company or an Affiliate other than as a
result of the death of the Optionee, this Option shall terminate and be
immediately forfeited, whether or not exercisable, and neither the Optionee nor
the Optionee’s heirs, personal representatives, successors or assigns shall
have any future rights with respect to this Option.

 

7.             Death
of Optionee.  If the Optionee dies while
employed by the Company or an Affiliate, this Option may be exercised to the
same extent that the Optionee would have been entitled to exercise it at the
date of death and may be exercised within a period of one (1) year after
the date of death, but in no case later than the Expiration Date set forth
above.  In such event, this Option shall
be exercisable only by the executors or administrators of the Optionee or by
the person or persons to whom the Optionee’s rights under the Option shall pass
by the Optionee’s will or the laws of descent and distribution.  Any portion of an Option that is not
exercisable at the time of an Optionee’s death shall automatically terminate.

 

8.             No
Right to Continued Employment.  This
Option will not confer upon the Optionee any right with respect to continuance
of employment by the Company or an Affiliate of the Company, nor will it
interfere in any way with the Company’s right or the Affiliate’s right to
terminate the Optionee’s employment at any time.

 

9.             Adjustments.
In the event of any change in the outstanding shares of Common Stock by reason
of any stock dividend, stock split, reverse stock split, reclassification,
combination, exchange of shares, or other similar recapitalization of the
Company, there shall be an appropriate and proportionate adjustment to the
number of Option Shares and the per share Exercise Price Per Share hereunder so
that the Optionee then shall receive for the aggregate Exercise Price paid by
the Optionee upon exercise of this Option the number of shares the Optionee
would have received if this Option had been exercised before such
recapitalization event occurred.  No
adjustment shall be made under this Section 9 upon the issuance by the
Company of any warrants, rights, or options to acquire additional Common Stock
or of securities convertible into Common Stock unless such warrants, rights,
options or convertible securities are issued to all of the Company’s
shareholders on a proportionate basis.

 

10.          Effective
of Certain Transactions. 
Notwithstanding any provision in this Option to the contrary, at the
time of the occurrence of any of the events described in Sections 10(a) through
(d) below, the Option shall be automatically converted into an Option to
acquire the kind and amount of shares of stock or other securities or property
that the Optionee would have owned or have been entitled to receive immediately
after the occurrence of the event, had the Option been exercised in full
immediately before the effective date of such event; provided, however, that
the vesting schedule of the Option shall remain unchanged, and, in any
such case, appropriate adjustment shall be made in the application of the
provisions of this Option with respect to the rights and interests thereafter
of the Optionee, to the end that the provisions set forth in this Option shall
thereafter correspondingly be made applicable, as nearly as may reasonably be,
in relation to any shares of stock or other securities or property thereafter
deliverable on the exercise of this Option:

 

3

 

(a)           The
sale, lease, exchange or other transfer, directly or indirectly, of all or
substantially all of the assets of the Company (in one transaction or in a
series of related transactions) to a person or entity that is not controlled by
the Company,

 

(b)           The
approval by the Company’s shareholders of any plan or proposal for the
liquidation or dissolution of the Company;

 

(c)           Any
person or entity becomes the “beneficial owner” (as defined in Rule 13d-3
under the Securities Exchange Act of 1934, as amended (“Exchange Act”)),
directly or indirectly, of more than fifty percent (50%) of the combined voting
power of the outstanding securities of the Company ordinarily having the right
to vote at elections of directors who were not beneficial owners of at least
fifty percent (50%) of such combined voting power as of the date the Company’s
Board of Directors adopted the Option Plan, and

 

(d)           A
merger or consolidation to which the Company is a party if the shareholders of
the Company immediately prior to the effective date of such merger or
consolidation have, solely on account of ownership of securities of the Company
at such time, “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 company representing less than
fifty percent (50%) of the combined voting power of the surviving corporation’s
then outstanding securities ordinarily having the right to vote at elections of
directors.

 

Notwithstanding any provision in the Option Plan or this Option
Agreement to the contrary, the Board of Directors or the Committee shall not
have the power or right, either before or after the occurrence of an event described
in subparagraph (a) through (d) above, to rescind, modify or amend
the provisions of this Section 10 without the consent of the Optionee.

 

11.          Limitation
on Payments and Benefits. 
Notwithstanding anything in this Agreement to the contrary, if any of
the payments or benefits to be made or provided in connection with this
Agreement, together with any other payments, benefits or awards which you have
the right to receive from the Company, or any corporation which 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 (“Affiliate”), constitute an “excess parachute payment” (as defined
in Section 280G(b) of the Code), such payments, benefits or awards to
be made or provided in connection with this Agreement, or any other agreement
between you and the Company or its Affiliates, may be reduced, eliminated,
modified or waived to the extent necessary to prevent all, or any portion, of
such payments, benefits or awards from becoming “excess parachute payments” and
therefore subject to the excise tax imposed under Section 4999 of the
Code.  The Optionee will have the sole
right and discretion to determine whether the payments, benefits or awards to
be made or provided in connection with this Agreement, or any other agreement
between the Optionee and the Company, should be reduced, whether or not such
other agreement with the Company or an Affiliate expressly addresses the
potential application of Section 280G or Section 4999 of the Code
(including, without limitation, that “payments” under such agreement be
reduced).  The Optionee will also have
the right to designate the particular payments, benefits or awards that are to
be reduced, eliminated, modified or waived; provided that no such adjustment
will be made if it results in additional expense to the Company in excess of
expenses the Company would have experienced

 

4

 

if no adjustment had been
made.  The determination as to whether
any such decrease in the payments or benefits is necessary must be made in good
faith by legal counsel or a certified public accountant selected by you and
reasonably acceptable to the Company, and such determination will be conclusive
and binding upon you and the Company. 
The Company will pay or reimburse you on demand for the reasonable fees,
costs and expenses of the counsel or accountant selected to make the
determinations under this Section 11.

 

12.          Interpretation.  The interpretation and construction of any
provision of the Option Plan and this Option shall be made by the Board of
Directors or the Committee and shall be final, conclusive and binding on the
Optionee and all other persons.

 

13.          Definitions;
Option Plan Governs.  Any capitalized
term used herein that is not expressly defined herein shall have the meaning
ascribed to it in the Option Plan.  This
Option is in all respects subject to and governed by all of the provisions of
the Option Plan.

 

IN
WITNESS WHEREOF, the Company has caused this Agreement to be
executed in its corporate name by its duly authorized officer, and the Optionee
has executed this Agreement as of the Grant Date set forth above.

 

	
   

  	
  COMPANY:

  	
  MathStar, Inc.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Its: President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  OPTIONEE:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Signature of Optionee

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name of Optionee Typed
  or Printed

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Address:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  SS#

  	
          -        -          

  	
   

  
						

 

5

 

EXHIBIT A

NOTICE OF EXERCISE
OF

STOCK OPTION

 

TO:

 

FROM:

 

DATE:

 

RE:                          Exercise
of Stock Option

 

I hereby exercise my
option to purchase                   shares
of Common Stock at $                   per
share (total exercise price of $             ).  This notice is given in accordance with the
terms of my Incentive Stock Option Agreement (“Agreement”) dated               .  The option price and vested amount is in
accordance with Sections 2 and 3 of the Agreement.

