Document:

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                                   Exhibit 4.4
                      Form of Registration Rights Agreement

                          REGISTRATION RIGHTS AGREEMENT

         This Registration Rights Agreement (this "Agreement"), dated _____ __,
2003, is by and between TeraForce Technology Corporation, a Delaware corporation
("Company"), and ________ (the "Holder").

                              W I T N E S S E T H:

         WHEREAS, the Company is offering for sale up to $2,000,000 of 12%
Convertible Subordinated Notes due June 30, 2005 ("Notes"), issued pursuant to
the Note Agreement dated the date hereof ("Note Agreement");

         WHEREAS, in consideration of the purchase of the Notes by the Holder,
the Company has agreed to issue to the Holder, a warrant to purchase shares of
Company's common stock, par value $.01 per share ("Common Stock") as set forth
in the Warrant Agreement between the Company and the Holder dated the date
hereof;

         WHEREAS, the Holder has subscribed to purchase Notes by entering into a
subscription agreement with the Company and has tendered funds for the payment
of the purchase price of the Notes;

         WHEREAS, in connection with the sale and purchase of the Notes and
Warrant by the Holder, the Company has agreed to grant certain Registration
Rights (hereinafter defined) to the shares ("Shares") of Common Stock, which may
be issued upon conversion of the Notes and upon exercise of the Warrant; and

         WHEREAS, the parties desire to set forth the Holder's rights and the
Company's obligations to cause the registration of the shares pursuant to the
Securities Act of 1933, as amended (the "Securities Act").

         NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:

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                                   ARTICLE ONE
                          Registration Rights Agreement

            SECTION 1.1. Shelf Registration. Within 90 days of the Final Closing
(as defined in the Note Agreement), the Company shall prepare and file with the
Commission a "Shelf" Registration Statement covering all Registrable Securities
(as defined herein) for an offering to be made on a continuous basis pursuant to
Rule 415. The Registration Statement shall be on Form S-3 (if the Company is not
then eligible to register for resale the Registrable Securities on Form S-3 such
registration shall be on another appropriate form in accordance herewith). The
Company shall use its best efforts to cause the Registration Statement to be
declared effective under the Securities Act as promptly as possible after the
filing thereof, and shall use its best efforts to keep such Registration
Statement Continuously Effective under the Securities Act until the date when
all Registrable Securities covered by such Registration Statement have been sold
or may be sold without restrictions pursuant to Rule 144(k) as determined by the
counsel to the Company pursuant to a written opinion letter to such effect,
addressed and acceptable to the Company's transfer agent (the "Effectiveness
Period"), provided, however, that the Company shall not be deemed to have used
its best efforts to keep the Registration Statement effective during the
Effectiveness Period if it voluntarily takes any action that would result in the
Holder not being able to sell the Registrable Securities covered by such
Registration Statement during the Effectiveness Period, unless such action is
pursuant to a Blackout Period (as defined in Section 2) permitted hereunder,
required under applicable law or the Company has filed a post-effective
amendment to the Registration Statement and the Commission has not declared it
effective.

         SECTION 1.2 In any offering pursuant to this Section that becomes
effective in which the Holder participates, the Company shall use its best
efforts to keep available to the Holder a prospectus meeting the requirements of
Section 10(a)(3) of the Securities Act and shall file all amendments and
supplements under the Securities Act required for that purpose. In any offering
pursuant to this Section the Company will, as soon as practicable, use its best
efforts to effect such registration and use its best efforts to effect such
qualification and compliance as may be so requested and as would permit or
facilitate the distribution of such Shares, including, without limitation,
registration under the Securities Act, appropriate qualifications under
applicable blue-sky or other state securities laws, appropriate compliance with
any other governmental requirements and listing on a national securities
exchange on which the Common Stock is then listed or inter-dealer quotation
system.

                                   ARTICLE TWO
                             REGISTRATION PROCEDURE

 WITH RESPECT TO EACH REGISTRATION RIGHT, THE FOLLOWING PROVISIONS SHALL APPLY:

         SECTION 2.1 Holder's Obligations.

         (a)      The Holder shall be obligated to furnish to the Company and
the underwriters (if any) such information regarding the Holder, the number of
Registrable Securities owned by it and the proposed manner of distribution of
the Shares and as shall be required in connection with any registration,
qualification or compliance referred to herein and shall otherwise cooperate
with the Company and the underwriters (if any) in connection with such
registration, qualification or compliance.

         (b)      Holder covenants and agrees that (i) it will not sell any
Registrable Securities under the Registration Statement until it has received
copies of the Prospectus as then amended or supplemented as contemplated in
Section 2.2(b) and notice from the Company that such Registration Statement and
any post-effective amendments thereto have become effective as contemplated by
Section 2.2(c); and (ii) it and its officers, directors or affiliates, if any,
will comply with the prospectus delivery requirements of the Securities Act as
applicable to it in connection with sales of Registrable Securities pursuant to
the Registration Statement.

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         SECTION 2.2 Company's Obligations.

         (a)      With a view to making available the benefits of certain rules
and regulations of the Commission which may at any time permit the sale of the
Registrable Securities to the public without registration, the Company agrees to
use its best lawful efforts to:

                  (i)      Make and keep public information available, as those
         terms are understood and defined in Rule 144 under the Securities Act,
         at all times during which the Company is subject to the reporting
         requirements of the Securities Exchange Act of 1934, as amended
         ("Exchange Act");

                  (ii)     File with the Commission in a timely manner all
         reports and other documents required of the Company under the
         Securities Act and the Exchange Act (at all times during which the
         Company is subject to such reporting requirements); and

                  (iii)    So long as the Holder owns any Notes, Warrant(s) or
         Registrable Securities, to furnish to the Holder within ten (10)
         business days upon written request by the Holder a written statement by
         the Company as to its compliance with the reporting requirements of
         Rule 144 and with regard to the Securities Act and the Exchange Act (at
         all times during which the Company is subject to such reporting
         requirements), a copy of the most recent annual or quarterly report of
         the Company.

         (b)      The Company agrees that it will furnish to the Holder such
number of prospectuses, offering circulars or other documents incident to any
registration, qualification or compliance, as the Holder from time to time may
reasonably request.

