Document:

Split Dollar Life Insurance Arrangement

 

Exhibit 10.10

Split Dollar Insurance Arrangement

As part of the compensation paid to the Company’s former President, Branson
J. McRae, the Company entered into a split dollar insurance arrangement with
Mr. McRae pursuant to which the Company agreed to pay the annual premiums on
several life insurance policies, with a total face amount of $5 million,
covering the lives of Mr. McRae and his wife, Mrs. Lorraine H. McRae. Under
the terms of this arrangement, Mr. McRae was entitled to name the owners of
the policies and upon the death of both of Mr. and Mrs. McRae the Company is
entitled to a portion of the death benefits payable under the policies not
to exceed the greater of (i) the cash surrender value of the policies and
(2) the cumulative premiums paid by the Company on the policies. Mr. McRae
died in February 1997. Mrs. McRae is currently 80 years old. Mr. and Mrs.
McRae’s four children, including D. Gary McRae and James W. McRae, each of
whom is a director and executive officer of the Company, were named the
initial owners and beneficiaries of the policies. In November 1998 ownership
of each of the policies was transferred to a partnership of which each of
Mr. and Mrs. McRae’s children is a partner and D. Gary McRae and James W.
McRae are the Managing Partners, and such partnership was named the
beneficiary of each of the policies. The annual premiums on these policies
total approximately $211,000. The Company has paid total premiums of
$2,219,983 on these policies, which amount, together with any future
premiums paid by the Company on the policies, will be repaid to the Company
upon Mrs. McRae’s death.

Attached, as Annex A is a copy of a Split Dollar Insurance Agreement dated
June 2, 1994, which formalizes the split dollar insurance arrangement with
respect to one of the subject insurance policies. The Company is not in
possession of any other written documentation formalizing the arrangement.
The owner of the subject insurance policies, however, has confirmed its
agreement with the foregoing description of the split dollar insurance
arrangement and has agreed to be bound by its terms. The Company will
formalize the split dollar insurance arrangement through a written agreement
in the near future.

The next premiums payable on the policies will come due in February 2003.
Prior to paying any such premiums the Company will review whether making any
such payments would be prohibited by Section 402 of the Sarbanes-Oxley Act
of 2002, which restricts the Company’s ability to make loans to or for any
director or executive officer.

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ANNEX A

SPLIT DOLLAR INSURANCE AGREEMENT

(COLLATERAL ASSIGNMENT METHOD)

THIS AGREEMENT is entered into this 2nd day of June 1994, by and between McRae
Industries, Inc., a North Carolina corporation (hereinafter called “Employer”),
and Gail McRae Hutchinson, Sandra McRae Harris, Daniel Gary McRae, and James
William McRae (hereinafter called “Owner”).

WHEREAS, Branson Jackson McRae is a valued Employee of the Employer, and
Employer wishes to provide additional inducement for Employee’s continued
employment, and as additional compensation, Employer wishes to assist Employee
with a personal life insurance program by entering into a Split Dollar
Insurance Agreement.

NOW, THEREFORE, Employer and Owner agree as follows:

	1.	 	The life insurance policy with which this Agreement deals is Policy
Number LL1723788 (hereinafter called “Policy”), issued by Hartford Life
(hereinafter called “Insurer”) on the life of Branson Jackson McRae, and
Lorraine Hamilton McRae in the face amount of $2,000,000.
	 
	2.	 	Gail McRae Hutchinson, Sandra McRae Harris, Daniel Gary McRae, and James
William McRae shall be the Owner of the policy, and may exercise all
ownership rights granted to the Owner by the terms of the Policy. It is
the express intention of the parties to reserve to the Owner all rights in
the policy granted by the terms of the Policy, including, but not limited
to, the right to borrow against the policy, the right to assign the
Owner’s interest in the Policy, the right to change the beneficiary of the
Policy, the right to exercise settlement options, and the right to
surrender or cancel the Policy (in whole or in part). The Employer shall
not have nor exercise any right in and to the Policy, which could, in any
way, endanger, defeat or impair any of the rights of the Owner in the
Policy. The only rights in and to the Policy granted to the Employer
shall be its security interest in the cash value of the policy, as
defined, and its right to receive a portion of the death benefit of the
Policy, as provided in this Agreement. The Employer shall not assign any
of its rights in the Policy to anyone other than the Owner (or the owner’s
transferee, if the Owner has transferred his/her rights in the Policy).
	 
