Document:

exv10w13

EXHIBIT 10.13

MD3, INC.

2001 STOCK OPTION/STOCK ISSUANCE PLAN

ARTICLE ONE

GENERAL PROVISIONS

     I. PURPOSE OF THE PLAN

          This 2001 Stock Option/Stock Issuance Plan is intended to promote the interests of MD3, Inc.,
a California corporation, by providing eligible persons in the Corporation’s employ or service with
the opportunity to acquire a proprietary interest, or otherwise increase their proprietary
interest, in the Corporation as an incentive for them to continue in such employ or service.

          Capitalized terms herein shall have the meanings assigned to such terms in the attached
Appendix.

     II. STRUCTURE OF THE PLAN

          A. The Plan shall be divided into two (2) separate equity programs:

          (i) the Option Grant Program under which eligible persons may, at the
discretion of the Plan Administrator, be granted options to purchase shares of
Common Stock, and

          (ii) the Stock Issuance Program under which eligible persons may, at the
discretion of the Plan Administrator, be issued shares of Common Stock directly,
either through the immediate purchase of such shares or as a bonus for services
rendered the Corporation (or any Parent or Subsidiary).

          B. The provisions of Articles One and Four shall apply to both equity programs under the Plan
and shall accordingly govern the interests of all persons under the Plan.

     III. ADMINISTRATION OF THE PLAN

          A. The Plan shall be administered by the Board. However, any or all administrative functions
otherwise exercisable by the Board may be delegated to the Committee. Members of the Committee
shall serve for such period of time as the Board may determine and shall be subject to removal by
the Board at any time. The Board may also at any time terminate
the functions of the Committee and reassume all powers and authority previously delegated to
the Committee.

          B. The Plan Administrator shall have full power and authority (subject to the provisions of
the Plan) to establish such rules and regulations as it may deem appropriate for proper
administration of the Plan and to make such determinations under, and issue such

 

 

interpretations
of, the Plan and any outstanding options or stock issuances thereunder as it may deem necessary or
advisable. Decisions of the Plan Administrator shall be final and binding on all parties who have
an interest in the Plan or any option grant or stock issuance thereunder.

     IV. ELIGIBILITY

          A. The persons eligible to participate in the Plan are as follows:

          (i) Employees,

          (ii) non-employee members of the Board or the non-employee members of the board
of directors of any Parent or Subsidiary, and

          (iii) consultants and other independent advisors who provide services to the
Corporation (or any Parent or Subsidiary).

          B. The Plan Administrator shall have full authority to determine, (i) with respect to the
grants made under the Option Grant Program, which eligible persons are to receive such grants, the
time or times when those grants are to be made, the number of shares to be covered by each such
grant, the status of the granted option as either an Incentive Option or a Non-Statutory Option,
the time or times when each option is to become exercisable, the vesting schedule (if any)
applicable to the option shares and the maximum term for which the option is to remain outstanding,
and (ii) with respect to stock issuances made under the Stock Issuance Program, which eligible
persons are to receive such issuances, the time or times when those issuances are to be made, the
number of shares to be issued to each Participant, the vesting schedule (if any) applicable to the
issued shares and the consideration to be paid by the Participant for such shares.

          C. The Plan Administrator shall have the absolute discretion either to grant options in
accordance with the Option Grant Program or to effect stock issuances in accordance with the Stock
Issuance Program.

     V. STOCK SUBJECT TO THE PLAN

          A. The stock issuable under the Plan shall be shares of authorized but unissued or reacquired
Common Stock. The maximum number of shares of Common Stock which may be issued over the term of
the Plan shall not exceed 660,267 shares.

          B. Shares of Common Stock subject to outstanding options shall be available for subsequent
issuance under the Plan to the extent (i) the options expire or terminate for any reason prior to
exercise in full or (ii) the options are cancelled in accordance with the cancellation-regrant
provisions of Article Two. Unvested shares issued under the Plan and
subsequently repurchased by the Corporation, at the option exercise or direct issue price paid
per share, pursuant to the Corporation’s repurchase rights under the Plan shall be added back to
the number of shares of Common Stock reserved for issuance under the Plan and shall accordingly be
available for reissuance through one or more subsequent option grants or direct stock issuances
under the Plan.

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          C. Should any change be made to the Common Stock by reason of any stock split, stock dividend,
recapitalization, combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Corporation’s receipt of consideration, appropriate
adjustments shall be made to (i) the maximum number and/or class of securities issuable under the
Plan and (ii) the number and/or class of securities and the exercise price per share in effect
under each outstanding option in order to prevent the dilution or enlargement of benefits
thereunder. The adjustments determined by the Plan Administrator shall be final, binding and
conclusive. In ho event shall any such adjustments be made in connection with the conversion of
one or more outstanding shares of the Corporation’s preferred stock into shares of Common Stock.

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ARTICLE TWO

OPTION GRANT PROGRAM

I. OPTION TERMS

          Each option shall be evidenced by one or more documents in the form approved by the Plan
Administrator; provided, however, that each such document shall comply with the terms
specified below. Each document evidencing an Incentive Option shall, in addition, be subject to
the provisions of the Plan applicable to such options.

          A. Exercise Price.

               1. The exercise price per share shall be fixed by the Plan Administrator in accordance with
the following provisions:

               (i) The exercise price per share shall not be less than eighty-five percent
(85%) of the Fair Market Value per share of Common Stock on the option grant date.

               (ii) If the person to whom the option is granted is a 10% Shareholder, then the
exercise price per share shall not be less than one hundred ten percent (110%) of
the Fair Market Value per share of Common Stock on the option grant date.

               2. The exercise price shall become immediately due upon exercise of the option and shall,
subject to the provisions of Section I of Article Four and the documents evidencing the option, be
payable in cash or check made payable to the Corporation. Should the Common Stock be registered
under Section 12 of the 1934 Act at the time the option is exercised, then the exercise price may
also be paid as follows:

               (i) in shares of Common Stock held for the requisite period necessary to avoid
a charge to the Corporation’s earnings for financial reporting purposes and valued
at Fair Market Value on the Exercise Date, or

               (ii) to the extent the option is exercised for vested shares, through a special
sale and remittance procedure pursuant to which the Optionee shall concurrently
provide irrevocable instructions (A) to a Corporation-designated brokerage firm to
effect the immediate sale of the purchased shares and remit to the Corporation, out
of the sale proceeds available on the settlement date, sufficient funds to cover the
aggregate exercise price payable for the purchased shares plus all applicable
Federal, state and local income and employment taxes required to be withheld by the
Corporation by reason of such exercise and (B) to the Corporation to deliver the
certificates for the purchased shares directly to such brokerage firm in order to
complete the sale.

          Except to the extent such sale and remittance procedure is utilized, payment of the exercise
price for the purchased shares must be made on the Exercise Date.

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          B. Exercise and Term of Options. Each option shall be exercisable at such time or
times, during such period and for such number of shares as shall be determined by the Plan
Administrator and set forth in the documents evidencing the option grant. However, no option shall
have a term in excess of ten (10) years measured from the option grant date.