         (c)      The Company shall advise the Holder and, if requested by the
Holder, confirm such advice in writing:

                  (i)      when a registration statement and any amendment
         thereto has been filed with the Commission and when the registration
         statement or any post-effective amendment thereto has become effective;
         and

                  (ii)     the issuance by the Commission of any stop order
         suspending effectiveness of the Registration Statement or the
         initiation of any proceedings for that purpose;

                  (iii)    the receipt by the Company of any notification with
         respect to the suspension of the qualification of the securities
         included therein for sale in any jurisdiction or the initiation of any
         proceeding for such purpose; and

                  (iv)     the happening of any event that requires the making
         of any changes in the Registration Statement or the prospectus so that,
         as of such date, the registration statement and the prospectus do not
         contain an untrue statement of a material fact and do not omit to state
         a material fact required to be stated therein or necessary to make the
         statements therein (in the case of the prospectus, in the light of the
         circumstances under which they were made) not misleading (which advice
         shall be accompanied by an instruction to suspend the use of the
         prospectus relating to the Registrable Securities until the requisite
         changes have been made).

         (d)      The Company shall bear and pay all expenses and fees incurred
in connection with the Registration Statement pursuant to Section 1 for any
Holder, including registration, qualification and filing fees, exchange listing
fees, printing expenses, escrow fees, fees and disbursements of counsel for the
Company, fees and expenses of counsel for the Agent (as defined in the Note
Agreement) of the

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Holder up to $1,500, blue sky fees and expenses and the expenses of any special
audits incident to or required by any such registration, but excluding (i)
underwriting discounts and commissions relating to Registrable Securities (which
shall be paid by the Holders) and (ii) fees and expenses of counsel for the
Agent of the Holder in excess of $1,500.

         (e)      In connection with the preparation and filing of a
registration statement under the Securities Act pursuant to this Agreement, the
Company will give the Holder, its counsel and accountants, the opportunity to
participate in the preparation of such registration statement, each prospectus
included therein or filed with the Commission, and each amendment thereof or
supplement thereto.

         (f)      If there is a significant business opportunity (including but
not limited to the acquisition or disposition of assets (other than in the
ordinary course of business) or any merger, consolidation, tender offer or
similar transaction) available to the Company which its board of directors
reasonably determines not to be in the Company's best interest to disclose, then
the Company may suspend the right of the Holder to sell Registrable Securities
under a Registration Statement for one period not to exceed 20 Business Days
during the Effectiveness Period (the "Blackout Period").

                                  ARTICLE THREE
                                 Indemnification

         SECTION 3.1 Indemnification by the Company. To the extent permitted by
applicable law, the Company shall indemnify and hold harmless each Holder, each
Person, if any, who controls such Holder within the meaning of the Securities
Act, and each affiliate, officer, director, partner, agent and employee of such
Holder and such controlling Person, against any and all losses, claims, damages,
liabilities and expenses (joint or several), including attorneys' fees and
disbursements and expenses of investigation, incurred by such party pursuant to
any actual or threatened action, suit, proceeding or investigation, or to which
any of the foregoing Persons may become subject under the Securities Act, the
Exchange Act or other federal or state laws, insofar as such losses, claims,
damages, liabilities and expenses arise out of or are based upon any of the
following statements, omissions or violations (collectively a "Violation"):

                  (a) Any untrue statement or alleged untrue statement of a
         material fact contained in the Registration Statement, including any
         preliminary Prospectus or final Prospectus contained therein, or any
         amendments or supplements thereto;

                  (b) The omission or alleged omission to state therein a
         material fact required to be stated therein, or necessary to make the
         statements therein not misleading; or

                  (c) Any violation or alleged violation by the Company of the
         Securities Act, the Exchange Act, any applicable state securities law
         or any rule or regulation promulgated under the Securities Act, the
         Exchange Act or any applicable state securities law;

provided, however, that the indemnification required by this Section 3.1 shall
not apply to amounts paid in settlement of any such loss, claim, damage,
liability or expense if such settlement is effected without the consent of the
Company (which consent shall not be unreasonably withheld), nor shall the
Company be liable in any such case for any such loss, claim, damage, liability
or expense to the extent that it arises out of or is based upon a Violation that
occurs in reliance upon and in conformity with written information furnished to
the Company by the indemnified party expressly for use in connection with such
registration; provided, further, that the indemnity agreement contained in this
Section 3 shall not apply to any Holder to the extent that any such loss is
based on or arises out of an untrue statement or alleged untrue statement of a
material fact, or an omission or alleged omission to state a material fact,
contained in or omitted from any preliminary prospectus if the final prospectus
shall correct such untrue statement or alleged untrue statement, or such
omission or alleged omission, and a copy of the final prospectus has not been
sent or given to such person at or prior to the confirmation of sale to such
person if such Holder was under an obligation to deliver such final prospectus
and failed to do so.

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         SECTION 3.2 Indemnification by the Holder. To the extent permitted by
applicable law, each Holder, severally and not jointly, shall indemnify and hold
harmless the Company, each of its directors, each of its officers who shall have
signed the Registration Statement, and each Person, if any, who controls the
Company within the meaning of the Securities Act, against any and all losses,
claims, damages, liabilities and expenses, including attorneys' fees and
disbursements and expenses of investigation, incurred by such party pursuant to
any actual or threatened action, suit, proceeding or investigation, or to which
any of the foregoing Persons may otherwise become subject under the Securities
Act, the Exchange Act or other federal or state laws, insofar as such losses,
claims, damages, liabilities and expenses arise out of or are based upon any
Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by such Holder expressly for use in connection with such registration;
provided, however, that the indemnification required by this Section 3.2 shall
not apply to amounts paid in settlement of any such loss, claim, damage,
liability or expense if settlement is effected without the consent of the
relevant Holder of Securities, which consent shall not be unreasonably withheld.
Notwithstanding the foregoing, the liability of the Holder under this Section
3.2 shall be limited in an amount equal to the net proceeds from the sale of the
shares sold by such Holder, unless such liability arises out of or is based on
willful conduct or gross negligence by such Holder.