	3.	 	Premiums on the Policy shall be paid by the Employer and shall be repaid
to the Employer as provided in this Agreement.
	 
	4.	 	The Owner has, contemporaneously with the adoption of this agreement,
assigned the Policy to the Employer as collateral, under a form of
Collateral Assignment. The Employer’s interest in the Policy shall be
specifically limited to the following rights in the cash value and to a
portion of the death benefit:
	 
	(a)	 	The right to be repaid its cumulative premiums paid or, if less, the net
cash surrender value of the Policy, in the event the Policy is totally
surrendered or cancelled by the Owner, or the right to receive the
surrender proceeds, to the extent of its cumulative premiums paid, in the
event the Policy is partially surrendered or cancelled by the Owner, as
provided in Paragraph 5 below.
	 
	(b)	 	The right to be repaid its cumulative premiums paid upon the death of the
Employee, as provided in Paragraph 6 below.
	 
	(c)	 	The right to be repaid its cumulative premiums paid or, if less, the net
cash surrender value of the Policy, or to receive ownership of the Policy,
in the event of the termination of this Agreement, as provided in
Paragraphs 8 and 9 below.

52

 

	(d)	 	The right to be repaid a portion of its cumulative premiums paid if a
Policy loan or partial surrender made by the Owner in any year causes the
net cash surrender value of the Policy to be a sum less than the
Employer’s cumulative premiums paid. In such case, the Owner will use a
portion of any Policy loan proceeds or partial withdrawal to reduce the
cumulative premiums paid by the Employer so as to cause the net cash
surrender value to be equal to or greater than the Employer’s cumulative
premiums paid. As used in this agreement, the term “net cash surrender
value” means the cash surrender value of the Policy, less the amount of
any then existing loans or withdrawals against the Policy obtained by the
Owner pursuant to this paragraph.
	 
	5.	 	The Owner shall have the sole right to surrender or cancel the Policy (in
whole or in part). In the event of a total surrender or cancellation by
the Owner, the Employer shall be entitled to receive the then outstanding
balance of its cumulative premiums paid, or, if less, the net cash
surrender value of the Policy.
	 
	6.	 	Upon the death of the Employee, the Employer shall be entitled to receive
a portion of the death benefit provided under the Policy equal to the then
outstanding balance of its cumulative premiums paid. The balance of the
death benefit provided under the Policy, if designated by the Owner, in
the manner and in the amounts provided by the beneficiary designation of
the Policy.
	 
	7.	 	This Agreement may be terminated, subject to the provisions of Paragraphs
8 and 9 below, by either party, with or without consent of the other
party, by giving notice in writing to the other party.
	 
	8.	 	In the event of termination of this Agreement as provided in Paragraph 7
above, the Owner shall repay to the Employer, within sixty (60 days) of
the date of termination, the then outstanding balance of its cumulative
premiums paid, or if less, the net cash surrender value of the Policy.
Upon receipt of this amount, the Employer shall execute an appropriate
release of its Collateral Assignment of the Policy.
	 
	9.	 	If the Owner fails to repay the Employer the amount specified in
Paragraph 8 above within sixty (60) days of the date of termination of the
Agreement, the Owner shall execute any and all instruments that may be
required to vest ownership of the Policy in the Employer. Thereafter,
Owner shall have no further interest in the Policy or in this Agreement.
	 
	10.	 	The Owner shall have the sole right to borrow against the Policy, and the
Employer shall have no right to obtain loans against the Policy, directly
or indirectly, from the insurer or any other person, or pledge or assign
the Policy as security for any loan.
	 