 

Check one:

 

o                                    Enclosed is cash,
or a cashier’s or certified check payable to MathStar, Inc. for the total
exercise price of the shares being purchased.

 

o                                    Attached is a
certificate(s) for                               shares
of common stock duly endorsed in blank and surrendered for the exercise price
of the shares being purchased.*

 

*The use of this
alternative is subject to the approval of MathStar, Inc.

 

Please prepare the stock
certificate in the following name(s):

 

	
  Sincerely,

  
	
   

  
	
   

  	
   

  
	
  (Signature)

  
	
   

  
	
   

  	
   

  
	
  (Print or Type Name)

  
	
   

  
	
  Letter and
  consideration

  
	
  received on

  	
   

  	
   

  
	
  (effective date of exercise)

  
					

 

6

 

MATHSTAR,
INC.

2002
COMBINED INCENTIVE AND NON-STATUTORY STOCK OPTION PLAN

 

NON-STATUTORY
STOCK OPTION AGREEMENT

 

 

	
  OPTIONEE:

  	
   

  
	
   

  	
   

  
	
  GRANT DATE:

  	
   

  
	
   

  	
   

  
	
  NUMBER OF OPTION SHARES:

  	
                 Shares

  
	
   

  	
   

  
	
  EXERCISE PRICE PER SHARE:

  	
  $             per
  Share

  
	
   

  	
   

  
	
  EXPIRATION DATE:

  	
   

  

 

 

THIS
AGREEMENT is made as of the Grant Date set forth above by and
between MathStar, Inc., a Minnesota corporation (the “Company”), and the
Optionee named above, who provides services to the Company or an Affiliate of
the Company as an employee, consultant, independent contractor, or other
service provider (the “Optionee”).

 

The Company desires, by
affording the Optionee an opportunity to purchase shares of its Common Stock,
par value $.01 per share (the “Common Stock”), as hereinafter provided, to
carry out the purpose of the MathStar, Inc. 2002 Combined Incentive and
Non-Statutory Stock Option Plan (the “Option Plan”).

 

NOW,
THEREFORE, in consideration of the mutual covenants hereinafter
set forth, and for other good and valuable consideration, the parties hereby
agree as follows:

 

1.             Grant
of Option.  The Company hereby grants
to the Optionee the right and option (the “Option”) to purchase all or any part
of the aggregate number of shares of Common Stock set forth above (the “Option
Shares”) (such number being subject to adjustment as provided in Section 8
hereof) on the terms and subject to the conditions set forth in this
Agreement.  This Option is not intended
to be an “incentive stock option” within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the “Code”).

 

2.             Purchase
Price.  The per share purchase price
of the Option Shares shall be the Exercise Price Per Share set forth above
(such Exercise Price Per Share being subject to adjustment as provided in Section 8
hereof).

 

3.             Term
and Exercise of Option.

 

(a)               The
term of this Option shall commence on the Grant Date set forth above and shall
continue until the Expiration Date set forth above, unless earlier terminated
as provided herein.

 

1

 

(b)               This
Option will become exercisable as follows: 
                              

 

(c)               To
exercise this Option, the Optionee shall give written notice to the Company, to
the attention of its President or other designated agent, in substantially the
form attached hereto as Exhibit A, and the Optionee shall deliver
payment in full for the Option Shares with respect to which this Option is then
being exercised, as provided in Section 4(a) below.

 

(d)               Neither
the Optionee nor the Optionee’s legal representatives, legatees or
distributees, as the case may be, will be, or will be deemed to be, a holder of
any Option Shares for any purpose unless and until certificates for such Option
Shares are issued to the Optionee or the Optionee’s legal representatives,
legatees or distributees under the terms of the Option Plan.

 

5.             Limitations
on Exercise of Option.

 

(a)           The
exercise of this Option will be contingent upon receipt from the Optionee (or
the purchaser acting under Section 7 below) of the full Exercise Price of
such Option Shares.  Payment of the
Exercise Price shall be made in cash or by a certified or cashier’s check.  However, in its sole discretion, the Company
may accept shares of Common Stock of the Company that have been owned by the
Optionee for at least six (6) months, or shares issuable upon the exercise
of this Option, having an aggregate Fair Market Value on the date of exercise
which is not less than the total Exercise Price, or a combination of cash and
such shares of Common Stock, in payment of the Exercise Price.  No Option Shares will be issued until full
payment therefor has been made and the Optionee has executed any and all
agreements that the Company may require the Optionee to execute.

 

(b)           The
issuance of Option Shares upon the exercise of this Option shall be subject to
all applicable laws, rules, and regulations. 
If, in the opinion of the Board of Directors of the Company or a
Committee of the Board of Directors, (i) the listing, registration, or
qualification of the Option Shares upon any securities exchange or under any
state or federal law, (ii) the consent or approval of any regulatory body,
or (iii) an agreement of the Optionee with respect to the disposition of
the Option Shares, is necessary or desirable as a condition to the issuance or
sale of the Option Shares, this Option shall not be exercised and/or Option
Shares shall not be sold unless and until such listing, registration, qualification,
consent, approval or agreement is effected or obtained in form satisfactory to
the Board of Directors or the Committee.

 

6.             Nontransferability
of Option.  This Option shall not be
transferable by the Optionee other than by will or the laws of descent and
distribution, and during the lifetime of the Optionee, this Option shall be
exercisable only by the Optionee.

 

7.             Termination
of Employment or Other Services.  Upon
termination of the Optionee’s employment or other relationship with the Company
or with an Affiliate other than as a result of the death of the Optionee, this
Option shall terminate and be immediately forfeited, whether or not
exercisable, and neither the Optionee nor the Optionee’s heirs, personal

 

2

 

representatives,
successors or assigns shall have any future rights with respect to this Option.

 

8.             Death
of Optionee.  If the Optionee dies
while employed by or otherwise providing services to the Company or an
Affiliate, this Option may be exercised to the same extent that the Optionee
would have been entitled to exercise it at the date of death and may be
exercised within a period of one (1) year after the date of death, but in
no case later than the Expiration Date set forth above.  In such event, this Option shall be
exercisable only by the executors or administrators of the Optionee or by the
person or persons to whom the Optionee’s rights under the Option shall pass by
the Optionee’s will or the laws of descent and distribution.  Any portion of an Option that is not
exercisable at the time of an Optionee’s death shall automatically terminate.

 

9.             No
Right to Continue to Provide Services. 
This Option will not confer upon the Optionee any right to continue
providing services to the Company or an Affiliate of the Company as an
employee, consultant, independent contractor, or other service provider, nor
will it interfere in any way with the Company’s right or the Affiliate’s right
to terminate the Optionee’s employment or other services at any time.