         SECTION 3.3 Notices of Claims, etc. Promptly after receipt by an
indemnified party under this Section 3 of notice of the commencement of any
action, suit, proceeding, investigation or threat thereof made in writing for
which such indemnified party may make a claim under this Section 3, such
indemnified party shall deliver to the indemnifying party a written notice of
the commencement thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume the defense
thereof with counsel mutually satisfactory to the parties; provided, however,
that an indemnified party shall have the right to retain its own counsel, with
the fees and disbursements and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time following the commencement of any
such action, if prejudicial to its ability to defend such action, shall relieve
such indemnifying party of any liability to the indemnified party under this
Section 3 but shall not relieve the indemnifying party of any liability that it
may have to any indemnified party otherwise than pursuant to this Section 3. Any
fees and expenses incurred by the indemnified party (including any fees and
expenses incurred in connection with investigating or preparing to defend such
action or proceeding) shall be paid to the indemnified party, as incurred,
within thirty (30) days of written notice thereof to the indemnifying party
(regardless of whether it is ultimately determined that an indemnified party is
not entitled to indemnification hereunder). Any such indemnified party shall
have the right to employ separate counsel in any such action, claim or
proceeding and to participate in the defense thereof, but the fees and expenses
of such counsel shall be the expenses of such indemnified party unless (i) the
indemnifying party has agreed to pay such fees and expenses or (ii) the
indemnifying party shall have failed to promptly assume the defense of such
action, claim or proceeding or (iii) the named parties to any such action, claim
or proceeding (including any impleaded parties) include both such indemnified
party and the indemnifying party, and such indemnified party shall have been
advised by counsel that there may be one or more legal defenses available to it
which are different from or in addition to those available to the indemnifying
party and that the assertion of such defenses would create a conflict of
interest such that counsel employed by the indemnifying party could not
faithfully represent the indemnified party (in which case, if such indemnified
party notifies the indemnifying party in writing that it elects to employ
separate counsel at the expense of the indemnifying party, the indemnifying
party shall not have the right to assume the defense of such action, claim or
proceeding on behalf of such indemnified party, it being understood, however,
that the indemnifying party shall not, in connection with any one such action,
claim or proceeding or separate but substantially similar or related actions,
claims or proceedings in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the reasonable fees and expenses of
more than one separate firm of attorneys (together with appropriate local
counsel) at any time for all such indemnified parties,

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unless in the reasonable judgment of such indemnified party a conflict of
interest may exist between such indemnified party and any other of such
indemnified parties with respect to such action, claim or proceeding, in which
event the indemnifying party shall be obligated to pay the fees and expenses of
such additional counsel or counsels). No indemnifying party shall be liable to
an indemnified party for any settlement of any action, proceeding or claim
without the written consent of the indemnifying party, which consent shall not
be unreasonably withheld.

         SECTION 3.4 If the indemnification required by this Section 3 from the
indemnifying party is unavailable or insufficient to hold harmless an
indemnified party hereunder in respect of any losses, claims, damages,
liabilities or expenses referred to in this Section 3:

         (a)      The indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities or
expenses in such proportion as is appropriate to reflect (i) the relative
benefits received by the indemnifying party or parties, on the one hand and the
indemnified party on the other from the sale of the Registrable Securities, or
(ii) if the allocation provided by the foregoing clause (i) is not permitted by
applicable law, not only the relative benefits referred to in clause (i) above
but also the relative fault of the indemnifying party on the one hand and
indemnified parties on the other in connection with the actions which resulted
in such losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative fault of such indemnifying party
and indemnified parties shall be determined by reference to, among other things,
whether any Violation has been committed by, or relates to information supplied
by, such indemnifying party or indemnified parties, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such Violation. The amount paid or payable by a party as a result of the losses,
claims, damages, liabilities and expenses referred to above shall be deemed to
include, subject to the limitations set forth in Section 3.1 and Section 3.2,
any legal or other fees or expenses reasonably incurred by such party in
connection with any investigation or proceeding.

         (b)      The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 3.4 were determined by pro
rata allocation or by any other method of allocation which does not take into
account the equitable considerations referred to in Section 3.4(a). No Person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation.

         (c)      Notwithstanding the provisions of this Section 3.4, a Holder
shall not be required to contribute any amount or make any other payments under
this Agreement that in the aggregate exceed the net proceeds received by the
Holder from the sales of the Registrable Securities of the Company.

         SECTION 3.5 The obligations of the Company and the selling Holders of
Registrable Securities under this Section 3 shall survive the completion of any
offering of Registrable Securities pursuant to a Registration Statement under
this Agreement, and otherwise.

         SECTION 3.6 Indemnification Payments. The indemnification required by
this Article shall be made by periodic payments of the amount thereof during the
course of the investigation or defense, as and when bills are received or
expense, loss, damage or liability is incurred.

                                  ARTICLE FOUR
                                  Miscellaneous

         SECTION 4.1 Amendment, Modification and Waivers; Further Assurances.

         (a)      This Agreement may be amended with the consent of the parties
hereto and the Company may take any action herein prohibited, or omit to perform
any act herein required to be performed by it, only if the Company shall have
obtained the written consent of the Holder.

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         (b)      No waiver of any terms or conditions of this Agreement shall
operate as a waiver of any other breach of such terms and conditions or any
other term or condition, nor shall any failure to enforce any provision hereof
operate as a waiver of such provision or of any other provision hereof. No
written waiver hereunder, unless it by its own terms explicitly provides to the
contrary, shall be construed to effect a continuing waiver of the provisions
being waived and no such waiver in any instance shall constitute a waiver in any
other instance or for any other purpose or impair the right of the party against
whom such waiver is claimed in all other instances or for all other purposes to
require full compliance with such provision.

         (c)      Each of the parties hereto shall execute all such further
instruments and documents and take all such further action as any other party
hereto may reasonably require in order to effectuate the terms and purposes of
this Agreement.

         SECTION 4.2 Term of the Agreement. This Agreement shall terminate with
respect to the Holder on the earlier to occur of (i) all of the Registrable
Securities having been registered as provided in Article One or (ii) all of the
Registrable Securities are eligible to be resold pursuant to Rule 144(k) of the
Securities Act.

         SECTION 4.3 Successors and Assigns. Except as otherwise expressly
provided herein, all covenants and agreements contained in this Agreement by or
on behalf of any of the parties hereto are transferable and will bind and inure
to the benefit of the respective successors and assigns of the parties hereto,
but only if so expressed in writing.

         SECTION 4.4 Severability. Whenever possible, each provision of this
Agreement will be interpreted in such a manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
prohibited by or invalid under applicable law, such provision will be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of this Agreement.

         SECTION 4.5 Delays or Omissions. No failure to exercise or delay in the
exercise of any right, power or remedy accruing to the Holder on any breach or
default of the Company under this Agreement shall impair any such right, power
or remedy nor shall it be construed to be a waiver of any such breach or
default.

         SECTION 4.6 Remedies Cumulative. All remedies under this Agreement, or
by law or otherwise afforded to any party hereto shall be cumulative and not
alterative.

         SECTION 4.7 Descriptive Headings. The descriptive headings of this
Agreement are inserted for convenience only and do not constitute a part of this
Agreement. Unless clearly denoted otherwise, any reference to Articles or
Sections contained herein shall be to the Articles or Sections of this
Agreement.