	11.	 	In the event the Owner shall transfer all interest in the Policy to a
transferee, then all of the Owner’s interest in the Policy and in this
Agreement shall be vested in the transferee, who shall become a
substituted party, and the Owner shall have no further interest in the
Policy or in this Agreement.
	 
	12.	 	The Insurer shall in no way be bound by, or be deemed to have notice of,
the provisions of this Agreement.
	 
	13.	 	This Split Dollar Agreement may not be amended, altered or modified,
except by a written instrument signed by each of the parties.
	 
	14.	 	Any notice, consent or demand required or permitted to be given under the
provisions of this Split Dollar Agreement by one party to another shall be
in writing, shall be signed by the party, and shall be given either by
delivery to the other party personally, or by mailing, by United States
Certified mail, postage prepaid, to the other party, addressed to the
Party’s last known address as shown on the records of the Employer. The
date of mailing shall be deemed the date of such mailed notice, consent or
demand.
	 
	15.	 	This Agreement shall bind the Employer, the Owner and the Owner’s heirs,
personal representatives, successors, and transferees, and any Policy
beneficiary.

53

 

	16.	 	This plan is intended to qualify as a life insurance employee benefit
plan as described in Revenue Ruling 64-328.
	 
	17.	 	This Split Dollar Agreement, and the rights of the parties hereunder,
shall be governed by and construed pursuant to the laws of the State of
North Carolina.

IN WITNESS WHEREOF, the parties have executed this Agreement effective the day
and year first above written.

	 	 	 	 	 
	 	 	OWNER:
	
	
	
	

	 	 	 	 	 
	
	
	
	

	 	 	
/s/
	 	Gail McRae Hutchison        /s/   Sandra McRae Harris
	 	 	

	 	 	
/s/
	 	Daniel Gary McRae        /s/   James William McRae
	 	 	

	 	 	 	 	 
	
	
	
	

	 	 	 	 	EMPLOYER:
	
	
	
	

	 	 	 	 	 
	
	
	
	

	 	 	 	 	McRAE INDUSTRIES, INC.
	
	
	
	

	 	 	 	 	 
	
	
	
	

	 	 	
BY:
	 	 /s/  James W. McRae   (Secretary)
	 	 	 	 	

54<PAGE>
                                                                     EXHIBIT 4.1

                                   VCIS, INC.

                                 2001 STOCK PLAN

                  (AMENDED AND RESTATED AS OF AUGUST 22, 2002)

         1.       Purposes of the Plan. The purposes of this Stock Plan are to
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees, Directors and
Consultants and to promote the success of the Company's business. Options
granted under the Plan may be Incentive Stock Options or Nonstatutory Stock
Options, as determined by the Administrator at the time of grant. Stock Purchase
Rights may also be granted under the Plan.

         2.       Definitions. As used herein, the following definitions shall
apply:

                  (a)      "Administrator" means the Board or any of its
Committees as shall be administering the Plan in accordance with Section 4
hereof.

                  (b)      "Applicable Laws" means the requirements relating to
the administration of stock option plans under U.S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Stock is listed or quoted and the applicable laws of any
other country or jurisdiction where Options or Stock Purchase Rights are granted
under the Plan.

                  (c)      "Board" means the Board of Directors of the Company.

                  (d)      "Cause" with respect to any Service Provider, means
any of the following: (i) the Service Provider's failure to satisfactorily
perform such Service Provider's assigned duties (other than a failure resulting
from incapacity due to physical or mental illness), which failure is not
corrected by such Service Provider within 30 days after receiving written notice
of such failure from the successor corporation or a Parent or Subsidiary of the
successor corporation; (ii) the Service Provider's breach or violation of the
terms of any agreement between the Service Provider and the successor
corporation or a Parent or Subsidiary of the successor corporation or a policy
adopted by the successor corporation or a Parent or Subsidiary of the successor
corporation; (iii) the Service Provider's non-compliance with any applicable Law
in performing such Service Provider's job duties or in directing the conduct of
the successor corporation's business or the business of a Parent or Subsidiary
of the successor corporation; (iv) Service Provider's dishonesty or gross
misconduct; or (v) Service Provider's conviction of, guilty plea to, or no
contest plea to, a felony or any other crime of moral turpitude.