 

10.           Adjustments.  In the event of any change in the outstanding
shares of Common Stock by reason of any stock dividend, stock split, reverse
stock split, reclassification, combination, exchange of shares, or other
similar recapitalization of the Company, there shall be an appropriate and
proportionate adjustment to the number of Option Shares and the per share
Exercise Price Per Share hereunder so that the Optionee then shall receive for
the aggregate Exercise Price paid by the Optionee upon exercise of this Option
the number of shares the Optionee would have received if this Option had been
exercised before such recapitalization event occurred.  No adjustment shall be made under this Section 9
upon the issuance by the Company of any warrants, rights, or options to acquire
additional Common Stock or of securities convertible into Common Stock unless
such warrants, rights, options or convertible securities are issued to all
shareholders of the Company on a proportionate basis.

 

11.           Effect
of Certain Transactions. Notwithstanding any provision in this Option to
the contrary, at the time of the occurrence of any of the events described in
Sections 10(a) through (d) below, the Option shall be automatically
converted into an Option to acquire the kind and amount of shares of stock or
other securities or property that the Optionee would have owned or have been
entitled to receive immediately after the occurrence of the event, had the
Option been exercised in full immediately before the effective date of such event;
provided, however, that the vesting schedule of the Option shall remain
unchanged, and, in any such case, appropriate adjustment shall be made in the
application of the provisions of this Option with respect to the rights and
interests thereafter of the Optionee, to the end that the provisions set forth
in this Option shall thereafter correspondingly be made applicable, as nearly
as may reasonably be, in relation to any shares of stock or other securities or
property thereafter deliverable on the exercise of this Option:

 

(a)           The
sale, lease, exchange or other transfer, directly or indirectly, of all or
substantially all of the assets of the Company (in one transaction or in a
series of related transactions) to a person or entity that is not controlled by
the Company,

 

3

 

(b)           The
approval by the Company’s shareholders of any plan or proposal for the
liquidation or dissolution of the Company;

 

(c)           Any
person or entity becomes the “beneficial owner” (as defined in Rule 13d-3
under the Securities Exchange Act of 1934, as amended (“Exchange Act”)),
directly or indirectly, of more than fifty percent (50%) of the combined voting
power of the outstanding securities of the Company ordinarily having the right
to vote at elections of directors who were not beneficial owners of at least
fifty percent (50%) of such combined voting power as of the date the Company’s
Board of Directors adopted the Option Plan; and

 

(d)           A
merger or consolidation to which the Company is a party if the shareholders of
the Company immediately prior to the effective date of such merger or
consolidation have, solely on account of ownership of securities of the Company
at such time, “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 company representing less than
fifty percent (50%) of the combined voting power of the surviving corporation’s
then outstanding securities ordinarily having the right to vote at elections of
directors.

 

Notwithstanding any
provision in the Option Plan or this Option Agreement to the contrary, the
Board of Directors or the Committee shall not have the power or right, either
before or after the occurrence of an event described in subparagraphs (a) through
(d) above, to rescind, modify or amend the provisions of this Section 10
without the consent of the Optionee.

 

11.          Limitation
on Payments and Benefits. 
Notwithstanding anything in this Agreement to the contrary, if any of
the payments or benefits to be made or provided in connection with this
Agreement, together with any other payments, benefits or awards which you have
the right to receive from the Company, or any corporation which 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 (“Affiliate”), constitute an “excess parachute payment” (as defined in Section 280G(b) of
the Code), such payments, benefits or awards to be made or provided in
connection with this Agreement, or any other agreement between you and the
Company or its Affiliates, may be reduced, eliminated, modified or waived to
the extent necessary to prevent all, or any portion, of such payments, benefits
or awards from becoming “excess parachute payments” and therefore subject to
the excise tax imposed under Section 4999 of the Code.  The Optionee will have the sole right and
discretion to determine whether the payments, benefits or awards to be made or
provided in connection with this Agreement, or any other agreement between the
Optionee and the Company, should be reduced, whether or not such other
agreement with the Company or an Affiliate expressly addresses the potential
application of Section 280G or Section 4999 of the Code (including,
without limitation, that “payments” under such agreement be reduced).  The Optionee will also have the right to
designate the particular payments, benefits or awards that are to be reduced,
eliminated, modified or waived; provided that no such adjustment will be made
if it results in additional expense to the Company in excess of expenses the
Company would have experienced if no adjustment had been made.  The determination as to whether any such decrease
in the payments or benefits is necessary must be made in good faith by legal
counsel or a certified public accountant selected by you and reasonably
acceptable to the Company, and such determination will

 

4

 

be conclusive and binding
upon you and the Company.  The Company
will pay or reimburse you on demand for the reasonable fees, costs and expenses
of the counsel or accountant selected to make the determinations under this Section 11.

 

12.          Interpretation.  The interpretation and construction of any
provision of the Option Plan and this Option shall be made by the Board of
Directors or the Committee and shall be final, conclusive and binding on the
Optionee and all other persons.

 

13.          Definitions;
Option Plan Governs.  Any capitalized
term used herein that is not expressly defined herein shall have the meaning
ascribed to it in the Option Plan.  This
Option is in all respects subject to and governed by all of the provisions of
the Option Plan.

 

IN WITNESS
WHEREOF, the Company has caused this Agreement to be executed
in its corporate name by its duly authorized officer, and the Optionee has
executed this Agreement as of the Grant Date set forth above.

 

	
   

  	
  COMPANY:

  	
  MathStar, Inc.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Its: President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  OPTIONEE:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Signature of Optionee

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name of Optionee Typed
  or Printed

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Address:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  SS#

  	
          -        -          

  	
   

  
								

 

5

 

EXHIBIT A

NOTICE OF EXERCISE
OF

STOCK OPTION

 

TO:

 

FROM:

 

DATE:

 

RE:                          Exercise
of Stock Option

 

I hereby exercise my
option to purchase                shares
of Common Stock at $                per
share (total exercise price of $                ).  This notice is given in accordance with the
terms of my Non-Statutory Stock Option Agreement (“Agreement”) dated                           .  The option price and vested amount is in
accordance with Sections 2 and 3 of the Agreement.

 

Check one:

 

o                                    Enclosed is cash,
or a cashier’s or certified check payable to MathStar, Inc. for the total
exercise price of the shares being purchased.

 

o                                    Attached is a
certificate(s) for                            shares
of common stock duly endorsed in blank and surrendered for the exercise price
of the shares being purchased.*

 

o                                    I want to exercise
my option by surrendering a sufficient number of shares of Common Stock
issuable upon exercise of such option to pay the exercise price.*

 

*The use of each of these
alternatives is subject to the approval of MathStar, Inc.

 

Please prepare the stock
certificate in the following name(s):

 

	
  Sincerely,

  
	
   

  
	
   

  	
   

  
	
  (Signature)

  
	
   

  
	
   

  	
   

  
	
  (Print or Type Name)

  
	
   

  
	
  Letter and
  consideration

  
	
  received on

  	
   

  	
   

  
	
  (effective date of
  exercise)

  
					

 

6Exhibit 10.3

 

DIGITAL MEDIACOM, INC.

1999-2000 STOCK OPTION PLAN

 

ARTICLE 1.