         SECTION 4.8 Notices. All notices and other communications required or
permitted hereunder shall be in writing and shall be deemed to have been
sufficiently given (a) if sent by facsimile transmission, upon telephonic
confirmation of receipt, (b) if sent by registered or certified mail, upon the
sooner of the expiration of five (5) days after deposit in the post office
facilities properly addressed with postage prepaid or acknowledgment of receipt,
(c) if personally delivered, when delivered to the party to whom notice is sent,
or (d) if delivered by a recognized overnight courier, upon receipt evidencing
proof of delivery, addressed to the appropriate party or parties, at the address
of such party set forth below, (or at such other address as such party may
designate by written notice furnished to all other parties in accordance
herewith):

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                  If to the Company, to:

                  TeraForce Technology Corporation
                  1240 E. Campbell Road
                  Richardson, Texas 75081
                  Attention: President

                  If to Holder, to:

                  _________________________________________

                  _________________________________________
                  Attn:____________________________________

         SECTION 4.9 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT GIVING
REGARD TO THE CONFLICT OF LAWS PRINCIPLES THEREOF. EACH OF THE PARTIES HEREBY
SUBMITS TO PERSONAL JURISDICTION AND WAIVES ANY OBJECTION AS TO VENUE IN THE
COUNTY OF DALLAS, STATE OF TEXAS. THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY
JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS
AGREEMENT.

         SECTION 4.10 Final Agreement. This Agreement, together with those
documents expressly referred to herein, constitutes the final agreement of the
parties concerning the matters referred to herein, and supersedes all prior
agreements and understandings.

         SECTION 4.11 Execution in Counterparts. This Agreement may be executed
in any number of counterparts, each of which when so executed and delivered
shall be deemed an original, and such counterparts together shall constitute one
instrument.

                                  ARTICLE FIVE
                                  DEFINED TERMS

         As used in this Agreement:

         5.1 Definitions.

         (a)      "Blackout Period" shall have the meaning set forth in Section
2.2(e).

         (b)      "Business Day" shall mean any day except Saturday, Sunday and
any day which shall be a legal holiday or a day on which banking institutions in
the state of New York generally are authorized or required by law or other
government actions to close.

         (c)      "Commission" shall mean the Securities and Exchange
Commission.

         (d)      "Common Stock" shall mean (i) the common stock of the Company,
par value $.01 per share, and (ii) shares of capital stock of the Company issued
by the Company in respect of or in exchange for shares of such common stock in
connection with any stock dividend or distribution, stock split-up,
recapitalization, recombination or exchange by the Company generally of shares
of such common stock.

         (e)      "Continuously Effective," with respect to a specified
registration statement, shall mean that it shall not cease to be effective and
available for Transfers of Registrable Securities thereunder for longer than
either (i) any ten (10) consecutive business days, or (ii) an aggregate of
fifteen (15) business days during the Effective Period.

         (f)      "Effectiveness Period" shall have the meaning set forth in
Section 1.

         (g)      "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.

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         (h)      "Holders" shall mean the Person named on the first page of
this Agreement and the transferees of the Registrable Securities of such Person,
at such times as such Persons shall own Registrable Securities. For purposes of
this Agreement, a Person will be deemed to be a holder and an owner of
Registrable Securities whenever such Person has the right to acquire such
Registrable Securities (by conversion, purchase or otherwise), whether or not
such acquisition has actually been effected and whether or not such right is
currently exercisable.

         (i)      "Person" shall mean any individual, sole proprietorship,
partnership, limited liability company, joint venture, trust, incorporated
organization, association, corporation, institution, public benefit corporation,
entity or government (whether federal, state, county, city, municipal or
otherwise, including, without limitation, any instrumentality, division, agency,
body or department thereof).

         (j)      "Prospectus" means the prospectus included in the Registration
Statement (including, without limitation, a prospectus that includes any
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplement by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable
Securities covered by the Registration Statement, and all other amendments and
supplements to the Prospectus, including post-effective amendments, and all
material incorporated by reference or deemed to be incorporated by reference in
such Prospectus.

         (k)      "Register," "registered," and "registration" shall refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act, and the declaration or
ordering by the Commission of effectiveness of such registration statement or
document.

         (l)      "Registrable Securities" shall mean the Shares; provided,
however, that Registrable Securities shall not include any Registrable
Securities which have theretofore been registered and sold pursuant to the
Securities Act or which have been sold to the public pursuant to Rule 144 or any
similar rule promulgated by the Commission pursuant to the Securities Act, and,
provided further, the Company shall have no obligation under Section 1 or
Section 2 to register any Registrable Securities if the Company delivers to the
Holders requesting such registration an opinion of counsel to the effect that
the proposed sale or disposition of all of the Registrable Securities for which
registration was requested does not require registration under the Securities
Act for a sale or disposition in a single public sale, and offers to remove any
and all legends restricting transfer from the certificates evidencing such
Registrable Securities.

         (m)      "Registration Statement" means the registration statement and
any additional registration statements contemplated by Section 1 including (in
each case) the Prospectus, amendments and supplements to such registration
statement or Prospectus, including pre- and post-effective amendments, all
exhibits thereto, and all material incorporated by reference or deemed to be
incorporated by reference in such registration statement.

         (n)      "Securities Act" shall have the meaning set forth in the
Recitals.

         (o)      "Shares" shall mean the shares of Common Stock underlying the
Notes and the Warrant.

         (p)      "Transfer" shall mean and include the act of selling, giving,
transferring, creating a trust (voting or otherwise) and transferring title
thereto, assigning or otherwise disposing of (other than pledging, hypothecating
or otherwise transferring as security) (and correlative words shall have
correlative meanings); provided however, that any transfer or other disposition
upon foreclosure or other exercise of remedies of a secured creditor after an
event of default under or with respect to a pledge, hypothecation or other
transfer as security shall constitute a "Transfer."

         (q)      "Violation" shall have the meaning set forth in Article 3.

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      [THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY BEEN LEFT BLANK.]

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         The parties hereto have executed this Agreement as of the date first
set forth above.

                               COMPANY:

                               TERAFORCE TECHNOLOGY CORPORATION

                                By:_____________________________________________
                                Name:___________________________________________
                                Title:__________________________________________

                                HOLDER:

                                By:_____________________________________________
                                Name:___________________________________________
                                Title:__________________________________________

                                       111999 Equity Incentive Plan

 

EXHIBIT 4.3

VIVACE NETWORKS, INC.