          C. Effect of Termination of Service.

               1. The following provisions shall govern the exercise of any options held by the Optionee at
the time of cessation of Service or death:

               (i) Should the Optionee cease to remain in Service for any reason other than
death, Disability or Misconduct, then the Optionee shall have a period of three (3)
months following the date of such cessation of Service during which to exercise each
outstanding option held by such Optionee.

               (ii) Should Optionee’s Service terminate by reason of Disability, then the
Optionee shall have a period of twelve (12) months following the date of such
cessation of Service during which to exercise each outstanding option held by such
Optionee.

               (iii) If the Optionee dies while holding an outstanding option, then the
personal representative of his or her estate or the person or persons to whom the
option is transferred pursuant to the Optionee’s will or the laws of inheritance or
the Optionee’s designated beneficiary or beneficiaries of that option shall have a
twelve (12)-month period following the date of the Optionee’s death to exercise such
option.

               (iv) Under no circumstances, however, shall any such option be exercisable
after the specified expiration of the option term.

               (v) During the applicable post-Service exercise period, the option may not be
exercised in the aggregate for more than the number of vested shares for which the
option is exercisable on the date of the Optionee’s cessation of Service. Upon the
expiration of the applicable exercise period or (if earlier) upon the expiration of
the option term, the option shall terminate and cease to be outstanding for any
vested shares for which the option has not been exercised. However, the option
shall, immediately upon the Optionee’s cessation of Service, terminate and cease to
be outstanding with respect to any and all option shares for which the option is not
otherwise at the time exercisable or in which the Optionee is not otherwise at that
time vested.

               (vi) Should Optionee’s Service be terminated for Misconduct or should Optionee
otherwise engage in Misconduct while holding one or more outstanding options under
the Plan, then all those options shall terminate immediately and cease to remain
outstanding.

               2. The Plan Administrator shall have the discretion, exercisable either at the time an option
is granted or at any time while the option remains outstanding, to:

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               (i) extend the period of time for which the option is to remain exercisable
following Optionee’s cessation of Service or death from the limited period otherwise
in effect for that option to such greater period of time as the Plan Administrator
shall deem appropriate, but in no event beyond the expiration of the option term,
and/or

               (ii) permit the option to be exercised, during the applicable post-Service
exercise period, not only with respect to the number of vested shares of Common
Stock for which such option is exercisable at the time of the Optionee’s cessation
of Service but also with respect to one or more additional installments in which the
Optionee would have vested under the option had the Optionee continued in Service.

          D. Shareholder Rights. The holder of an option shall have no shareholder rights with
respect to the shares subject to the option until such person shall have exercised the option, paid
the exercise price and become the recordholder of the purchased shares.

          E. Unvested Shares. The Plan Administrator shall have the discretion to grant options
which are exercisable for unvested shares of Common Stock. Should the Optionee cease Service while
holding such unvested shares, the Corporation shall have the right to repurchase, at the exercise
price paid per share, any or all of those unvested shares. The terms upon which such repurchase
right shall be exercisable (including the period and procedure for exercise and the appropriate
vesting schedule for the purchased shares) shall be established by the Plan Administrator and set
forth in the document evidencing such repurchase right. The Plan Administrator may not impose a
vesting schedule upon any option grant or the shares of Common Stock subject to that option which
is more restrictive than twenty percent (20%) per year vesting, with the initial vesting to occur
not later than one (1) year after the option grant date. However, such limitation shall not be
applicable to any option grants made to individuals who are officers of the Corporation,
non-employee Board members or independent consultants.

          F. First Refusal Rights. Until such time as the Common Stock is first registered
under Section 12 of the 1934 Act, the Corporation shall have the right of first refusal with
respect to any proposed disposition by the Optionee (or any successor in interest) of any shares of
Common Stock issued under the Plan. Such right of first refusal shall be exercisable in accordance
with the terms established by the Plan Administrator and set forth in the document evidencing such
right.

          G. Limited Transferability of Options. An Incentive Stock Option shall be exercisable
only by the Optionee during his or her lifetime and shall not be assignable or transferable other
than by will or by the laws of inheritance following the Optionee’s death. A Non-Statutory Option
may be assigned in whole or in part during the Optionee’s lifetime to one or more members of the
Optionee’s family or to a trust established exclusively for one or more such family members or to
Optionee’s former spouse, to the extent such assignment is in connection with the Optionee’s estate
plan or pursuant to a domestic relations order. The assigned portion may only be exercised by the
person or persons who acquire a proprietary interest in the Non-Statutory Option pursuant to the
assignment. The terms applicable to the assigned portion shall be the same as those in effect for
the option immediately prior to such

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assignment and shall be set forth in such documents issued to the assignee as the Plan
Administrator may deem appropriate. Notwithstanding the foregoing, the Optionee may also designate
one or more persons as the beneficiary or beneficiaries of his or her outstanding options under the
Plan, and those options shall, in accordance with such designation, automatically be transferred to
such beneficiary or beneficiaries upon the Optionee’s death while holding those options. Such
beneficiary or beneficiaries shall take the transferred options subject to all the terms and
conditions of the applicable agreement evidencing each such transferred option, including (without
limitation) the limited time period during which the option may be exercised following the
Optionee’s death.

     II. INCENTIVE OPTIONS

          The terms specified below shall be applicable to all Incentive Options. Except as modified by
the provisions of this Section II, all the provisions of Articles One, Two and Four shall be
applicable to Incentive Options. Options which are specifically designated as Non-Statutory
Options shall not be subject to the terms of this Section II.

          A. Eligibility. Incentive Options may only be granted to Employees.

          B. Exercise Price. The exercise price per share shall not be less than one hundred
percent (100%) of the Fair Market Value per share of Common Stock on the option grant date.

          C. Dollar Limitation. The aggregate Fair Market Value of the shares of Common Stock
(determined as of the respective date or dates of grant) for which one or more options granted to
any Employee under the Plan (or any other option plan of the Corporation or any Parent or
Subsidiary) may for the first time become exercisable as Incentive Options during any one (1)
calendar year shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To the extent
the Employee holds two (2) or more such options which become exercisable for the first time in the
same calendar year, the foregoing limitation on the exercisability of such options as Incentive
Options shall be applied on the basis of the order in which such options are granted.

          D. 10% Shareholder. If any Employee to whom an Incentive Option is granted is a 10%
Shareholder, then the option term shall not exceed five (5) years measured from the option grant
date.

     III. CORPORATE TRANSACTION

          A. The shares subject to each option outstanding under the Plan at the time of a Corporate
Transaction shall automatically vest in full so that each such option shall, immediately prior to
the effective date of the Corporate Transaction, become exercisable for all of the shares of Common
Stock at the time subject to that option and may be exercised for any or all of those shares as
fully-vested shares of Common Stock. However, the shares subject to an outstanding option shall
not vest on such an accelerated basis if and to the extent: (i) such option is assumed by the
successor corporation (or parent thereof) in the Corporate Transaction and any repurchase rights of
the Corporation with respect to the unvested option shares are concurrently assigned to such
successor corporation (or parent thereof) or (ii) such option is to be replaced

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with a cash incentive program of the successor corporation which preserves the spread existing
on the unvested option shares at the time of the Corporate Transaction and provides for subsequent
payout in accordance with the same vesting schedule applicable to those unvested option shares or
(iii) the acceleration of such option is subject to other limitations imposed by the Plan
Administrator at the time of the option grant.