ESTABLISHMENT AND PURPOSE

 

1.1           Establishment.  Digital Mediacom, Inc. (the “Company”)
hereby establishes a plan providing for the grant of stock options to certain
eligible individuals who have or will render services to the Company and any
Subsidiary.  This plan shall be known as
the Digital Mediacom, Inc. Stock Option Plan (the “Plan”).

 

1.2           Purpose. 
The purpose of the Plan is to advance the interests of the Company and
its shareholders by enhancing the Company’s ability to attract and retain
qualified persons to perform services for the Company by providing incentives
to such persons to put forth maximum efforts for the Company and by rewarding
persons who contribute to the achievement of the Company’s economic objectives.

 

ARTICLE 2.

DEFINITIONS

 

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

 

2.1           “Affiliate” means with respect to any
Person, (i) any Person directly or indirectly controlling, controlled by,
or under common control with such Person, (ii) any person owning or
controlling ten percent (10%) or more of the outstanding voting interests
of such Person, (iii) any officer, director, or general partner of such
Person, or (iv) any Person who is an officer, director, general partner or
holder of ten percent (10%) or more of the voting interests of any Person
described in clauses (i) through (iii) of this
sentence.  For purposes of this
definition, the term “controls,” “is controlled by,” or “is under common
control with” shall mean the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of a person or
power to direct or cause the direction of the management and policies of a
person or entity, whether through the ownership of voting securities, by
contract or otherwise.

 

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

 

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

 

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

 

2.5           “Common Stock” means the common stock of
the Company, no par value, 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.

 

 

2.6           “Conversion Right” means the right, if
granted pursuant to Section 6.6 below, of a Participant to require the
Company to convert an Option, in whole or in part at any time after it becomes
exercisable and prior to its expiration, into shares of Common Stock without
the payment of any exercise price.  If a
Participant is granted a Conversion Right, then upon exercise of the Option or
a part thereof, the Company .shall deliver to the Participant
(subject to Article 9 below) that number of shares of Common Stock
computed by multiplying (A) the number of Option Shares underlying the
Option or part thereof being exercised by (B) the quotient obtained by
dividing (x) the difference between (i) the aggregate Fair Market
Value for the Option Shares underlying the Option (or part thereof being
exercised) immediately prior to the exercise of the Conversion Right and (ii) the
aggregate exercise price for the Option (or part thereof being exercised) by
(y) the aggregate Fair Market Value for the Option Shares underlying the
Option (or part thereof being exercised) immediately prior to the exercise of
the Conversion Right.

 

2.7           “Disability” means the permanent and total
disability of the Participant within the meaning of Section 22(e)(3) of
the Code.

 

2.8           “Eligible Recipient” means all employees
(including, without limitation, officers and directors who are also employees),
directors, consultants and independent contractors of the Company.

 

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

 

2.10         “Fair Market Value” means, with respect to
the Common Stock, the following:

 

(a)          If the Common Stock is listed or
admitted to unlisted trading privileges on any national securities exchange or
is not so listed or admitted but transactions in the Common Stock are reported
on The Nasdaq National Market®, the last sale price of the Common
Stock on such exchange or reported by The Nasdaq National Market®
System as of such date (or, if no shares were traded on such day, as of the
next preceding day on which there was such a trade).

 

(b)          If the Common Stock is not so listed
or admitted to unlisted trading privileges or reported on The Nasdaq National
Market®, and bid and asked prices therefor in the over-the-counter
market are reported by The Nasdaq SmallCap MarketSM, the Nasdaq
Bulletin Board, or the National Quotation Bureau, Inc. (or any comparable
reporting service), the mean of the closing bid and asked prices as of such
date, as so reported by the applicable Nasdaq® system, or, if not so reported
thereon, as reported by the National Quotation Bureau, Inc. (or such
comparable reporting service).

 

(c)          In all other cases, such price as the
Committee determines in good faith in the exercise of its reasonable
discretion.

 

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

 

2

 

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

 

2.13         “Option” means an Incentive Stock Option or
a Non-Qualified Stock Option.

 

2.14         “Option Shares” means the shares of Common
Stock issuable upon exercise of an Option.

 

2.15         “Participant” means an Eligible Recipient
who receives one or more Options under of the Plan.

 

2.16         “Person” means any individual, corporation,
partnership, group, association, or other “person” (as such term is used in Section 14(d) of
the Exchange Act), other than the Company, a wholly-owned Subsidiary of the
Company, or any employee benefit plan sponsored by the Company or a
wholly-owned Subsidiary of the Company.

 

2.17         “Previously Acquired Shares” mean shares of
Common Stock that are already owned by the Participant.

 

2.18         “Retirement” means the retirement of a
Participant pursuant to and in accordance with the regular or, if approved by
the Board for purposes of the Plan, any early retirement plan or practice of
the Company or Subsidiary then covering the Participant

 

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

 

2.20         “Subsidiary” means any subsidiary
corporation of the Company within the meaning of Section 424(f) and (g) of
the Code.

 

ARTICLE 3.

PLAN ADMINISTRATION

 

3.1           The Committee.  The Plan shall be administered by the Board,
or by a committee of the Board consisting of not less than two persons;
provided, however, that from and after the date on which the Company first
registers a class of its equity securities under Section 12 of the
Exchange Act, the Plan shall be administered to the extent provided herein by a
committee appointed by the Board consisting of not less than two members of the
Board.  Members of such a committee, if
established, shall be appointed from time to time by the Board, shall serve at
the pleasure of the Board and may resign at any time upon written notice to the
Board.  A majority of the members of such
a committee shall constitute a quorum. 
Such a committee shall act by majority approval of the members, shall
keep minutes of its meetings and shall provide copies of such minutes to the
Board.  Action of such a committee may be
taken without a meeting if unanimous written consent is given.  Copies of minutes of such a committee’s
meetings and of its actions by written consent shall be provided to the Board
and kept with the corporate records of the Company.  As used in this Plan, the term “Committee”
will refer to the Board or to such a committee, if established.

 

3

 

3.2           Authority of the Committee.

 

(a)          In accordance with and subject to the
provisions of the Plan, the Committee shall have the authority to recommend to
the Board for its consideration and approval (i) the Eligible Recipients
who shall be selected as Participants, (ii) the nature and extent of the
Options to be granted to each Participant (including the number of shares of
Common Stock to be subject to each Option, the exercise price and the manner in
which Options will vest or become exercisable), (iii) the time or times
when Options will be granted, (iv) the duration of each Option, (v) the
restrictions and other conditions to which the exercisability or vesting of
Options may be subject, and (vi) such other provisions of the Options as
the Committee may deem necessary or desirable and as consistent with the terms
of the Plan.  The Committee shall
determine the form or forms of the option agreements with Participants which
shall evidence the particular terms, conditions, rights, and duties of the
Company and the Participants with respect to Options granted pursuant to the
Plan, which agreements shall be consistent with the provisions of the Plan.