                  (e)      "Change of Control" means the occurrence of any of
the following:

                           (i)      The consummation of a merger or
consolidation of the Company with any other corporation, other than a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
<PAGE>

remaining outstanding or by being converted into voting securities of the
surviving entity) at least fifty percent (50%) of the total voting power
represented by the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation; or

                           (ii)     The consummation of the sale, lease or other
disposition by the Company of all or substantially all the Company's assets.

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

                  (g)      "Committee" means a committee of Directors appointed
by the Board in accordance with Section 4 hereof.

                  (h)      "Common Stock" means the Common Stock of the Company.

                  (i)      "Company" means vCIS, Inc., a California corporation.

                  (j)      "Consultant" means any person who is engaged by the
Company or any Parent or Subsidiary to render consulting or advisory services to
such entity.

                  (k)      "Director" means a member of the Board.

                  (l)      "Disability" means total and permanent disability as
defined in Section 22(e)(3) of the Code.

                  (m)      "Employee" means any person, including Officers and
Directors, employed by the Company or any Parent or Subsidiary of the Company. A
Service Provider shall not cease to be an Employee in the case of (i) any leave
of absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such leave may exceed ninety days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment upon expiration of a leave of absence approved by the
Company is not so guaranteed, on the 181st day of such leave any Incentive Stock
Option held by the Optionee shall cease to be treated as an Incentive Stock
Option and shall be treated for tax purposes as a Nonstatutory Stock Option.
Neither service as a Director nor payment of a director's fee by the Company
shall be sufficient to constitute "employment" by the Company.

                  (n)      "Exchange Act" means the Securities Exchange Act of
1934, as amended.

                  (o)      "Fair Market Value" means, as of any date, the value
of Common Stock determined as follows:

                           (i)      If the Common Stock is listed on any
established stock exchange or a national market system, including without
limitation the Nasdaq National Market or The Nasdaq Small Cap Market of The
Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for
such stock (or the closing bid, if no sales were reported) as quoted on such
exchange or system for the last market trading day prior to the time of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable;

                                      -2-
<PAGE>

                           (ii)     If the Common Stock is regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean between the high bid and low asked prices for the
Common Stock on the last market trading day prior to the day of determination;
or

                           (iii)    In the absence of an established market for
the Common Stock, the Fair Market Value thereof shall be determined in good
faith by the Administrator.

                  (p)      "Good Reason" with respect to any Service Provider,
means any of the following: (i) the failure by the successor corporation or a
Parent or Subsidiary of the successor corporation to comply in any material
respect with the terms of any agreement by and between the successor corporation
or a Parent or Subsidiary of the successor corporation and the Service Provider,
which failure is not corrected by the successor corporation or a Parent or
Subsidiary of the successor corporation within 30 days after receiving written
notice of such failure from such Service Provider; (ii) the relocation of
Service Provider's principal office, without Service Provider's prior written
consent, other than a relocation to an office within 50 kilometers of such
Service Provider's then-current principal office; (iii) a material,
non-consensual reduction of Service Provider's compensation provided that such
Service Provider resigns within 45 days of such reduction; or (iv) the
termination of, or material reduction in, any benefit or perquisite enjoyed by
the Service Provider, other than such terminations or material reductions which
are the result of a transition from the Company's programs of benefits and
perquisites of general applicability to Service Providers to the programs of
benefits and perquisites of general applicability to Service Providers of the
successor corporation or a Parent or Subsidiary of the successor corporation.

                  (q)      "Incentive Stock Option" means an Option intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code.

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

                  (s)      "Officer" means a person who is an officer of the
Company within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated hereunder.

                  (t)      "Option" means a stock option granted pursuant to the
Plan.

                  (u)      "Option Agreement" means a written or electronic
agreement between the Company and an Optionee evidencing the terms and
conditions of an individual Option grant. The Option Agreement is subject to the
terms and conditions of the Plan.

                  (v)      "Option Exchange Program" means a program whereby
outstanding Options are exchanged for Options with a lower exercise price.