          B. All outstanding repurchase rights under the Option Grant Program shall also terminate
automatically, and the shares of Common Stock subject to those terminated rights shall immediately
vest in full, in the event of any Corporate Transaction, except to the extent: (i) those
repurchase rights are assigned to the successor corporation (or parent thereof) in connection with
such Corporate Transaction or (ii) such accelerated vesting is precluded by other limitations
imposed by the Plan Administrator at the time the repurchase right is issued.

          C. Immediately following the consummation of the Corporate Transaction, all outstanding
options shall terminate and cease to be outstanding, except to the extent assumed by the successor
corporation (or parent thereof).

          D. Each option which is assumed in connection with a Corporate Transaction shall be
appropriately adjusted, immediately after such Corporate Transaction, to apply to the number and
class of securities which would have been issuable to the Optionee in consummation of such
Corporate Transaction, had the option been exercised immediately prior to such Corporate
Transaction. Appropriate adjustments shall also be made to (i) the number and class of securities
available for issuance under the Plan following the consummation of such Corporate Transaction and
(ii) the exercise price payable per share under each outstanding option, provided the
aggregate exercise price payable for such securities shall remain the same. To the extent the
actual holders of the Corporation’s outstanding Common Stock receive cash consideration for their
Common Stock in consummation of the Corporate Transaction, the successor corporation may, in
connection with the assumption of the outstanding options under this Plan, substitute one or more
shares of its own common stock with a fair market value equivalent to the cash consideration paid
per share of Common Stock in such Corporate Transaction.

          E. The Plan Administrator shall have the discretion, exercisable either at the time the option
is granted or at any time while the option remains outstanding, to structure one or more options so
that those options shall automatically accelerate and vest in full (and any repurchase rights of
the Corporation with respect to the unvested shares subject to those options shall immediately
terminate) upon the occurrence of a Corporate Transaction, whether or not those options are to be
assumed in the Corporate Transaction.

          F. The Plan Administrator shall also have full power and authority, exercisable either at the
time the option is granted or at any time while the option remains outstanding, to structure such
option so that the shares subject to that option will automatically vest on an accelerated basis
should the Optionee’s Service terminate by reason of an Involuntary Termination within a designated
period (not to exceed eighteen (18) months) following the effective date of any Corporate
Transaction in which the option is assumed and the repurchase rights applicable to those shares do
not otherwise terminate. Any option so accelerated shall remain exercisable for the fully-vested
option shares until the expiration or sooner termination of the option term. In addition, the Plan
Administrator may provide that one or more of the

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Corporation’s outstanding repurchase rights with respect to shares held by the Optionee at the
time of such Involuntary Termination shall immediately terminate on an accelerated basis, and the
shares subject to those terminated rights shall accordingly vest at that time.

          G. The portion of any Incentive Option accelerated in connection with a Corporate Transaction
shall remain exercisable as an Incentive Option only to the extent the applicable One Hundred
Thousand Dollar limitation is not exceeded. To the extent such dollar limitation is exceeded, the
accelerated portion of such option shall be exercisable as a Non-Statutory Option under the Federal
tax laws.

          H. The grant of options under the Plan shall in no way affect the right of the Corporation to
adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets.

     IV. CANCELLATION AND REGRANT OF OPTIONS

          The Plan Administrator shall have the authority to effect, at any time and from time to time,
with the consent of the affected option holders, the cancellation of any or all outstanding options
under the Plan and to grant in substitution therefor new options covering the same or different
number of shares of Common Stock but with an exercise price per share based on the Fair Market
Value per share of Common Stock on the new option grant date.

ARTICLE THREE

STOCK ISSUANCE PROGRAM

     I. STOCK ISSUANCE TERMS

          Shares of Common Stock may be issued under the Stock Issuance Program through direct and
immediate issuances without any intervening option grants. Each such stock issuance shall be
evidenced by a Stock Issuance Agreement which complies with the terms specified below.

          A. Purchase Price.

               1. The purchase price per share shall be fixed by the Plan Administrator but shall not be less
than eighty-five percent (85%) of the Fair Market Value per share of Common Stock on the issue
date. However, the purchase price per share of Common Stock issued to a 10% Shareholder shall not
be less than one hundred and ten percent (110%) of such Fair Market Value.

               2. Subject to the provisions of Section I of Article Four, shares of Common Stock may be
issued under the Stock Issuance Program for any of the following items of consideration which the
Plan Administrator may deem appropriate in each individual instance:

               (i) cash or check made payable to the Corporation, or

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               (ii) past services rendered to the Corporation (or any Parent or Subsidiary).

          B. Vesting Provisions.

               1. Shares of Common Stock issued under the Stock Issuance Program may, in the discretion of
the Plan Administrator, be fully and immediately vested upon issuance or may vest in one or more
installments over the Participant’s period of Service or upon attainment of specified performance
objectives. However, the Plan Administrator may not impose a vesting schedule upon any stock
issuance effected under the Stock Issuance Program which is more restrictive than twenty percent
(20%) per year vesting, with initial vesting to occur not later than one (1) year after the
issuance date. Such limitation shall not apply to any Common Stock issuances made to the officers
of the Corporation, non-employee Board members or independent consultants.

               2. Any new, substituted or additional securities or other property (including money paid other
than as a regular cash dividend) which the Participant may have the right to receive with respect
to the Participant’s unvested shares of Common Stock by reason of any stock dividend, stock split,
recapitalization, combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Corporation’s receipt of consideration shall be
issued subject to (i) the same vesting requirements applicable to the Participant’s unvested shares
of Common Stock and (ii) such escrow arrangements as the Plan Administrator shall deem appropriate.

               3. The Participant shall have full shareholder rights with respect to any shares of Common
Stock issued to the Participant under the Stock Issuance Program, whether or not the Participant’s
interest in those shares is vested. Accordingly, the Participant shall have the right to vote such
shares and to receive any regular cash dividends paid on such shares.

               4. Should the Participant cease to remain in Service while holding one or more unvested shares
of Common Stock issued under the Stock Issuance Program or should the performance objectives not be
attained with respect to one or more such unvested shares of Common Stock, then those shares shall
be immediately surrendered to the Corporation for cancellation, and the Participant shall have no
further shareholder rights with respect to those shares. To the extent the surrendered shares were
previously issued to the Participant for consideration paid in cash or cash equivalent (including
the Participant’s purchase-money indebtedness), the Corporation shall repay to the Participant the
cash consideration paid for the surrendered shares and shall cancel the unpaid principal balance of
any outstanding purchase-money note of the Participant attributable to such surrendered shares.