 

(b)          With the consent of the Participant
affected thereby and subject to the consideration and approval of the Board,
the Committee may amend or modify the terms of any outstanding Option in any
manner, provided that the amended or modified terms are permitted by the Plan
as then in effect.  Without limiting the
generality of the foregoing sentence, the Committee may, with the consent of
the Participant affected thereby and subject to consideration and approval of
the Board, modify, the exercise price, number of shares, or other
terms and conditions of an Option, extend the term of an Option, accelerate the
exercisability or vesting or otherwise terminate any restrictions relating to
an Option, accept the surrender of any outstanding Option, or, to the extent
not previously exercised or vested, authorize the grant of new Options in
substitution for surrendered Options.

 

(c)          The Committee shall have the authority
to interpret the Plan and, subject to the provisions of the Plan, to establish,
adopt, and revise such rules and regulations relating to the Plan as it
may deem necessary or advisable for the administration of the Plan.  The Committee’s decisions and determinations
under the Plan need not be uniform and may be made selectively  among
Participants, whether or not such Participants are similarly situated.  Each determination, interpretation, or other
action made or taken by the Committee pursuant to the provisions of the Plan
shall be conclusive and binding for all purposes and on all persons, including,
without limitation, the Company and its Subsidiaries, the shareholders of the
Company, the Committee and each of its members, the directors, officers, and
employees of the Company and its Subsidiaries, and the Participants and their
respective successors in interest.  No
member of the Committee shall be liable for any action or determination made in
good faith with respect to the Plan or any Option granted under the Plan.

 

4

 

ARTICLE 4.

STOCK SUBJECT TO THE PLAN

 

4.1           Number of Shares.  Subject to adjustment as provided in Section 4.3
below, the maximum number of shares of Common Stock that shall be authorized
and reserved for issuance under the Plan shall be 1,500,000 shares of Common
Stock of the Company.

 

4.2           Shares Available for Use.  Shares of Common Stock that may be issued
upon exercise of Options shall be applied to reduce the maximum number of
shares of Common Stock remaining available for use under the Plan.  Any shares of Common Stock that are subject
to an Option (or any portion thereof) that lapses, expires, or for any reason
is terminated unexercised shall automatically again become available for use
under the Plan.  Also, Previously
Acquired Shares which are tendered to the Company in satisfaction or partial
satisfaction of the Exercise Price pursuant to Section 6.6 or in
satisfaction or partial satisfaction of withholding obligations pursuant to Article 10
shall become available for use under the Plan to the extent permitted by Rule 16b-3
of the Exchange Act.

 

4.3           Adjustments to Shares.

 

(a)          In the event of a 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 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) shall make appropriate adjustment
(which determination shall be conclusive) as to the number and kind of
securities subject to and reserved under the Plan and, in order to prevent
dilution or enlargement of the rights of Participants, the number, kind, and
exercise price of securities subject to outstanding Options.  Without limiting the generality of the
foregoing, in the event that any of such transactions are effected in such a
way that holders of Common Stock shall be entitled to receive stock,
securities, or assets, including cash, with respect to or in exchange for such
Common Stock, all Participants holding outstanding Options shall upon the
exercise of such Options receive, in lieu of any shares of Common Stock they
may be entitled to receive, such stock, securities, or assets, including cash,
as would have been issued to such Participants if their Options had been
exercised and such Participants had received Common Stock prior to such
transaction.

 

(b)          Notwithstanding Section 4.3(a),
there  shall be no adjustment to the shares authorized pursuant to
this Plan for an event described in Section 4.3(a) which occurs
before or simultaneously with the Effective Date of this Plan.

 

ARTICLE 5.

PARTICIPATION

 

Participants in the Plan shall be
those Eligible Recipients who, in the judgment of the Committee, have
performed, are performing, or during the term of an Option will perform,

 

5

 

services
in the management, operation, and development of the Company or any Subsidiary
or Affiliate thereof, and significantly contributed, are significantly
contributing, or are expected to significantly contribute to the achievement of
corporate economic objectives.  Eligible
Recipients may be granted from time to time one or more Options, as may be
recommended by the Committee in its sole discretion to the Board of Directors
for its consideration and approval.  The
number, type, terms, and conditions of Options granted to various Eligible
Recipients need not be uniform, consistent, or in accordance with any plan,
regardless of whether such Eligible Recipients are similarly situated.  Upon determination by the Committee and
consideration and approval by the Board that an Option is to be granted to an
Eligible Recipient, written notice shall be given such person, specifying the
terms, conditions, rights and duties related thereto.  Each Eligible Recipient to whom an Option is
to be granted shall enter into an agreement with the provisions of the Plan,
specifying such terms, conditions, rights and duties.  Options shall be deemed to be granted as of
the date specified in the grant resolution of the Board, and the related option
agreements shall be dated as of such date.

 

ARTICLE 6.

STOCK OPTIONS

 

6.1           Grant. 
An Eligible Recipient may be granted one or more Options under the Plan
and such Options shall be subject to such terms and conditions, consistent with
the other provisions of the Plan, as shall be determined by the Committee in
its sole discretion upon the consideration and approval of the Board.  The Committee may recommend to the Board
whether an Option is to be considered an Incentive Stock Option or a
Non-Qualified Stock Option; provided, however, that an Incentive Stock Option
shall be granted only to an Eligible Recipient who is an employee of the
Company or a Subsidiary or Affiliate thereof. 
The terms of the agreement relating to a Non-Qualified Stock Option
shall expressly provide that such Option shall not be treated as an Incentive
Stock Option.  Options shall be granted
for no cash consideration unless minimal cash consideration is required by
applicable law.

 

6.2           Exercise. 
An Option shall become exercisable at such times and in such
installments (which may be cumulative) as shall be determined by the Committee
in its sole discretion at the time the Option is granted.  Upon the completion of its exercise period,
an Option, to the extent not then exercised, shall expire.

 

6.3           Exercise Price.

 

(a)           Incentive
Stock Options.  The per share
price to be paid by the Participant at the time an Incentive Stock Option is
exercised shall be determined by the Committee, in its discretion and upon the
consideration and approval of the Board, at the date of its grant; provided,
however, that such price shall not be less than (i) 100% of the Fair
Market Value of one share of Common Stock on the date the Option is granted, or
(ii) 110% of the Fair Market Value of one share of Common Stock on the
date the Option is granted if, at that time the Option is granted, the Participant
owns, directly or indirectly (as determined pursuant to Section 424(d) of
the Code), more than 10% of the total combined voting power of all classes of
stock of the Company or any Subsidiary or

 

6

 

parent corporation of the Company
(within the meaning of Sections 424(f) and 424(e), respectively, of the
Code).

 

(b)           Non-Qualified
Stock Options.  The per share
price to be paid by the Participant at the time a Non-Qualified Stock Option is
exercised shall be determined by the Committee in its sole discretion upon the
consideration and approval of the Board at the time the Option is granted.

 

6.4           Duration.

 

(a)          Incentive
Stock Options.  The period
during which an Incentive Stock Option may be exercised shall be fixed by the
Committee in its sole discretion upon consideration and approval of the Board
at the time such Option is granted; provided, however, that in no event shall
such period exceed ten (10) years from its date of grant or, in the
case of a Participant who owns, directly or indirectly (as determined pursuant
to Section 424(d) of the Code), more than 10% of the total combined
voting power of all classes of stock of the Company or any Subsidiary or parent
corporation of the Company (within the meaning of Section 424(f) and
424(e), respectively, of the Code), five (5) years from its date of
grant.