                  (w)      "Optioned Stock" means the Common Stock subject to an
Option or a Stock Purchase Right.

                  (x)      "Optionee" means the holder of an outstanding Option
or Stock Purchase Right granted under the Plan.

                                      -3-
<PAGE>

                  (y)      "Parent" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.

                  (z)      "Plan" means this 2001 Stock Plan.

                  (aa)     "Restricted Stock" means shares of Common Stock
acquired pursuant to a grant of a Stock Purchase Right under Section 11 below.

                  (bb)     "Service Provider" means an Employee, Director or
Consultant.

                  (cc)     "Share" means a share of the Common Stock, as
adjusted in accordance with Section 12 below.

                  (dd)     "Stock Purchase Right" means a right to purchase
Common Stock pursuant to Section 11 below.

                  (ee)     "Subsidiary" means a "subsidiary corporation,"
whether now or hereafter existing, as defined in Section 424(f) of the Code.

         3.       Stock Subject to the Plan. Subject to the provisions of
Section 12 of the Plan, the maximum aggregate number of Shares that may be
subject to option and sold under the Plan is 3,100,000 Shares. The Shares may be
authorized but unissued, or reacquired Common Stock.

                  If an Option or Stock Purchase Right expires or becomes
unexercisable without having been exercised in full, or is surrendered pursuant
to an Option Exchange Program, the unpurchased Shares which were subject thereto
shall become available for future grant or sale under the Plan (unless the Plan
has terminated). However, Shares that have actually been issued under the Plan,
upon exercise of either an Option or Stock Purchase Right, shall not be returned
to the Plan and shall not become available for future distribution under the
Plan, except that if Shares of Restricted Stock are repurchased by the Company
at their original purchase price, such Shares shall become available for future
grant under the Plan.

         4.       Administration of the Plan.

                  (a)      Administrator. The Plan shall be administered by the
Board or a Committee appointed by the Board, which Committee shall be
constituted to comply with Applicable Laws.

                  (b)      Powers of the Administrator. Subject to the
provisions of the Plan and, in the case of a Committee, the specific duties
delegated by the Board to such Committee, and subject to the approval of any
relevant authorities, the Administrator shall have the authority in its
discretion:

                           (i)      to determine the Fair Market Value;

                           (ii)     to select the Service Providers to whom
Options and Stock Purchase Rights may from time to time be granted hereunder;

                           (iii)    to determine the number of Shares to be
covered by each such award granted hereunder;

                                      -4-
<PAGE>

                           (iv)     to approve forms of agreement for use under
the Plan;

                           (v)      to determine the terms and conditions, of
any Option or Stock Purchase Right granted hereunder. Such terms and conditions
include, but are not limited to, the exercise price, the time or times when
Options or Stock Purchase Rights may be exercised (which may be based on
performance criteria), any vesting acceleration or waiver of forfeiture
restrictions, and any restriction or limitation regarding any Option or Stock
Purchase Right or the Common Stock relating thereto, based in each case on such
factors as the Administrator, in its sole discretion, shall determine;

                           (vi)     to determine whether and under what
circumstances an Option may be settled in cash under subsection 9(e) instead of
Common Stock;

                           (vii)    to reduce the exercise price of any Option
to the then current Fair Market Value if the Fair Market Value of the Common
Stock covered by such Option has declined since the date the Option was granted;

                           (viii)   to initiate an Option Exchange Program;

                           (ix)     to prescribe, amend and rescind rules and
regulations relating to the Plan, including rules and regulations relating to
sub-plans established for the purpose of qualifying for preferred tax treatment
under foreign tax laws;

                           (x)      to allow Optionees to satisfy withholding
tax obligations by electing to have the Company withhold from the Shares to be
issued upon exercise of an Option or Stock Purchase Right that number of Shares
having a Fair Market Value equal to the amount required to be withheld. The Fair
Market Value of the Shares to be withheld shall be determined on the date that
the amount of tax to be withheld is to be determined. All elections by Optionees
to have Shares withheld for this purpose shall be made in such form and under
such conditions as the Administrator may deem necessary or advisable; and

                           (xi)     to construe and interpret the terms of the
Plan and awards granted pursuant to the Plan.