               5. The Plan Administrator may in its discretion waive the surrender and cancellation of one or
more unvested shares of Common Stock (or other assets attributable thereto) which would otherwise
occur upon the non-completion of the vesting schedule applicable to those shares. Such waiver
shall result in the immediate vesting of the Participant’s interest in the shares of Common Stock
as to which the waiver applies. Such waiver may be

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effected at any time, whether before or after the Participant’s cessation of Service or the
attainment or non-attainment of the applicable performance objectives.

          C. First Refusal Rights. Until such time as the Common Stock is first registered
under Section 12 of the 1934 Act, the Corporation shall have the right of first refusal with
respect to any proposed disposition by the Participant (or any successor in interest) of any shares
of Common Stock issued under the Stock Issuance Program. Such right of first refusal shall be
exercisable in accordance with the terms established by the Plan Administrator and set forth in the
document evidencing such right.

     II. CORPORATE TRANSACTION

          A. Upon the occurrence of a Corporate Transaction, all outstanding repurchase rights under the
Stock Issuance Program shall terminate automatically, and the shares of Common Stock subject to
those terminated rights shall immediately vest in full, except to the extent: (i) those repurchase
rights are assigned to the successor corporation (or parent thereof) in connection with such
Corporate Transaction or (ii) such accelerated vesting is precluded by other limitations imposed by
the Plan Administrator at the time the repurchase right is issued.

          B. The Plan Administrator shall have the discretionary authority, exercisable either at the
time the unvested shares are issued or any time while the Corporation’s repurchase rights with
respect to those shares remain outstanding, to provide that those rights shall automatically
terminate on an accelerated basis, and the shares of Common Stock subject to those terminated
rights shall immediately vest, in the event the Participant’s Service should subsequently terminate
by reason of an Involuntary Termination within a designated period (not to exceed eighteen (18)
months) following the effective date of any Corporate Transaction in which those repurchase rights
are assigned to the successor corporation (or parent thereof).

     III. SHARE ESCROW/LEGENDS

          Unvested shares may, in the Plan Administrator’s discretion, be held in escrow by the
Corporation until the Participant’s interest in such shares vests or may be issued directly to the
Participant with restrictive legends on the certificates evidencing those unvested shares.

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ARTICLE FOUR

MISCELLANEOUS

     I. FINANCING

          The Plan Administrator may permit any Optionee or Participant to pay the option exercise price
under the Option Grant Program or the purchase price for shares issued under the Stock Issuance
Program by delivering a full-recourse, interest bearing promissory note payable in one or more
installments and secured by the purchased shares. However, any promissory note delivered by a
consultant must be secured by collateral in addition to the purchased shares of Common Stock. In
no event may the maximum credit available to the Optionee or Participant exceed the sum of (i) the
aggregate option exercise price or purchase price payable for the purchased shares plus (ii) any
Federal, state and local income and employment tax liability incurred by the Optionee or the
Participant in connection with the option exercise or share purchase.

     II. EFFECTIVE DATE AND TERM OF PLAN

          A. The Plan shall become effective when adopted by the Board, but no option granted under the
Plan may be exercised, and no shares shall be issued under the Plan, until the Plan is approved by
the Corporation’s shareholders. If such shareholder approval is not obtained within twelve (12)
months after the date of the Board’s adoption of the Plan, then all options previously granted
under the Plan shall terminate and cease to be outstanding, and no further options shall be granted
and no shares shall be issued under the Plan. Subject to such limitation, the Plan Administrator
may grant options and issue shares under the Plan at any time after the effective date of the Plan
and before the date fixed herein for termination of the Plan.

          B. The Plan shall terminate upon the earliest of (i) the expiration of the ten
(10)-year period measured from the date the Plan is adopted by the Board, (ii) the date on which
all shares available for issuance under the Plan shall have been issued as vested shares or (iii)
the termination of all outstanding options in connection with a Corporate Transaction. All options
and unvested stock issuances outstanding at the time of a clause (i) termination event shall
continue to have full force and effect in accordance with the provisions of the documents
evidencing those options or issuances.

     III. AMENDMENT OF THE PLAN

          A. The Board shall have complete and exclusive power and authority to amend or modify the Plan
in any or all respects. However, no such amendment or modification shall adversely affect the
rights and obligations with respect to options or unvested stock issuances at the time outstanding
under the Plan unless the Optionee or the Participant consents to such amendment or modification.
In addition, certain amendments may require shareholder approval pursuant to applicable laws and
regulations.

          B. Options may be granted under the Option Grant Program and shares may be issued under the
Stock Issuance Program which are in each instance in excess of the number of shares of Common Stock
then available for issuance under the Plan, provided any excess

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shares actually issued under those programs shall be held in escrow until there is obtained
shareholder approval of an amendment sufficiently increasing the number of shares of Common Stock
available for issuance under the Plan. If such shareholder approval is not obtained within twelve
(12) months after the date the first such excess grants or issuances are made, then (i) any
unexercised options granted on the basis of such excess shares shall terminate and cease to be
outstanding and (ii) the Corporation shall promptly refund to the Optionees and the Participants
the exercise or purchase price paid for any excess shares issued under the Plan and held in escrow,
together with interest (at the applicable Short Term Federal Rate) for the period the shares were
held in escrow, and such shares shall thereupon be automatically cancelled and cease to be
outstanding.

     IV. USE OF PROCEEDS

          Any cash proceeds received by the Corporation from the sale of shares of Common Stock under
the Plan shall be used for general corporate purposes.

     V. WITHHOLDING

          The Corporation’s obligation to deliver shares of Common Stock upon the exercise of any
options granted under the Plan or upon the issuance or vesting of any shares issued under the Plan
shall be subject to the satisfaction of all applicable Federal, state and local income and
employment tax withholding requirements.

     VI. REGULATORY APPROVALS

          The implementation of the Plan, the granting of any options under the Plan and the issuance of
any shares of Common Stock (i) upon the exercise of any option or (ii) under the Stock Issuance
Program shall be subject to the Corporation’s procurement of all approvals and permits required by
regulatory authorities having jurisdiction over the Plan, the options granted under it and the
shares of Common Stock issued pursuant to it.

     VII. NO EMPLOYMENT OR SERVICE RIGHTS

          Nothing in the Plan shall confer upon the Optionee or the Participant any right to continue in
Service for any period of specific duration or interfere with or otherwise restrict in any way the
rights of the Corporation (or any Parent or Subsidiary employing or retaining such person) or of
the Optionee or the Participant, which rights are hereby expressly reserved by each, to terminate
such person’s Service at any time for any reason, with or without cause.

     VIII. FINANCIAL REPORTS

          The Corporation shall deliver a balance sheet and an income statement at least annually to
each individual holding an outstanding option under the Plan, unless such individual is a key
Employee whose duties in connection with the Corporation (or any Parent or Subsidiary) assure such
individual access to equivalent information.

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APPENDIX

          The following definitions shall be in effect under the Plan:

          A. Board shall mean the Corporation’s Board of Directors.

          B. Code shall mean the Internal Revenue Code of 1986, as amended.

          C. Committee shall mean a committee of two (2) or more Board members appointed by the
Board to exercise one or more administrative functions under the Plan.