 

(b)          Non-Qualified
Stock Options.  The period
during which a Non-Qualified Stock Option may be exercised shall be fixed by
the Committee in its sole discretion upon consideration and approval of the
Board at its date of grant.

 

(c)          Effect
of Termination of Employment or Other Service.  Notwithstanding this Section 6.4, except
as provided in Articles 7 and 8 of the Plan, only those Incentive Stock Options
granted to a Participant shall terminate and may no longer be exercised upon
the termination of the Participant’s employment or other status with the
Company, its Affiliates or Subsidiaries.

 

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
herein and in the agreement evidencing such Option, by delivery, in person or
through certified or registered mail, of written notice of exercise to the
Company at its principal executive office (Attention: Chief Financial Officer),
and by paying in full the total Option exercise price for the shares of Common
Stock purchased.  Such notice shall be in
a form satisfactory to the Committee and shall specify the particular Option (or
portion thereof) that is being exercised and the number of shares with respect
to which the Option is being exercised. 
Subject to compliance with Section 11.1 of the Plan, the exercise
of the Option shall be deemed effective upon receipt of such notice and payment
complying with the terms of the Plan and the execution of the agreement
evidencing such Option.  As soon as
practicable after the effective exercise of the Option, the Participant shall
be recorded on the stock transfer books of the Company as the owner of the
shares purchased, and the Company shall deliver to the Participant one or more
duly issued stock certificates evidencing such ownership.  If a Participant exercises any Option with
respect to some, but not all, of the shares of Common Stock subject to such
Option, the right to exercise such Option with respect to the remaining shares
shall continue until it expires or terminates in accordance with its
terms.  An Option shall only be
exercisable with respect to whole shares.

 

7

 

6.6           Payment of Exercise Price.  The total purchase price of the shares to be
purchased upon exercise of an Option shall be paid entirely in cash (by
certified check or money order) provided, however, that the Committee, in its
sole discretion upon the original grant of the Option or thereafter, and upon
the consideration and approval of the Board, may allow such payments to be
made, in whole or in part, by transfer from the Participant to the Company of
Previously Acquired Shares or by exercise of a Conversion Right.  In determining whether or upon what terms and
conditions a Participant will be permitted to pay the purchase price of an
Option in a form other than cash, the Committee may consider all relevant facts
and circumstances including, without limitation, the tax and securities law
consequences to the Participant and the Company and the financial accounting
consequences to the Company.  In the
event the Participant is permitted to pay the purchase price of an Option in
whole or in part with Previously Acquired Shares, the value of such shares
shall be equal to their Fair Market Value on the date of exercise of the
Option.  No shares of the Common Stock
shall be delivered pursuant to the exercise of any Option until payment in full
of any amount required to be paid pursuant to the Plan or the applicable option
agreement is, or is arranged to be, received by the Company.

 

6.7           Rights as a Shareholder.  The Participant shall have no tights as a
shareholder with respect to any shares of Common Stock covered by an Option
until the Participant shall have become the holder of record of such shares,
and no adjustments shall be made for dividends or other distributions or other
rights 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 pursuant to Section 4.3 of the Plan.

 

6.8           Disposition of Common Stock Acquired Pursuant to the
Exercise of Incentive Stock Options. 
Prior to making a disposition (as defined in Section 424(c) of
the Code) of any shares of Common Stock acquired pursuant to the exercise of an
Incentive Stock Option granted under the Plan before the expiration of two
years after its date of grant or before the expiration of one year after its
date of exercise and the date on which such shares of Common Stock were
transferred to the Participant pursuant to exercise of the Option, the
Participant shall send written notice to the Company of the proposed date of
such disposition, the number of shares to be disposed of, the amount of
proceeds to be received from such disposition and any other information
relating to such disposition that the Company may reasonably request.  The right of a Participant to make any such
disposition shall be conditioned on the receipt by the Company of all amounts
necessary to satisfy any federal, state, or local withholding and employment-related
tax requirements attributable to such disposition.  The Committee shall have the right, in its
sole discretion, to endorse the certificates representing such shares with a
legend restricting transfer and to cause a stop transfer order to be entered
with the Company’s transfer agent until such time as the Company receives the
amounts necessary to satisfy such withholding and employment-related tax
requirements or until the later of the expiration of two years from its date of
grant or one year from its date of exercise and the date on which such shares
were transferred to the Participant pursuant to the exercise of the Option.

 

6.9           Aggregate Limitation of Stock Subject to Incentive
Stock Options.  To the extent
that the aggregate Fair Market Value (determined as of the date an Incentive
Stock Option is granted) of the shares of Common Stock with respect to which
incentive stock options (within the meaning of Section 422 of the Code)
are exercisable for the first time by a Participant during any calendar year
(under the Plan and any other incentive stock option plans of the Company or

 

8

 

any
Subsidiary or any parent corporation of the Company) exceeds $100,000 (or such
other amount as may be prescribed by the Code from time to time), such excess
Options shall be treated as Non-Qualified Stock Options.  The determination shall be made by taking
incentive stock options into account in the order in which they were
granted.  If such excess only applies to
a portion of an incentive stock option, the Committee, in its discretion, shall
designate which shares shall be treated as shares to be acquired upon exercise
of an incentive stock option.

 

ARTICLE 7.

EFFECT OF TERMINATION OF EMPLOYMENT OR OTHER SERVICE

 

7.1           Termination of Employment or Other Service Due to
Death, Disability, or Retirement.  Except
as otherwise provided in Article 8 of the Plan or as otherwise determined
by the Committee upon the consideration and approval of the Board either at
time an Option is granted or thereafter, in the event a Participant’s
employment or other service with the Company and all Subsidiaries or Affiliates
is terminated by reason of such Participant’s death, Disability, or Retirement,
all outstanding Options then held by the Participant shall become immediately
exercisable in full and remain exercisable after such termination for a period
of three months in the case of Retirement and one year in the case of death or
Disability (but in no event after the expiration date of any such Option).

 

7.2           Termination of Employment or Other Service for Reasons
Other than Death, Disability, or Retirement. 
Except as otherwise provided in Article 8 of the Plan or
as otherwise determined by the Committee upon the consideration and approval of
the Board either at the time an Option is granted or thereafter, in the event
of termination of the Participant’s employment or other status with the Company
and all Subsidiaries or Affiliates in relation to which the Option was granted
for any reason other than death, Disability, or Retirement, all rights of the
Participant under the Plan shall immediately terminate without notice of any
kind, and no Options then held by the Participant shall thereafter be
exercisable; provided, however, that if such termination is due to any reason
other than termination by the Company or any Subsidiary or Affiliate for “cause,”
all outstanding Options then held by such Participant shall remain exercisable
to the extent exercisable as of such termination for a period of three months
after such termination (but in no event after the expiration date of any such
Option).  For purposes of this Section 7.2,
“cause” shall be as defined in any employment or other agreement or policy
applicable to the Participant or, if no such agreement or policy exists, shall
mean (a) dishonesty, fraud, misrepresentation, embezzlement, or material
or deliberate injury or attempted injury, in each case related to the Company
or any Subsidiary, (b) any unlawful or criminal activity of a serious
nature, (c) any willful breach of duty, habitual neglect of duty, or
unreasonable job performance, or (d) any material breach of a
confidentiality or noncompetition agreement entered into with the Company or
any Subsidiary.