                  (c)      Effect of Administrator's Decision. All decisions,
determinations and interpretations of the Administrator shall be final and
binding on all Optionees.

         5.       Eligibility.

                  (a)      Nonstatutory Stock Options and Stock Purchase Rights
may be granted to Service Providers. Incentive Stock Options may be granted only
to Employees.

                  (b)      Each Option shall be designated in the Option
Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option.
However, notwithstanding such designation, to the extent that the aggregate Fair
Market Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 5(b), Incentive Stock Options

                                      -5-
<PAGE>

shall be taken into account in the order in which they were granted. The Fair
Market Value of the Shares shall be determined as of the time the Option with
respect to such Shares is granted.

                  (c)      Neither the Plan nor any Option or Stock Purchase
Right shall confer upon any Optionee any right with respect to continuing the
Optionee's relationship as a Service Provider with the Company, nor shall it
interfere in any way with his or her right or the Company's right to terminate
such relationship at any time, with or without cause.

         6.       Term of Plan. The Plan shall become effective upon its
adoption by the Board. It shall continue in effect for a term of ten (10) years
unless sooner terminated under Section 14 of the Plan.

         7.       Term of Option. The term of each Option shall be stated in the
Option Agreement; provided, however, that the term shall be no more than ten
(10) years from the date of grant thereof. In the case of an Incentive Stock
Option granted to an Optionee who, at the time the Option is granted, owns stock
representing more than ten percent (10%) of the voting power of all classes of
stock of the Company or any Parent or Subsidiary, the term of the Option shall
be five (5) years from the date of grant or such shorter term as may be provided
in the Option Agreement.

         8.       Option Exercise Price and Consideration.

                  (a)      The per share exercise price for the Shares to be
issued upon exercise of an Option shall be such price as is determined by the
Administrator, but shall be subject to the following:

                           (i)      In the case of an Incentive Stock Option

                                    (A)      granted to an Employee who, at the
time of grant of such Option, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any Parent
or Subsidiary, the exercise price shall be no less than 110% of the Fair Market
Value per Share on the date of grant.

                                    (B)      granted to any other Employee, the
per Share exercise price shall be no less than 100% of the Fair Market Value per
Share on the date of grant.

                           (ii)     In the case of a Nonstatutory Stock Option

                                    (A)      granted to a Service Provider who,
at the time of grant of such Option, owns stock representing more than ten
percent (10%) of the voting power of all classes of stock of the Company or any
Parent or Subsidiary, the exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of grant.

                                    (B)      granted to any other Service
Provider, the per Share exercise price shall be no less than 85% of the Fair
Market Value per Share on the date of grant.

                           (iii)    Notwithstanding the foregoing, Options may
be granted with a per Share exercise price other than as required above pursuant
to a merger or other corporate transaction.

                                      -6-
<PAGE>
                  (b)      The consideration to be paid for the Shares to be
issued upon exercise of an Option, including the method of payment, shall be
determined by the Administrator (and, in the case of an Incentive Stock Option,
shall be determined at the time of grant). Such consideration may consist of (1)
cash, (2) check, (3) promissory  note, (4) other Shares which (x) in the case of
Shares acquired upon exercise of an Option, have been owned by the Optionee for
more than six months on the date of surrender, and (y) have a Fair Market Value
on the date of surrender equal to the aggregate exercise price of the Shares as
to which such Option shall be exercised, (5) consideration received by the
Company under a cashless exercise program implemented by the Company in
connection with the Plan, or (6) any combination of the foregoing methods of
payment. In making its determination as to the type of consideration to accept,
the Administrator shall consider if acceptance of such consideration may be
reasonably expected to benefit the Company.