          D. Common Stock shall mean the Corporation’s common stock.

          E. Corporate Transaction shall mean either of the following shareholder-approved
transactions to which the Corporation is a party:

               (i) a merger, consolidation or other reorganization approved by the
Corporation’s shareholders, unless securities representing more than fifty
percent (50%) of the total combined voting power of the voting securities of the
successor corporation are immediately thereafter beneficially owned, directly or
indirectly and in substantially the same proportion, by the persons who beneficially
owned the Corporation’s outstanding voting securities immediately prior to such
transaction, or

               (ii) the sale, transfer or other disposition of all or substantially all of the
Corporation’s assets in complete liquidation or dissolution of the Corporation.

          F. Corporation shall mean MD3, Inc., a California corporation, and any successor
corporation to all or substantially all of the assets or voting stock of MD3, Inc. which shall by
appropriate action adopt the Plan.

          G. Disability shall mean the inability of the Optionee or the Participant to engage in
any substantial gainful activity by reason of any medically determinable physical or mental
impairment and shall be determined by the Plan Administrator on the basis of such medical evidence
as the Plan Administrator deems warranted under the circumstances.

          H. Employee shall mean an individual who is in the employ of the Corporation (or any
Parent or Subsidiary), subject to the control and direction of the employer entity as to both the
work to be performed and the manner and method of performance.

          I. Exercise Date shall mean the date on which the Corporation shall have received
written notice of the option exercise.

          J. Fair Market Value per share of Common Stock on any relevant date shall be
determined in accordance with the following provisions:

A-1

 

               (i) If the Common Stock is at the time traded on the Nasdaq National Market,
then the Fair Market Value shall be the closing selling price per share of Common
Stock on the date in question, as such price is reported by the National Association
of Securities Dealers on the Nasdaq National Market and published in The Wall Street
Journal. If there is no closing selling price for the Common Stock on the date in
question, then the Fair Market Value shall be the closing selling price on the last
preceding date for which such quotation exists.

               (ii) If the Common Stock is at the time listed on any Stock Exchange, then the
Fair Market Value shall be the closing selling price per share of Common Stock on
the date in question on the Stock Exchange determined by the Plan Administrator to
be the primary market for the Common Stock, as such price is officially quoted in
the composite tape of transactions on such exchange and published in The Wall Street
Journal. If there is no closing selling price for the Common Stock on the date in
question, then the Fair Market Value shall be the closing selling price on the last
preceding date for which such quotation exists.

               (iii) If the Common Stock is at the time neither listed on any Stock Exchange
nor traded on the Nasdaq National Market, then the Fair Market Value shall be
determined by the Plan Administrator after taking into account such factors as the
Plan Administrator shall deem appropriate.

          K. Incentive Option shall mean an option which satisfies the requirements of Code
Section 422.

          L. Involuntary Termination shall mean the termination of the Service of any individual
which occurs by reason of:

               (i) such individual’s involuntary dismissal or discharge by the Corporation for
reasons other than Misconduct, or

               (ii) such individual’s voluntary resignation following (A) a change in his or
her position with the Corporation which materially reduces his or her duties and
responsibilities or the level of management to which he or she reports, (B) a
reduction in his or her level of compensation (including base salary, fringe
benefits and target bonus under any corporate-performance based bonus or incentive
programs) by more than fifteen percent (15%) or (C) a relocation of such
individual’s place of employment by more than fifty (50) miles, provided and only if
such change, reduction or relocation is effected without the individual’s consent.

          M. Misconduct shall mean the commission of any act of fraud, embezzlement or
dishonesty by the Optionee or Participant, any unauthorized use or disclosure by such person of
confidential information or trade secrets of the Corporation (or any Parent or Subsidiary), or any
other intentional misconduct by such person adversely affecting the business or affairs of the
Corporation (or any Parent or Subsidiary) in a material manner. The foregoing

2

 

definition shall not in any way preclude or restrict the right of the Corporation (or any
Parent or Subsidiary) to discharge or dismiss any Optionee, Participant or other person in the
Service of the Corporation (or any Parent or Subsidiary) for any other acts or omissions, but such
other acts or omissions shall not be deemed, for purposes of the Plan, to constitute grounds for
termination for Misconduct.

          N. 1934 Act shall mean the Securities Exchange Act of 1934, as amended.

          O. Non-Statutory Option shall mean an option not intended to satisfy the requirements
of Code Section 422.

          P. Option Grant Program shall mean the option grant program in effect under the Plan.

          Q. Optionee shall mean any person to whom an option is granted under the Plan.

          R. Parent shall mean any corporation (other than the Corporation) in an unbroken chain
of corporations ending with the Corporation, provided each corporation in the unbroken chain (other
than the Corporation) owns, at the time of the determination, stock possessing fifty percent (50%)
or more of the total combined voting power of all classes of stock in one of the other corporations
in such chain.

          S. Participant shall mean any person who is issued shares of Common Stock under the
Stock Issuance Program.

          T. Plan shall mean the Corporation’s 2001 Stock Option/Stock Issuance Plan, as set
forth in this document.

          U. Plan Administrator shall mean either the Board or the Committee acting in its
capacity as administrator of the Plan.

          V. Service shall mean the provision of services to the Corporation (or any Parent or
Subsidiary) by a person in the capacity of an Employee, a non-employee member of the board of
directors or a consultant or independent advisor, except to the extent otherwise specifically
provided in the documents evidencing the option grant.

          W. Stock Exchange shall mean either the American Stock Exchange or the New York Stock
Exchange.

          X. Stock Issuance Agreement shall mean the agreement entered into by the Corporation
and the Participant at the time of issuance of shares of Common Stock under the Stock Issuance
Program.

          Y. Stock Issuance Program shall mean the stock issuance program in effect under the
Plan.

3

 

          Z. Subsidiary shall mean any corporation (other than the Corporation) in an unbroken
chain of corporations beginning with the Corporation, provided each corporation (other than the
last corporation) in the unbroken chain owns, at the time of the determination, stock possessing
fifty percent (50%) or more of the total combined voting power of all classes of stock in one of
the other corporations in such chain.

          AA. 10% Shareholder shall mean the owner of stock (as determined under Code Section
424(d)) possessing more than ten percent (10%) of the total combined voting power of all classes of
stock of the Corporation (or any Parent or Subsidiary).

4exv10w14

EXHIBIT 10.14

MD3, INC.

STOCK OPTION AGREEMENT

RECITALS

     A. The Board has adopted the Plan for the purpose of retaining the services of selected
Employees, non-employee members of the Board or the board of directors of any Parent or Subsidiary
and consultants and other independent advisors in the service of the Corporation (or any Parent or
Subsidiary).

     B. Optionee is to render valuable services to the Corporation (or a Parent or Subsidiary), and
this Agreement is executed pursuant to, and is intended to carry out the purposes of, the Plan in
connection with the Corporation’s grant of an option to Optionee.