1999 EQUITY INCENTIVE PLAN

Adopted by Board of Directors and Approved by Stockholders on June 14, 1999

Amended by Board of Directors and Approved by Stockholders on November 17, 1999

Amended by Board of Directors on June 30, 2000

Amendment Approved by Stockholders on July 24, 2000

Amended by Board of Directors on August 15, 2000

Amendment Approved by Stockholders on September 7, 2000

Amended by Board of Directors on December 13, 2001 and August 16, 2002

Amendments Approved by Stockholders on September 25, 2002

Termination Date: June 13, 2009

1.     PURPOSES.

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

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

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

2.     DEFINITIONS.

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

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

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

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

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

     (f)  “Company” means Vivace Networks, Inc., a Delaware corporation.

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

     (h)  “Continuous Service” means that the Participant’s service with the
Company or an Affiliate, whether as an Employee, Director or Consultant, is not
interrupted or terminated. The Participant’s Continuous Service shall not be
deemed to have terminated merely because of a change in the capacity in which
the Participant renders service to the Company or an Affiliate as an Employee,
Consultant or Director or a change in the entity for which the Participant
renders such service, provided that there is no interruption or termination of
the Participant’s Continuous Service. For example, a change in status from an
Employee of the Company to a Consultant of an Affiliate or a Director will not
constitute an interruption of Continuous Service. The Board or the chief
executive officer of the Company, in that party’s sole discretion, may
determine whether Continuous Service shall be considered interrupted in the
case of any leave of absence approved by that party, including sick leave,
military leave or any other personal leave.

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

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

     (k)  “Disability” means (i) before the Listing Date, the inability of a
person, in the opinion of a qualified physician acceptable to the Company, to
perform the major duties of that person’s position with the Company or an
Affiliate of the Company because of the sickness or injury of the person and
(ii) after the Listing Date, the permanent and total disability of a person
within the meaning of Section 22(e)(3) of the Code.

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

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

     (n)  “Fair Market Value” means, as of any date, the value of the Common
Stock determined as follows:

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

          (ii) In the absence of such markets for the Common Stock, the Fair Market
Value shall be determined in good faith by the Board.

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          (iii) Prior to the Listing Date, the value of the Common Stock shall be
determined in a manner consistent with Section 260.140.50 of Title 10 of the
California Code of Regulations.

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

     (p)  “Listing Date” means the first date upon which any security of the
Company is listed (or approved for listing) upon notice of issuance on any
securities exchange or designated (or approved for designation) upon notice of
issuance as a national market security on an interdealer quotation system if
such securities exchange or interdealer quotation system has been certified in
accordance with the provisions of Section 25100(o) of the California Corporate
Securities Law of 1968.

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

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

     (s)  “Officer” means (i) before the Listing Date, any person designated by
the Company as an officer and (ii) on and after the Listing Date, a person who
is an officer of the Company within the meaning of Section 16 of the Exchange
Act and the rules and regulations promulgated thereunder.

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

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

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

     (w)  “Outside Director” means a Director who either (i) is not a current
employee of the Company or an “affiliated corporation” (within the meaning of
Treasury Regulations promulgated under Section 162(m) of the Code), is not a
former employee of the Company or an “affiliated corporation” receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an “affiliated

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corporation”
at any time and is not currently receiving direct or indirect remuneration from
the Company or an “affiliated corporation” for services in any capacity other
than as a Director or (ii) is otherwise considered an “outside director” for
purposes of Section 162(m) of the Code.

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

     (y)  “Plan” means this Vivace Networks, Inc. 1999 Equity Incentive Plan.

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

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

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

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

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

3.     ADMINISTRATION.

     (a)  Administration by Board. The Board shall administer the Plan unless
and until the Board delegates administration to a Committee, as provided in
subsection 3(c). Any interpretation of the Plan by the Board and any decision
by the Board under the Plan shall be final and binding on all persons.

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

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

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

          (iii) To amend the Plan or a Stock Award as provided in Section 12.

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

     (c)  Delegation to Committee.

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

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

4.     SHARES SUBJECT TO THE PLAN.

     (a)  Share Reserve. Subject to the provisions of Section 11 relating to
adjustments upon changes in Common Stock, the Common Stock that may be issued
pursuant to Stock Awards shall not exceed in the aggregate twenty-five million
three hundred seventy-seven thousand (25,377,000) shares of Common Stock.

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

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

     (d)  Share Reserve Limitation. Prior to the Listing Date and to the extent
then required by Section 260.140.45 of Title 10 of the California Code of
Regulations, the total number of shares of Common Stock issuable upon exercise
of all outstanding Options and the total number of shares

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of Common Stock
provided for under any stock bonus or similar plan of the Company shall not
exceed the applicable percentage as calculated in accordance with the
conditions and exclusions of Section 260.140.45 of Title 10 of the California
Code of Regulations, based on the shares of Common Stock of the Company that
are outstanding at the time the calculation is made.

5.     ELIGIBILITY.

     (a)  Eligibility for Specific Stock Awards. Incentive Stock Options may be
granted only to Employees. Stock Awards other than Incentive Stock Options may
be granted to Employees, Directors and Consultants.

     (b)  Ten Percent Stockholders.

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

          (ii) Prior to the Listing Date, a Ten Percent Stockholder shall not be
granted a Nonstatutory Stock Option unless the exercise price of such Option is
at least (i) one hundred ten percent (110%) of the Fair Market Value of the
Common Stock at the date of grant or (ii) such lower percentage of the Fair
Market Value of the Common Stock at the date of grant as is permitted by
Section 260.140.41 of Title 10 of the California Code of Regulations at the
time of the grant of the Option.

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

     (c)  Section 162(m) Limitation. Subject to the provisions of Section 11
relating to adjustments upon changes in the shares of Common Stock, no Employee
shall be eligible to be granted Options covering more than one million
(1,000,000) shares of Common Stock during any calendar year. This subsection
5(c) shall not apply prior to the Listing Date and, following the Listing Date,
this subsection 5(c) shall not apply until (i) the earliest of: (1) the first
material modification of the Plan (including any increase in the number of
shares of Common Stock reserved for issuance under the Plan in accordance with
Section 4); (2) the issuance of all of the shares of Common Stock reserved for
issuance under the Plan; (3) the expiration of the Plan; or (4) the first
meeting of stockholders at which Directors are to be elected that occurs after
the close of the third calendar year following the calendar year in which
occurred the first registration of an equity security under Section 12 of the
Exchange Act; or (ii) such other date required by Section 162(m) of the Code
and the rules and regulations promulgated thereunder.

     (d)  Consultants.