         9.       Exercise of Option.

                  (a)      Procedure for Exercise; Rights as a Shareholder. Any
Option granted hereunder shall be exercisable according to the terms hereof at
such times and under such conditions as determined by the Administrator and set
forth in the Option Agreement. Except in the case of Options granted to
Officers, Directors and Consultants, Options shall become exercisable at a rate
of no less than 20% per year over five (5) years from the date the Options are
granted. Unless the Administrator provides otherwise, vesting of Options granted
hereunder to Officers and Directors shall be tolled during any unpaid leave of
absence. An Option may not be exercised for a fraction of a Share.

                           An Option shall be deemed exercised when the Company
receives (i) written or electronic notice of exercise (in accordance with the
Option Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Shares, notwithstanding the exercise of the Option. The
Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 12 of the Plan.

                           Exercise of an Option in any manner shall result in a
decrease in the number of Shares thereafter available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.

                  (b)      Termination of Relationship as a Service Provider. If
an Optionee ceases to be a Service Provider, such Optionee may exercise his or
her Option within such period of time as is specified in the Option Agreement
(of at least thirty (30) days) to the extent that the Option is vested on the
date of termination (but in no event later than the expiration of the term of
the Option as set forth in the Option Agreement). In the absence of a specified
time in the Option Agreement, the Option shall remain exercisable for three (3)
months following the Optionee's termination. If, on the

                                      -7-
<PAGE>

date of termination, the Optionee is not vested as to his or her entire Option,
the Shares covered by the unvested portion of the Option shall revert to the
Plan. If, after termination, the Optionee does not exercise his or her Option
within the time specified by the Administrator, the Option shall terminate, and
the Shares covered by such Option shall revert to the Plan.

                  (c)      Disability of Optionee. If an Optionee ceases to be a
Service Provider as a result of the Optionee's Disability, the Optionee may
exercise his or her Option within such period of time as is specified in the
Option Agreement (of at least six (6) months) to the extent the Option is vested
on the date of termination (but in no event later than the expiration of the
term of such Option as set forth in the Option Agreement). In the absence of a
specified time in the Option Agreement, the Option shall remain exercisable for
twelve (12) months following the Optionee's termination. If, on the date of
termination, the Optionee is not vested as to his or her entire Option, the
Shares covered by the unvested portion of the Option shall revert to the Plan.
If, after termination, the Optionee does not exercise his or her Option within
the time specified herein, the Option shall terminate, and the Shares covered by
such Option shall revert to the Plan.

                  (d)      Death of Optionee. If an Optionee dies while a
Service Provider, the Option may be exercised within such period of time as is
specified in the Option Agreement (of at least six (6) months) to the extent
that the Option is vested on the date of death (but in no event later than the
expiration of the term of such Option as set forth in the Option Agreement) by
the Optionee's estate or by a person who acquires the right to exercise the
Option by bequest or inheritance. In the absence of a specified time in the
Option Agreement, the Option shall remain exercisable for twelve (12) months
following the Optionee's termination. If, at the time of death, the Optionee is
not vested as to the entire Option, the Shares covered by the unvested portion
of the Option shall immediately revert to the Plan. If the Option is not so
exercised within the time specified herein, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.

                  (e)      Buyout Provisions. The Administrator may at any time
offer to buy out for a payment in cash or Shares, an Option previously granted,
based on such terms and conditions as the Administrator shall establish and
communicate to the Optionee at the time that such offer is made.

         10.      Non-Transferability of Options and Stock Purchase Rights. The
Options and Stock Purchase Rights may not be sold, pledged, assigned,
hypothecated, transferred, or disposed of in any manner other than by will or by
the laws of descent or distribution and may be exercised, during the lifetime of
the Optionee, only by the Optionee.

         11.      Stock Purchase Rights.

                  (a)      Rights to Purchase. Stock Purchase Rights may be
issued either alone, in addition to, or in tandem with other awards granted
under the Plan and/or cash awards made outside of the Plan. After the
Administrator determines that it will offer Stock Purchase Rights under the
Plan, it shall advise the offeree in writing or electronically of the terms,
conditions and restrictions related to the offer, including the number of Shares
that such person shall be entitled to purchase, the price to be paid, and the
time within which such person must accept such offer. The terms of the offer
shall comply in all respects with Section 260.140.42 of Title 10 of the
California Code of Regulations. The offer shall be accepted by execution of a
Restricted Stock purchase agreement in the form determined by the Administrator.