     C. All capitalized terms in this Agreement shall have the meaning assigned to them in the
attached Appendix.

          NOW, THEREFORE, it is hereby agreed as follows:

          1. Grant of Option. The Corporation hereby grants to Optionee, as of the Grant Date,
an option to purchase up to the number of Option Shares specified in the Grant Notice. The Option
Shares shall be purchasable from time to time during the option term specified in Paragraph 2 at
the Exercise Price.

          2. Option Term. This option shall have a term of ten (10) years measured from the
Grant Date and shall accordingly expire at the close of business on the Expiration Date, unless
sooner terminated in accordance with Paragraph 5 or 6.

          3. Limited Transferability.

               (a) This option shall be neither transferable nor assignable by Optionee other than by will or
the laws of inheritance following Optionee’s death and may be exercised, during Optionee’s
lifetime, only by Optionee. However, Optionee may designate one or more persons as the beneficiary
or beneficiaries of this option, and this option shall, in accordance with such designation,
automatically be transferred to such beneficiary or beneficiaries upon the Optionee’s death while
holding this option. Such beneficiary or beneficiaries shall take the transferred option subject
to all the terms and conditions of this Agreement, including (without limitation) the limited time
period during which this option may, pursuant to Paragraph 5, be exercised following Optionee’s
death.

               (b) If this option is designated a Non-Statutory Option in the Grant Notice, then this option
may be assigned in whole or in part during Optionee’s lifetime to one or more members of Optionee’s
family or to a trust established for the exclusive benefit of one or more such family members or to
Optionee’s former spouse, to the extent such assignment is in connection with the Optionee’s estate
plan or pursuant to a domestic relations order. The assigned portion shall be exercisable only by
the person or persons who acquire a proprietary

 

 

interest in the option pursuant to such assignment. The terms applicable to the assigned
portion shall be the same as those in effect for this option immediately prior to such assignment.

          4. Dates of Exercise. This option shall become exercisable for the Option Shares in
one or more installments as specified in the Grant Notice. As the option becomes exercisable for
such installments, those installments shall accumulate, and the option shall remain exercisable for
the accumulated installments until the Expiration Date or sooner termination of the option term
under Paragraph 5 or 6.

          5. Cessation of Service. The option term specified in Paragraph 2 shall terminate
(and this option shall cease to be outstanding) prior to the Expiration Date should any of the
following provisions become applicable:

               (a) Should Optionee cease to remain in Service for any reason (other than death, Disability or
Misconduct) while holding this option, then Optionee shall have a period of three (3) months
(commencing with the date of such cessation of Service) during which to exercise this option, but
in no event shall this option be exercisable at any time after the Expiration Date.

               (b) Should Optionee die while holding this option, then the personal representative of
Optionee’s estate or the person or persons to whom the option is transferred pursuant to Optionee’s
will or the laws of inheritance shall have the right to exercise this option. However, if Optionee
has designated one or more beneficiaries of this option, then those persons shall have the
exclusive right to exercise this option following Optionee’s death. Any such right to exercise
this option shall lapse, and this option shall cease to be outstanding, upon the earlier of
(i) the expiration of the twelve (12)-month period measured from the date of Optionee’s death or
(ii) the Expiration Date.

               (c) Should Optionee cease Service by reason of Disability while holding this option, then
Optionee shall have a period of twelve (12) months (commencing with the date of such cessation of
Service) during which to exercise this option. In no event shall this option be exercisable at any
time after the Expiration Date.

     Note: Exercise of this option on a date later than
three (3) months following cessation of Service due to Disability
will result in loss of favorable Incentive Option treatment,
unless such Disability constitutes Permanent Disability. In
the event that Incentive Option treatment is not available, this
option will be taxed as a Non-Statutory Option upon exercise.

               (d) During the limited period of post-Service exercisability, this option may not be exercised
in the aggregate for more than the number of Option Shares in which Optionee is, at the time of
Optionee’s cessation of Service, vested pursuant to the Vesting Schedule specified in the Grant
Notice or the special vesting acceleration provisions of Paragraph 6. Upon the expiration of such
limited exercise period or (if earlier) upon the Expiration Date, this option shall terminate and
cease to be outstanding for any vested Option Shares for which the option has not been exercised.
To the extent Optionee is not vested in one

2

 

or more Option Shares at the time of Optionee’s cessation of Service, this option shall
immediately terminate and cease to be outstanding with respect to those shares.

               (e) Should Optionee’s Service be terminated for Misconduct or should Optionee otherwise engage
in Misconduct while this option is outstanding, then this option shall terminate immediately and
cease to remain outstanding.

          6. Accelerated Vesting.

               (a) In the event of any Corporate Transaction, the Option Shares at the time subject to this
option but not otherwise vested shall automatically vest in full so that this option shall,
immediately prior to the effective date of the Corporate Transaction, become exercisable for all of
the Option Shares as fully-vested shares and may be exercised for any or all of those Option Shares
as vested shares. However, the Option Shares shall not vest on such an accelerated basis if and to
the extent: (i) this option is assumed by the successor corporation (or parent thereof) in the
Corporate Transaction and the Corporation’s repurchase rights with respect to the unvested Option
Shares are assigned to such successor corporation (or parent thereof) or (ii) this option is to be
replaced with a cash incentive program of the successor corporation which preserves the spread
existing on the unvested Option Shares at the time of the Corporate Transaction (the excess of the
Fair Market Value of those Option Shares over the Exercise Price payable for such shares) and
provides for subsequent payout in accordance with the same Vesting Schedule applicable to those
unvested Option Shares as set forth in the Grant Notice.

               (b) Immediately following the Corporate Transaction, this option shall terminate and cease to
be outstanding, except to the extent assumed by the successor corporation (or parent thereof) in
connection with the Corporate Transaction.

               (c) If this option is assumed in connection with a Corporate Transaction, then this option
shall be appropriately adjusted, immediately after such Corporate Transaction, to apply to the
number and class of securities which would have been issuable to Optionee in consummation of such
Corporate Transaction had the option been exercised immediately prior to such Corporate
Transaction, and appropriate adjustments shall also be made to the Exercise Price, provided
the aggregate Exercise Price shall remain the same. To the extent the actual holders of the
Corporation’s outstanding Common Stock receive cash consideration for their Common Stock in
consummation of the Corporate Transaction, the successor corporation may, in connection with the
assumption of this option, substitute one or more shares of its own common stock with a fair market
value equivalent to the cash consideration paid per share of Common Stock in such Corporate
Transaction.

               (d) This Agreement shall not in any way affect the right of the Corporation to adjust,
reclassify, reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets.

          7. Adjustment in Option Shares. Should any change be made to the Common Stock by
reason of any stock split, stock dividend, recapitalization, combination of shares, exchange of
shares or other change affecting the outstanding Common Stock as a class

3

 

without the Corporation’s receipt of consideration, appropriate adjustments shall be made to
(i) the total number and/or class of securities subject to this option and (ii) the Exercise Price
in order to reflect such change and thereby preclude a dilution or enlargement of benefits
hereunder.