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          (i) Prior to the Listing Date, a Consultant shall not be eligible for the
grant of a Stock Award if, at the time of grant, either the offer or the sale
of the Company’s securities to such Consultant is not exempt under Rule 701 of
the Securities Act (“Rule 701”) because of the nature of the services that the
Consultant is providing to the Company, or because the Consultant is not a
natural person, or as otherwise provided by Rule 701, unless the Company
determines that such grant need not comply with the requirements of Rule 701
and will satisfy another exemption under the Securities Act as well as comply
with the securities laws of all other relevant jurisdictions.

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

          (iii) As of April 7, 1999 Rule 701 and Form S-8 generally are available to
consultants and advisors only if (i) they are natural persons; (ii) they
provide bona fide services to the issuer, its parents, its majority-owned
subsidiaries or majority-owned subsidiaries of the issuer’s parent; and (iii)
the services are not in connection with the offer or sale of securities in a
capital-raising transaction, and do not directly or indirectly promote or
maintain a market for the issuer’s securities.

6.     OPTION PROVISIONS.

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

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

     (b)  Exercise Price of an Incentive Stock Option. Subject to the
provisions of subsection 5(b) regarding Ten Percent Stockholders, the exercise
price of each Incentive Stock Option shall be not less than one hundred percent
(100%) of the Fair Market Value of the Common Stock subject to the Option on
the date the Option is granted. Notwithstanding the foregoing, an Incentive
Stock Option may be granted with an exercise price lower than that set forth in
the preceding sentence if such Option is granted pursuant to an assumption or
substitution for another option in a manner satisfying the provisions of
Section 424(a) of the Code.

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     (c)  Exercise Price of a Nonstatutory Stock Option. Subject to the
provisions of subsection 5(b) regarding Ten Percent Stockholders, the exercise
price of each Nonstatutory Stock Option granted prior to the Listing Date shall
be not less than eighty-five percent (85%) of the Fair Market Value of the
Common Stock subject to the Option on the date the Option is granted. The
exercise price of each Nonstatutory Stock Option granted on or after the
Listing Date shall be not less than eighty-five percent (85%) of the Fair
Market Value of the Common Stock subject to the Option on the date the Option
is granted. Notwithstanding the foregoing, a Nonstatutory Stock Option may be
granted with an exercise price lower than that set forth in the preceding
sentence if such Option is granted pursuant to an assumption or substitution
for another option in a manner satisfying the provisions of Section 424(a) of
the Code.

     (d)  Consideration. The purchase price of Common Stock acquired pursuant
to an Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised or (ii) at
the discretion of the Board at the time of the grant of the Option (or
subsequently in the case of a Nonstatutory Stock Option) (1) by delivery to the
Company of other Common Stock, (2) according to a deferred payment or other
similar arrangement with the Optionholder or (3) in any other form of legal
consideration that may be acceptable to the Board; provided, however, that at
any time that the Company is incorporated in Delaware, payment of the Common
Stock’s “par value,” as defined in the Delaware General Corporation Law, shall
not be made by deferred payment.

     In the case of any deferred payment arrangement, interest shall be
compounded at least annually and shall be charged at the minimum rate of
interest necessary to avoid the treatment as interest, under any applicable
provisions of the Code, of any amounts other than amounts stated to be interest
under the deferred payment arrangement.

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

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

     (g)  Vesting Generally. The total number of shares of Common Stock subject
to an Option may, but need not, vest and therefore become exercisable in
periodic installments that may, but need not, be equal. The Option may be
subject to such other terms and conditions on the time or

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times when it may be
exercised (which may be based on performance or other criteria) as the Board
may deem appropriate. The vesting provisions of individual Options may vary.
The provisions of this subsection 6(g) are subject to any Option provisions
governing the minimum number of shares of Common Stock as to which an Option
may be exercised.

     (h)  Minimum Vesting Prior to the Listing Date. Notwithstanding the
foregoing subsection 6(g), to the extent that the following restrictions on
vesting are required by Section 260.140.41(f) of Title 10 of the California
Code of Regulations at the time of the grant of the Option, then:

          (i) Options granted prior to the Listing Date to an Employee who is not an
Officer, Director or Consultant shall provide for vesting of the total number
of shares of Common Stock at a rate of at least twenty percent (20%) per year
over five (5) years from the date the Option was granted, subject to reasonable
conditions such as continued employment; and

          (ii) Options granted prior to the Listing Date to Officers, Directors or
Consultants may be made fully exercisable, subject to reasonable conditions
such as continued employment, at any time or during any period established by
the Company.

     (i)  Termination of Continuous Service. In the event an Optionholder’s
Continuous Service terminates (other than upon the Optionholder’s death or
Disability), the Optionholder may exercise his or her Option (to the extent
that the Optionholder was entitled to exercise such Option as of the date of
termination) but only within such period of time ending on the earlier of (i)
the date three (3) months following the termination of the Optionholder’s
Continuous Service (or such longer or shorter period specified in the Option
Agreement, which period shall not be less than thirty (30) days for Options
granted prior to the Listing Date unless such termination is for cause), or
(ii) the expiration of the term of the Option as set forth in the Option
Agreement. If, after termination, the Optionholder does not exercise his or
her Option within the time specified in the Option Agreement, the Option shall
terminate.

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

     (k)  Disability of Optionholder. In the event that an Optionholder’s
Continuous Service terminates as a result of the Optionholder’s Disability, the
Optionholder may exercise his or her Option (to the extent that the
Optionholder was entitled to exercise such Option as of the date of
termination), but only within such period of time ending on the earlier of (i)
the date twelve (12) months following such termination (or such longer or
shorter period specified in the Option Agreement, which period shall not be
less than six (6) months for Options granted prior to the Listing Date) or (ii)
the expiration of the term of the Option as set forth in the Option Agreement.
If, after termination, the Optionholder does not exercise his or her Option
within the time specified herein, the Option shall terminate.

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

     (m)  Early Exercise. The Option may, but need not, include a provision
whereby the Optionholder may elect at any time before the Optionholder’s
Continuous Service terminates to exercise the Option as to any part or all of
the shares of Common Stock subject to the Option prior to the full vesting of
the Option. Subject to the “Repurchase Limitation” in subsection 10(h), any
unvested shares of Common Stock so purchased may be subject to a repurchase
option in favor of the Company or to any other restriction the Board determines
to be appropriate.

     (n)  Right of Repurchase. Subject to the “Repurchase Limitation” in
subsection 10(h), the Option may, but need not, include a provision whereby the
Company may elect, prior to the Listing Date, to repurchase all or any part of
the vested shares of Common Stock acquired by the Optionholder pursuant to the
exercise of the Option.