 

7.3           Modification of Effect of Termination.  Notwithstanding the provisions of this Article 7,
upon a Participant’s termination of employment or other status with the Company
and all Subsidiaries or Affiliates with respect to which Options were granted,
the Committee may, in its sole discretion upon the consideration and approval
of the Board (which may be exercised before or following such termination)
cause Options, or any portions thereof, then held by such Participant to become
exercisable and remain exercisable following such termination in the

 

9

 

manner
determined by the Committee upon the consideration and approval of the Board;
provided, however, that no Option shall be exercisable after the expiration
date thereof and any Incentive Stock Option that remains unexercised more than
three months following employment termination by reason of Retirement or more
than one year following employment termination by reason of death or Disability
shall thereafter be deemed to be a Non-Qualified Stock Option.

 

7.4           Date of Termination.  Unless the Committee shall otherwise
determine in its sole discretion, a Participant’s employment or other service
shall, for purposes of the Plan, be deemed to have terminated on the date such
Participant ceases to perform services for the Company and all Subsidiaries or
Affiliates, as determined in good faith by the Committee.

 

ARTICLE 8.

CHANGE OF CONTROL

 

8.1           Change in Control.  For purposes of this Article 8, a “Change
in Control” of the Company shall mean (a) the sale, lease, exchange, or
other transfer of all or substantially all of the assets of the Company (in one
transaction or in a series of related transactions) to a corporation that is
not controlled by the Company, (b) the approval by the shareholders of the
Company of any plan or proposal for the liquidation or dissolution of the
Company, (c) any merger, consolidation, business combination,
reorganization or recapitalization of the Corporation in which the stockholders
of the Corporation immediately prior to such transaction own capital stock
representing less than fifty percent (50%) of the Corporation’s voting power
immediately after such transaction, or any transaction or series of related
transactions in which capital stock representing in excess of fifty
percent (50%) of the Corporation’s voting power is transferred or (d) individuals
who constitute the Board on the effective date of the Plan cease for any reason
to constitute at least a majority thereof, provided that any person becoming a
director subsequent to the effective date of the Plan whose election, or
nomination for election by the Company’s shareholders, was approved by a vote
of at least a majority of the directors comprising or deemed pursuant hereto to
comprise the Board on the effective date of the Plan (either by a specific vote
or by approval of the proxy statement of the Company in which such person is
named as a nominee for director) shall be, for purposes of this subsection (d),
considered as though such person were a member of the Board on the effective
date of the Plan.  Notwithstanding
anything in the foregoing to the contrary, no Change in Control shall be deemed
to have occurred for purposes of this Section 8.1 by virtue of any
transaction which stall have been approved by the affirmative vote of at least
a majority of the members of the Board or by the shareholders of the Company on
the effective date of the Plan.

 

8.2           Acceleration of Vesting.  If a Change of Control of the Company shall
be about to occur or shall occur, the Committee, in its sole discretion and
upon the consideration and approval of the Board, may determine that all outstanding
Options shall become immediately exercisable in full and shall remain
exercisable during the remaining term thereof, regardless of whether the
employment or other status of the Participants with respect to which Options
have been granted shall continue with the Company or any Subsidiary.

 

8.3           Cash Payment.  If
a Change in Control of the Company shall be about to occur or shall occur, then
the Committee, in its sole discretion upon the consideration and approval of

 

10

 

the Board
and without the consent of any Participant effected thereby, may determine that
some or all Participants holding outstanding Options shall 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.

 

8.4           Limitation on Change in Control Payments.  Notwithstanding anything in Sections 8.2
or 8.3 above to the contrary, if, with respect to a Participant, the
acceleration of the exercisability of an Option as provided in Section 8.2
or the payment of cash in exchange for all or part of an Option as provided in Section 8.3
above (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 which such Participant has the right to receive from the Company or
any corporation which 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 acceleration of exercisability and the payments to such
Participant pursuant to Sections 8.2 and 8.3 above shall be reduced
to the largest extent or amount as, in the sole judgment of the Committee, will
result in no portion of such payments being subject to the excise tax imposed
by Section 4999 of the Code.

 

ARTICLE 9.

RIGHT TO WITHHOLD; PAYMENT OF WITHHOLDING TAXES

 

The Company is entitled to (a) withhold
and deduct from future wages of the Participant (or from other amounts which
may be due and owing to the Participant from the Company) or make other
arrangements for the collection of, all legally required amounts necessary to
satisfy any and all federal, state, and local withholding and employment-related
tax requirements (i) attributable to the grant or exercise of an Option or
to a disqualifying disposition of stock received upon exercise of an Incentive
Stock Option, or (ii) otherwise incurred with respect to an Option, or (b) require
the Participant promptly to remit the amount of such withholding to the Company
before taking any action with respect to the exercise of an Option or the
issuance of any stock certificate either to the Participant or any transferee.  The Committee, in its sole discretion, may
permit a Participant to pay all or a portion of such withholding liability
either by surrendering Previously Acquired Shares already owned by the
Participant or by electing to have the Company retain shares subject to the
Option, provided that the Committee determines that the fair market value of
the surrendered Previously Acquired Shares or the retained shares is equal to
such withholding liability.

 

ARTICLE 10.

RIGHTS OF ELIGIBLE RECIPIENTS AND PARTICIPANTS;

TRANSFERABILITY

 

10.1         Employment or Service.  Nothing in the Plan shall interfere with or
limit in any way the right of the Company or any Subsidiary to terminate the
employment or service of any

 

11

 

Eligible
Recipient or Participant at any time, or confer upon any Eligible Recipient or
Participant any right to continue in the employ or service of the Company or
any Subsidiary.

 

10.2         Restrictions on Transfer.  Other than pursuant to a qualified domestic
relations order (as defined by the Code), no right or interest of any
Participant in an Option prior to the exercise of such Options shall 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, including execution, levy, garnishment,
attachment, pledge, divorce, or bankruptcy. 
In the event of a Participant’s death, such Participant’s rights and
interest in Options shall be transferable by testamentary will or the laws of
descent and distribution, and payment of any amounts due under the Plan shall
be made to, and exercise of any Options (to the extent permitted pursuant to Article 7
of the Plan) may be made by, the Participant’s legal representatives, heirs, or
legatees.  If, in the opinion of the
Committee, a Participant holding an Option is disabled from caring for his or
her affairs because of mental condition, physical condition, or age, any payments
due the Participant may be made to, and any rights of the Participant under the
Plan shall be exercised by, such Participant’s guardian, conservator, or other
legal personal representative upon furnishing the Committee with evidence
satisfactory to the Committee of such status.