          8. Shareholder Rights. The holder of this option shall not have any shareholder
rights with respect to the Option Shares until such person shall have exercised the option, paid
the Exercise Price and become the record holder of the purchased shares.

          9. Manner of Exercising Option.

               (a) In order to exercise this option with respect to all or any part of the Option Shares for
which this option is at the time exercisable, Optionee (or any other person or persons exercising
the option) must take the following actions:

               (i) Execute and deliver to the Corporation a Purchase Agreement for the Option
Shares for which the option is exercised.

               (ii) Pay the aggregate Exercise Price for the purchased shares in one or more
of the following forms:

               (A) cash or check made payable to the Corporation; or

               (B) a promissory note payable to the Corporation, but only to
the extent authorized by the Plan Administrator in accordance with Paragraph
14.

     Should the Common Stock be registered under Section 12 of the 1934 Act
at the time the option is exercised, then the Exercise Price may also be
paid as follows:

               (C) in shares of Common Stock held by Optionee (or any other
person or persons exercising the option) for the requisite period necessary
to avoid a charge to the Corporation’s earnings for financial reporting
purposes and valued at Fair Market Value on the Exercise Date; or

               (D) to the extent the option is exercised for vested Option
Shares, through a special sale and remittance procedure pursuant to which
Optionee (or any other person or persons exercising the option) shall
concurrently provide irrevocable instructions (a) to a
Corporation-designated brokerage firm to effect the immediate sale of the
purchased shares and remit to the Corporation, out of the sale proceeds
available on the settlement date, sufficient funds to cover the aggregate
Exercise Price payable for the purchased shares plus all applicable Federal,
state and local income and employment taxes required to be

4

 

withheld by the Corporation by reason of such exercise and (b) to the
Corporation to deliver the certificates for the purchased shares directly to
such brokerage firm in order to complete the sale.

     Except to the extent the sale and remittance procedure is utilized in
connection with the option exercise, payment of the Exercise Price must
accompany the Purchase Agreement delivered to the Corporation in connection
with the option exercise.

               (iii) Furnish to the Corporation appropriate documentation that the person or
persons exercising the option (if other than Optionee) have the right to exercise
this option.

               (iv) Execute and deliver to the Corporation such written representations as may
be requested by the Corporation in order for it to comply with the applicable
requirements of Federal and state securities laws.

               (v) Make appropriate arrangements with the Corporation (or Parent or Subsidiary
employing or retaining Optionee) for the satisfaction of all Federal, state and
local income and employment tax withholding requirements applicable to the option
exercise.

               (b) As soon as practical after the Exercise Date, the Corporation shall issue to or on behalf
of Optionee (or any other person or persons exercising this option) a certificate for the purchased
Option Shares, with the appropriate legends affixed thereto.

               (c) In no event may this option be exercised for any fractional shares.

          10. REPURCHASE RIGHTS. ALL OPTION SHARES ACQUIRED UPON THE EXERCISE OF THIS OPTION
SHALL BE SUBJECT TO CERTAIN RIGHTS OF THE CORPORATION AND ITS ASSIGNS TO REPURCHASE THOSE SHARES IN
ACCORDANCE WITH THE TERMS SPECIFIED IN THE PURCHASE AGREEMENT.

          11. Compliance with Laws and Regulations.

               (a) The exercise of this option and the issuance of the Option Shares upon such exercise shall
be subject to compliance by the Corporation and Optionee with all applicable requirements of law
relating thereto and with all applicable regulations of any stock exchange (or the Nasdaq National
Market, if applicable) on which the Common Stock may be listed for trading at the time of such
exercise and issuance.

               (b) The inability of the Corporation to obtain approval from any regulatory body having
authority deemed by the Corporation to be necessary to the lawful issuance and sale of any Common
Stock pursuant to this option shall relieve the Corporation of any liability with respect to the
non-issuance or sale of the Common Stock as to which such approval shall not have been obtained.
The Corporation, however, shall use its best efforts to obtain all such approvals.

5

 

          12. Successors and Assigns. Except to the extent otherwise provided in Paragraphs 3
and 6, the provisions of this Agreement shall inure to the benefit of, and be binding upon, the
Corporation and its successors and assigns and Optionee, Optionee’s assigns and the legal
representatives, heirs and legatees of Optionee’s estate.

          13. Notices. Any notice required to be given or delivered to the Corporation under
the terms of this Agreement shall be in writing and addressed to the Corporation at its principal
corporate offices. Any notice required to be given or delivered to Optionee shall be in writing
and addressed to Optionee at the address indicated below Optionee’s signature line on the Grant
Notice. All notices shall be deemed effective upon personal delivery or upon deposit in the U.S.
mail, postage prepaid and properly addressed to the party to be notified.

          14. Financing. The Plan Administrator may, in its absolute discretion and without any
obligation to do so, permit Optionee to pay the Exercise Price for the purchased Option Shares by
delivering a full-recourse, interest-bearing promissory note secured by those Option Shares. The
payment schedule in effect for any such promissory note shall be established by the Plan
Administrator in its sole discretion.

     Note: If the Optionee is a consultant, then the
promissory note delivered in payment of the Exercise Price must be
secured by collateral other than the purchased Option Shares.

          15. Construction. This Agreement and the option evidenced hereby are made and granted
pursuant to the Plan and are in all respects limited by and subject to the terms of the Plan. All
decisions of the Plan Administrator with respect to any question or issue arising under the Plan or
this Agreement shall be conclusive and binding on all persons having an interest in this option.

          16. Governing Law. The interpretation, performance and enforcement of this Agreement
shall be governed by the laws of the State of California without resort to that State’s
conflict-of-laws rules.

          17. Shareholder Approval. If the Option Shares covered by this Agreement exceed, as
of the Grant Date, the number of shares of Common Stock which may be issued under the Plan as last
approved by the shareholders, then this option shall be void with respect to such excess shares,
unless shareholder approval of an amendment sufficiently increasing the number of shares of Common
Stock issuable under the Plan is obtained in accordance with the provisions of the Plan.

          18. Additional Terms Applicable to an Incentive Option. In the event this option is
designated an Incentive Option in the Grant Notice, the following terms and conditions shall also
apply to the grant:

               (a) This option shall cease to qualify for favorable tax treatment as an Incentive Option if
(and to the extent) this option is exercised for one or more Option Shares: (i) more than three
(3) months after the date Optionee ceases to be an Employee for any reason other than death or
Permanent Disability or (ii) more than twelve (12) months after the date Optionee ceases to be an
Employee by reason of Permanent Disability.