     (o)  Right of First Refusal. The Option may, but need not, include a
provision whereby the Company may elect, prior to the Listing Date, to exercise
a right of first refusal following receipt of notice from the Optionholder of
the intent to transfer all or any part of the shares of Common Stock received
upon the exercise of the Option. Except as expressly provided in this
subsection 6(o), such right of first refusal shall otherwise comply with any
applicable provisions of the Bylaws of the Company.

     (p)  Re-Load Options. Without in any way limiting the authority of the
Board to make or not to make grants of Options hereunder, the Board shall have
the authority (but not an obligation) to include as part of any Option
Agreement a provision entitling the Optionholder to a further Option (a
“Re-Load Option”) in the event the Optionholder exercises the Option evidenced
by the Option Agreement, in whole or in part, by surrendering other shares of
Common Stock in accordance with this Plan and the terms and conditions of the
Option Agreement. Any such Re-Load Option shall (i) provide for a number of
shares of Common Stock equal to the number of shares of Common Stock
surrendered as part or all of the exercise price of such Option; (ii) have an
expiration date which is the same as the expiration date of the Option the
exercise of which gave rise to such Re-Load Option; and (iii) have an exercise
price which is equal to one hundred percent (100%) of the Fair Market Value of
the Common Stock subject to the Re-Load Option on the date of exercise of the
original Option. Notwithstanding the foregoing, a Re-Load Option shall be
subject to the same exercise price and term provisions heretofore described for
Options under the Plan.

          Any such Re-Load Option may be an Incentive Stock Option or a Nonstatutory
Stock Option, as the Board may designate at the time of the grant of the
original Option; provided, however, that the designation of any Re-

-11-

 

Load Option as an Incentive Stock Option shall be subject to the one
hundred thousand dollar ($100,000) annual limitation on the exercisability of
Incentive Stock Options described in subsection 10(d) and in Section 422(d) of
the Code. There shall be no Re-Load Options on a Re-Load Option. Any such
Re-Load Option shall be subject to the availability of sufficient shares of
Common Stock under subsection 4(a) and the “Section 162(m) Limitation” on the
grants of Options under subsection 5(c) and shall be subject to such other
terms and conditions as the Board may determine which are not inconsistent with
the express provisions of the Plan regarding the terms of Options.

7.     PROVISIONS OF STOCK AWARDS OTHER THAN OPTIONS.

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

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

          (ii) Vesting. Subject to the “Repurchase Limitation” in subsection 10(h),
shares of Common Stock awarded under the stock bonus agreement may, but need
not, be subject to a share repurchase option in favor of the Company in
accordance with a vesting schedule to be determined by the Board.

          (iii) Termination of Participant’s Continuous Service. Subject to the
“Repurchase Limitation” in subsection 10(h), in the event a Participant’s
Continuous Service terminates, the Company may reacquire any or all of the
shares of Common Stock held by the Participant which have not vested as of the
date of termination under the terms of the stock bonus agreement.

          (iv) Transferability. For a stock bonus award made before the Listing
Date, rights to acquire shares of Common Stock under the stock bonus agreement
shall not be transferable except by will or by the laws of descent and
distribution and shall be exercisable during the lifetime of the Participant
only by the Participant. For a stock bonus award made on or after the Listing
Date, rights to acquire shares of Common Stock under the stock bonus agreement
shall be transferable by the Participant only upon such terms and conditions as
are set forth in the stock bonus agreement, as the Board shall determine in its
discretion, so long as Common Stock awarded under the stock bonus agreement
remains subject to the terms of the stock bonus agreement.

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

          (i) Purchase Price. Subject to the provisions of subsection 5(b)
regarding Ten Percent Stockholders, the purchase price under each restricted
stock purchase agreement shall be such amount as the Board shall determine and
designate in such restricted stock purchase agreement.

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For restricted stock awards made prior to the Listing Date, the purchase
price shall not be less than eighty-five percent (85%) of the Common Stock’s
Fair Market Value on the date such award is made or at the time the purchase is
consummated. For restricted stock awards made on or after the Listing Date,
the purchase price shall not be less than eighty-five percent (85%) of the
Common Stock’s Fair Market Value on the date such award is made or at the time
the purchase is consummated.

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

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

          (iv) Termination of Participant’s Continuous Service. Subject to the
“Repurchase Limitation” in subsection 10(h), in the event a Participant’s
Continuous Service terminates, the Company may repurchase or otherwise
reacquire any or all of the shares of Common Stock held by the Participant
which have not vested as of the date of termination under the terms of the
restricted stock purchase agreement.

          (v) Transferability. For a restricted stock award made before the Listing
Date, rights to acquire shares of Common Stock under the restricted stock
purchase agreement shall not be transferable except by will or by the laws of
descent and distribution and shall be exercisable during the lifetime of the
Participant only by the Participant. For a restricted stock award made on or
after the Listing Date, rights to acquire shares of Common Stock under the
restricted stock purchase agreement shall be transferable by the Participant
only upon such terms and conditions as are set forth in the restricted stock
purchase agreement, as the Board shall determine in its discretion, so long as
Common Stock awarded under the restricted stock purchase agreement remains
subject to the terms of the restricted stock purchase agreement.

8.     COVENANTS OF THE COMPANY.

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

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

-13-

 

the lawful issuance and sale of Common Stock under the Plan, the Company
shall be relieved from any liability for failure to issue and sell Common Stock
upon exercise of such Stock Awards unless and until such authority is obtained.

9.     USE OF PROCEEDS FROM STOCK.

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

10.     MISCELLANEOUS.

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

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

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

     (d)  Incentive Stock Option $100,000 Limitation. To the extent that the
aggregate Fair Market Value (determined at the time of grant) of Common Stock
with respect to which Incentive Stock Options are exercisable for the first
time by any Optionholder during any calendar year (under all plans of the
Company and its Affiliates) exceeds one hundred thousand dollars ($100,000),
the Options or portions thereof which exceed such limit (according to the order
in which they were granted) shall be treated as Nonstatutory Stock Options.

     (e)  Investment Assurances. The Company may require a Participant, as a
condition of exercising or acquiring Common Stock under any Stock Award, (i) to
give written assurances satisfactory to the Company as to the Participant’s
knowledge and experience in financial and business matters and/or to employ a
purchaser representative reasonably satisfactory to the Company who is
knowledgeable and experienced in financial and business matters and that he or
she is capable of evaluating, alone or together with the purchaser
representative, the merits and risks of exercising the Stock Award; and (ii) to
give written assurances satisfactory to the Company stating that the
Participant is acquiring Common Stock subject to the Stock Award for the
Participant’s own account and not with any present intention of selling or
otherwise distributing the Common Stock.