 

10.3         Non-Exclusivity of the Plan.  Nothing contained in the Plan is intended to
amend, modify, or rescind any previously approved compensation plans or
programs entered into by the Company. 
The Plan will be construed to be in addition to any and all such other
plans or programs.  Neither the adoption
of the Plan nor the submission of the Plan to the shareholders of the Company
for approval will be construed as creating 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.

 

ARTICLE 11.

SECURITIES LAW RESTRICTIONS

 

11.1         Share Issuances.  Notwithstanding any other provision of the
Plan or any agreements entered into pursuant hereto, the Company shall not be
required to issue or deliver any certificate for shares of Common Stock under
this Plan, and an Option shall not be considered to be exercised
notwithstanding the tender by the Participant of any consideration therefor,
unless and until each of the following conditions has been fulfilled:

 

(a)          (i) There shall be in effect with
respect to such shares a registration statement under the Securities Act and
any applicable state securities laws if the Committee, in its sole discretion,
shall have determined to file, cause to become effective, and maintain the
effectiveness of such registration statement; or (ii) if the Committee has
determined not to so register the shares of Common Stock to be issued under the
Plan, (A) exemptions from registration under the Securities Act and
applicable state securities laws shall be available for such issuance (as
determined by counsel to the Company) and (B) there shall have been
received from the Participant (or, in the event of death or disability, the
Participant’s heir(s) or legal representative(s)), any representations or

 

12

 

agreements requested by the Company in
order to permit such issuance to be made pursuant to such exemptions; and

 

(b)          There shall have been obtained any
other consent, approval, or permit from any state or federal governmental
agency which the Committee shall, in its sole discretion upon the advice of
counsel, deem necessary or advisable.

 

11.2         Share Transfers.  Shares of Common Stock issued pursuant to
Options granted under the Plan may not be sold, assigned, transferred, pledged,
encumbered, or otherwise disposed of, whether voluntarily or involuntarily,
directly or indirectly, by operation of law or otherwise, except pursuant to
registration under the Securities Act and applicable state securities laws or
pursuant to exemptions from such registrations. 
The Company may condition the sale, assignment, transfer, pledge,
encumbrance, or other disposition of such shares not issued pursuant to an
effective and current registration statement under the Securities Act and all
applicable state securities laws on the receipt from the party to whom the
shares of Common Stock are to be so transferred of any representations or
agreements requested by the Company in order to permit such transfer to be made
pursuant to exemptions from registration under the Securities Act and
applicable state securities laws.

 

11.3         Holding Period Requirements.  Any Options granted and any Common Stock
acquired pursuant to the exercise of Options under this Plan may be subject to
a six-month holding requirement from the grant date in order for the
transaction to be exempt from the short-swing trading profits provision of Section 16(b) of
the Exchange Act.

 

11.4         Legends.

 

(a)          Unless a registration statement under
the Securities Act and applicable state securities laws is in effect with
respect to the issuance or transfer of shares of Common Stock under the Plan,
each certificate representing any such shares shall be endorsed with a legend
in substantially the following form, unless counsel for the Company is of the
opinion as to any such certificate that such legend is unnecessary:

 

THE SECURITIES EVIDENCED HEREBY HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (“THE ACT”),
OR UNDER APPLICABLE STATE SECURITIES LAWS. 
THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE
OFFERED FOR SALE, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, OR
OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE ACT AND SUCH STATE LAWS OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER
THE ACT AND SUCH STATE LAWS, THE AVAILABILITY OF WHICH IS TO BE ESTABLISHED TO
THE SATISFACTION OF THE COMPANY.

 

13

 

ARTICLE 12.

PLAN AMENDMENT; MODIFICATION AND TERMINATION

 

12.1         Amendment; Modification; 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 Options under the
Plan shall 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 amendment shall be effective, without approval
of the shareholders of the Company, if shareholder approval of the amendment is
then required to comply with or obtain exemptive relief under any tax or
regulatory requirement the Board deems desirable to comply with or obtain
exemptive relief under, including without limitation, Rule 16b-3
under the Exchange Act or any successor rule or Section 422 of the
Code or under the applicable rules or regulations of any securities
exchange or the NASD.  No termination,
suspension, or amendment of the Plan shall alter or impair any outstanding
Option without the consent of the Participant affected thereby; provided,
however, that this sentence shall not impair the right of the Committee to take
whatever action it deems appropriate under Section 4.3 or Article 8
of the Plan.

 

ARTICLE 13.

EFFECTIVE DATE OF THE PLAN

 

13.1         Effective Date.  The Plan is effective as of November 18,
1999 the date adopted by the Board; provided, however, that no Incentive Stock
Options may be exercised until the Plan is adopted by the shareholders of the
Company in accordance with the requirements of the Code.

 

13.2         Duration of the Plan.  The Plan shall terminate at midnight on November 18,
2009, and may be terminated prior thereto by Board action, and no Option shill
be granted after such termination. 
Options outstanding upon termination of the Plan may continue to be
exercised in accordance with their terms.

 

ARTICLE 14.

MISCELLANEOUS

 

14.1         Construction and Headings.  The use of the masculine gender shall also
include within its meaning the feminine and the singular may include the plural
and the plural may include the singular, unless the context clearly indicates
to the contrary.  The headings of the
Articles, Sections, and subparts of the Plan are for convenience of reading
only and are not meant to be of substantive significance and shall not add or
detract from the meaning of such Article, Section, or subpart.

 

14.2         Governing Law.  The place of administration of the Plan shall
be conclusively deemed to be within the State of Minnesota, and the rights and
obligations of any and all persons having or claiming to have had an interest
under the Plan or under any agreements evidencing Options shall be governed by
and construed exclusively and solely in accordance with the laws

 

14

 

of the
State of Minnesota without regard to the conflict of laws provisions of any
jurisdictions.  All parties agree to
submit to the jurisdiction of the state and federal courts of Minnesota with
respect to matters relating to the Plan and agree not to raise or assert the
defense that such forum is not convenient for such party.

 

14.3         Successors and Assigns.  This Plan shall be binding upon and inure to
the benefit of the successors and permitted assigns of the Company, including,
without limitation, whether by way of merger, consolidation, operation of law,
assignment, purchase, or other acquisition of substantially all of the assets
or business of the Company, and any and all such successors and assigns shall
absolutely and unconditionally assume all of the Company’s obligations under
the Plan.

 

14.4         Survival of Provisions.  The rights, remedies, agreements,
obligations, and covenants contained in or made pursuant to the Plan, any
agreement evidencing an Option and any other notices or agreements in
connection therewith, including, without limitation, any notice of exercise of
an Option, shall survive the execution and delivery of such notices and
agreements and the delivery and receipt of shares of Common Stock and shall
remain in full force and effect.

 

IN WITNESS WHEREOF, and as evidence of the adoption of this Plan by the Company, the Company
has caused this Plan to be signed by the undersigned officer, thereunto duly
authorized pursuant to the resolutions of the Board of Directors adopted on November 18,
1999.

 

	
   

  	
  DIGITAL MEDIACOM, INC.

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Kevin Atkinson

  
	
   

  	
   

  	
  Kevin
  Atkinson

  
	
   

  	
   

  	
  Its:
  Chief Executive Officer

  

 

15

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