6

 

               (b) This option shall not become exercisable in the calendar year in which granted if (and to
the extent) the aggregate Fair Market Value (determined at the Grant Date) of the Common Stock for
which this option would otherwise first become exercisable in such calendar year would, when added
to the aggregate value (determined as of the respective date or dates of grant) of the Common Stock
and any other securities for which one or more other Incentive Options granted to Optionee prior to
the Grant Date (whether under the Plan or any other option plan of the Corporation or any Parent or
Subsidiary) first become exercisable during the same calendar year, exceed One Hundred Thousand
Dollars ($100,000) in the aggregate. To the extent the exercisability of this option is deferred
by reason of the foregoing limitation, the deferred portion shall become exercisable in the first
calendar year or years thereafter in which the One Hundred Thousand Dollar ($100,000) limitation of
this Paragraph 18(b) would not be contravened, but such deferral shall in all events end
immediately prior to the effective date of a Corporate Transaction in which this option is not to
be assumed, whereupon the option shall become immediately exercisable as a Non-Statutory Option for
the deferred portion of the Option Shares.

               (c) Should Optionee hold, in addition to this option, one or more other options to purchase
Common Stock which become exercisable for the first time in the same calendar year as this option,
then the foregoing limitations on the exercisability of such options as Incentive Options shall be
applied on the basis of the order in which such options are granted.

7

 

APPENDIX

     The following definitions shall be in effect under the Agreement:

     A. Agreement shall mean this Stock Option Agreement.

     B. Board shall mean the Corporation’s Board of Directors.

     C. Code shall mean the Internal Revenue Code of 1986, as amended.

     D. Common Stock shall mean the Corporation’s common stock.

     E. Corporate Transaction shall mean either of the following shareholder-approved
transactions to which the Corporation is a party:

          (i) a merger, consolidation or other reorganization approved by the
Corporation’s shareholders, unless securities representing more than fifty
percent (50%) of the total combined voting power of the voting securities of the
successor corporation are immediately thereafter beneficially owned, directly or
indirectly and in substantially the same proportion, by the persons who beneficially
owned the Corporation’s outstanding voting securities immediately prior to such
transaction, or

          (ii) the sale, transfer or other disposition of all or substantially all of the
Corporation’s assets in complete liquidation or dissolution of the Corporation.

     F. Corporation shall mean MD3, Inc., a California corporation, and any successor
corporation to all or substantially all of the assets or voting stock of MD3, Inc. which shall by
appropriate action assume this option.

     G. Disability shall mean the inability of Optionee to engage in any substantial
gainful activity by reason of any medically determinable physical or mental impairment and shall be
determined by the Plan Administrator on the basis of such medical evidence as the Plan
Administrator deems warranted under the circumstances. Disability shall be deemed to constitute
Permanent Disability in the event that such Disability is expected to result in death or has lasted
or can be expected to last for a continuous period of twelve (12) months or more.

     H. Employee shall mean an individual who is in the employ of the Corporation (or any
Parent or Subsidiary), subject to the control and direction of the employer entity as to both the
work to be performed and the manner and method of performance.

     I. Exercise Date shall mean the date on which the option shall have been exercised in
accordance with Paragraph 9 of the Agreement.

     J Exercise Price shall mean the exercise price payable per Option Share as specified
in the Grant Notice.

 

 

     K. Expiration Date shall mean the date on which the option expires as specified in the
Grant Notice.

     L. Fair Market Value per share of Common Stock on any relevant date shall be
determined in accordance with the following provisions:

          (i) If the Common Stock is at the time traded on the Nasdaq National Market,
then the Fair Market Value shall be the closing selling price per share of Common
Stock on the date in question, as the price is reported by the National Association
of Securities Dealers on the Nasdaq National Market and published in The Wall Street
Journal. If there is no closing selling price for the Common Stock on the date in
question, then the Fair Market Value shall be the closing selling price on the last
preceding date for which such quotation exists.

          (ii) If the Common Stock is at the time listed on any Stock Exchange, then the
Fair Market Value shall be the closing selling price per share of Common Stock on
the date in question on the Stock Exchange determined by the Plan Administrator to
be the primary market for the Common Stock, as such price is officially quoted in
the composite tape of transactions on such exchange and published in The Wall Street
Journal. If there is no closing selling price for the Common Stock on the date in
question, then the Fair Market Value shall be the closing selling price on the last
preceding date for which such quotation exists.

          (iii) If the Common Stock is at the time neither listed on any Stock Exchange
nor traded on the Nasdaq National Market, then the Fair Market Value shall be
determined by the Plan Administrator after taking into account such factors as the
Plan Administrator shall deem appropriate.

     M. Grant Date shall mean the date of grant of the option as specified in the Grant
Notice.

     N. Grant Notice shall mean the Notice of Grant of Stock Option accompanying the
Agreement, pursuant to which Optionee has been informed of the basic terms of the option evidenced
hereby.

     O. Incentive Option shall mean an option which satisfies the requirements of Code
Section 422.

     P. Misconduct shall mean the commission of any act of fraud, embezzlement or
dishonesty by Optionee, any unauthorized use or disclosure by Optionee of confidential information
or trade secrets of the Corporation (or any Parent or Subsidiary), or any other intentional
misconduct by Optionee adversely affecting the business or affairs of the Corporation (or any
Parent or Subsidiary) in a material manner. The foregoing definition shall not in any way preclude
or restrict the right of the Corporation (or any Parent or Subsidiary) to discharge or dismiss
Optionee or any other person in the Service of the Corporation (or any Parent or Subsidiary) for
any other acts or omissions, but such other acts or omissions shall not be deemed, for purposes of
the Plan or this Agreement, to constitute grounds for termination for Misconduct.

A-2

 

     Q. 1934 Act shall mean the Securities Exchange Act of 1934, as amended.

     R. Non-Statutory Option shall mean an option not intended to satisfy the requirements
of Code Section 422.

     S. Option Shares shall mean the number of shares of Common Stock subject to the
option.

     T. Optionee shall mean the person to whom the option is granted as specified in the
Grant Notice.

     U. Parent shall mean any corporation (other than the Corporation) in an unbroken chain
of corporations ending with the Corporation, provided each corporation in the unbroken chain (other
than the Corporation) owns, at the time of the determination, stock possessing fifty percent (50%)
or more of the total combined voting power of all classes of stock in one of the other corporations
in such chain.

     V. Plan shall mean the Corporation’s 2001 Stock Option/Stock Issuance Plan.

     W. Plan Administrator shall mean either the Board or a committee of the Board acting
in its capacity as administrator of the Plan.

     X. Purchase Agreement shall mean the stock purchase agreement in substantially the
form of Exhibit B to the Grant Notice.

     Y. Service shall mean the Optionee’s performance of services for the Corporation (or
any Parent or Subsidiary) in the capacity of an Employee, a non-employee member of the board of
directors or an independent consultant.

     Z. Stock Exchange shall mean the American Stock Exchange or the New York Stock
Exchange.

     AA. Subsidiary shall mean any corporation (other than the Corporation) in an unbroken
chain of corporations beginning with the Corporation, provided each corporation (other than the
last corporation) in the unbroken chain owns, at the time of the determination, stock possessing
fifty percent (50%) or more of the total combined voting power of all classes of stock in one of
the other corporations in such chain.

     BB. Vesting Schedule shall mean the vesting schedule specified in the Grant Notice
pursuant to which the Optionee is to vest in the Option Shares in a series of installments over his
or her period of Service.

A-3

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