-14-

 

The foregoing requirements, and any assurances given pursuant to such
requirements, shall be inoperative if (iii) the issuance of the shares of
Common Stock upon the exercise or acquisition of Common Stock under the Stock
Award has been registered under a then currently effective registration
statement under the Securities Act or (iv) as to any particular requirement, a
determination is made by counsel for the Company that such requirement need not
be met in the circumstances under the then applicable securities laws. The
Company may, upon advice of counsel to the Company, place legends on stock
certificates issued under the Plan as such counsel deems necessary or
appropriate in order to comply with applicable securities laws, including, but
not limited to, legends restricting the transfer of the Common Stock.

     (f)  Withholding Obligations. To the extent provided by the terms of a
Stock Award Agreement, the Participant may satisfy any federal, state or local
tax withholding obligation relating to the exercise or acquisition of Common
Stock under a Stock Award by any of the following means (in addition to the
Company’s right to withhold from any compensation paid to the Participant by
the Company) or by a combination of such means: (i) tendering a cash payment;
(ii) authorizing the Company to withhold shares of Common Stock from the shares
of Common Stock otherwise issuable to the Participant as a result of the
exercise or acquisition of Common Stock under the Stock Award; or (iii)
delivering to the Company owned and unencumbered shares of Common Stock.

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

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

          (i) Fair Market Value. If the repurchase option gives the Company the
right to repurchase the shares of Common Stock upon termination of employment
at not less than the Fair Market Value of the shares of Common Stock to be
purchased on the date of termination of Continuous Service, then (i) the right
to repurchase shall be exercised for cash or cancellation of purchase money
indebtedness for the shares of Common Stock within ninety (90) days of
termination of Continuous Service (or in the case of shares of Common Stock
issued upon exercise of Stock Awards after such date of termination, within
ninety (90) days after the date of the exercise) or such longer period as may
be agreed to by the Company and the Participant (for example, for purposes of
satisfying the requirements of Section 1202(c)(3) of the Code regarding
“qualified small business stock”) and (ii) the right terminates when the shares
of Common Stock become publicly traded.

          (ii) Original Purchase Price. If the repurchase option gives the Company
the right to repurchase the shares of Common Stock upon termination of
Continuous Service at the original purchase price, then (i) the right to
repurchase at the original purchase price shall lapse at the rate of at least
twenty percent (20%) of the shares of Common Stock per year over five (5) years
from the date the Stock Award is granted (without respect to the date the Stock
Award was exercised

-15-

 

or became exercisable) and (ii) the right to repurchase shall be exercised
for cash or cancellation of purchase money indebtedness for the shares of
Common Stock within ninety (90) days of termination of Continuous Service (or
in the case of shares of Common Stock issued upon exercise of Options after
such date of termination, within ninety (90) days after the date of the
exercise) or such longer period as may be agreed to by the Company and the
Participant (for example, for purposes of satisfying the requirements of
Section 1202(c)(3) of the Code regarding “qualified small business stock”).

11.     ADJUSTMENTS UPON CHANGES IN STOCK.

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

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

     (c)  Change in Control—Asset Sale, Merger, Consolidation or Reverse
Merger.

          (i) In the event of (i) a sale, lease or other disposition of all or
substantially all of the assets of the Company, (ii) a consolidation or merger
of the Company with or into any other corporation or other entity or person, or
any other corporate reorganization, in which the stockholders of the Company
immediately prior to such consolidation, merger or reorganization, own less
than 50% of the Company’s outstanding voting power of the surviving entity (or
its parent) following the consolidation, merger or reorganization or (iii) any
transaction (or series of related transactions involving a person or entity, or
a group of affiliated persons or entities) in which in excess of fifty percent
(50%) of the Company’s outstanding voting power is transferred (each a “Change
in Control”), then any surviving corporation or acquiring corporation shall
assume any Stock Awards outstanding under the Plan or shall substitute similar
stock awards (including an award to acquire the same consideration paid to the
stockholders in the transaction described in this subsection 11(c) for those
outstanding under the Plan. In the event any surviving corporation or
acquiring corporation refuses to assume such Stock Awards or to substitute
similar stock awards for those outstanding under the Plan, then with respect to
Stock Awards held by Participants whose Continuous Service has not terminated,
the vesting of such Stock Awards (and, if applicable, the time during which
such Stock Awards may be exercised) shall be accelerated in full, and the Stock
Awards shall terminate if not exercised (if applicable) at or prior to such
event. With respect to any

-16-

 

other Stock Awards outstanding under the Plan, such Stock Awards shall
terminate if not exercised (if applicable) prior to such event.

          (ii) In the event that an Employee is terminated by the Company without
Cause (as defined below) within a period of 12 months following such Change in
Control, the vesting of any Stock Awards held by such Employee shall be
accelerated such that the number of shares that would have vested one year
after the date of such termination shall immediately vest and become
exercisable as of the date of such termination.

          (iii) For purposes of Section 11(c)(ii), “Cause” shall mean (i) the
commission by Employee of an act of fraud or embezzlement, (ii) any material
breach of any applicable employment agreement or proprietary information and
inventions agreement (including the unauthorized disclosure of confidential or
proprietary information of the Company which results in material financial loss
to the Company), (iii) the conviction of Employee for a felony, (iv) the
willful misconduct of Employee as an employee of the Company which is
reasonably likely to result in material injury or material financial loss to
the Company, or (v) the willful failure of Employee to render services to the
Company in accordance with Employee’s employment which failure amounts to a
material neglect of Employee’s duties to the Company. A substantial reduction
in Employee’s base salary and/or job responsibilities by the surviving
corporation without Employee’s consent shall be deemed a “termination without
Cause” for purposes of Section 11(c)(ii).

12.     AMENDMENT OF THE PLAN AND STOCK AWARDS.

     (a)  Amendment of Plan. The Board at any time, and from time to time, may
amend the Plan. However, except as provided in Section 11 relating to
adjustments upon changes in Common Stock, no amendment shall be effective
unless approved by the stockholders of the Company to the extent stockholder
approval is necessary to satisfy the requirements of Section 422 of the Code,
Rule 16b-3 or any Nasdaq or securities exchange listing requirements.

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

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

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

     (e)  Amendment of Stock Awards. The Board at any time, and from time to
time, may amend the terms of any one or more Stock Awards; provided, however,
that the rights under any

-17-

 

Stock Award shall not be impaired by any such amendment unless (i) the
Company requests the consent of the Participant and (ii) the Participant
consents in writing.

13.     TERMINATION OR SUSPENSION OF THE PLAN.

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

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

14.     EFFECTIVE DATE OF PLAN.

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

15.     CHOICE OF LAW.

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

-18-

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