                                      -8-
<PAGE>

                  (b)      Repurchase Option. Unless the Administrator
determines otherwise, the Restricted Stock purchase agreement shall grant the
Company a repurchase option exercisable upon the voluntary or involuntary
termination of the purchaser's service with the Company for any reason
(including death or disability). The purchase price for Shares repurchased
pursuant to the Restricted Stock purchase agreement shall be the original price
paid by the purchaser and may be paid by cancellation of any indebtedness of the
purchaser to the Company. The repurchase option shall lapse at such rate as the
Administrator may determine. Except with respect to Shares purchased by
Officers, Directors and Consultants, the repurchase option shall in no case
lapse at a rate of less than 20% per year over five (5) years from the date of
purchase.

                  (c)      Other Provisions. The Restricted Stock purchase
agreement shall contain such other terms, provisions and conditions not
inconsistent with the Plan as may be determined by the Administrator in its sole
discretion.

                  (d)      Rights as a Shareholder. Once the Stock Purchase
Right is exercised, the purchaser shall have rights equivalent to those of a
shareholder and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
shall be made for a dividend or other right for which the record date is prior
to the date the Stock Purchase Right is exercised, except as provided in Section
12 of the Plan.

         12.      Adjustments Upon Changes in Capitalization, Merger or Asset
Sale.

                  (a)      Changes in Capitalization. Subject to any required
action by the shareholders of the Company, the number of shares of Stock covered
by each outstanding Option or Stock Purchase Right, and the number of shares of
Stock which have been authorized for issuance under the Plan but as to which no
Options or Stock Purchase Rights have yet been granted or which have been
returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Stock covered by each such
outstanding Option or Stock Purchase Right, shall be proportionately adjusted
for any increase or decrease in the number of issued shares of Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Stock, or any other increase or decrease in the number
of issued shares of Stock effected without receipt of consideration by the
Company. The conversion of any convertible securities of the Company shall not
be deemed to have been "effected without receipt of consideration." Such
adjustment shall be made by the Board, whose determination in that respect shall
be final, binding and conclusive. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Stock subject to an Option or Stock Purchase Right.

                  (b)      Dissolution or Liquidation. In the event of the
proposed dissolution or liquidation of the Company, the Administrator shall
notify each Optionee as soon as practicable prior to the effective date of such
proposed transaction. The Administrator in its discretion may provide for an
Optionee to have the right to exercise his or her Option or Stock Purchase Right
until fifteen (15) days prior to such transaction as to all of the Optioned
Stock covered thereby, including Shares as to which the Option or Stock Purchase
Right would not otherwise be exercisable. In addition, the Administrator may
provide that any Company repurchase option applicable to any Shares purchased
upon exercise of an Option or Stock Purchase Right shall lapse as to all such

                                      -9-
<PAGE>

Shares, provided the proposed dissolution or liquidation takes place at the time
and in the manner contemplated. To the extent it has not been previously
exercised, an Option or Stock Purchase Right will terminate immediately prior to
the consummation of such proposed action.

                  (c)      Merger or Change of Control. Subject to subsections
(d) and (e) below, in the event of a merger of the Company with or into another
corporation, or a Change of Control, each outstanding Option and Stock Purchase
Right shall be assumed or an equivalent option or right substituted by the
successor corporation or a Parent or Subsidiary of the successor corporation. In
the event that the successor corporation refuses to assume or substitute for the
Option or Stock Purchase Right, the Optionee shall fully vest in and have the
right to exercise the Option or Stock Purchase Right as to all of the Optioned
Stock, including Shares as to which it would not otherwise be vested or
exercisable. If an Option or Stock Purchase Right becomes fully vested and
exercisable in lieu of assumption or substitution in the event of a merger or
Change of Control, the Administrator shall notify the Optionee in writing or
electronically that the Option or Stock Purchase Right shall be fully
exercisable for a period of fifteen (15) days from the date of such notice, and
the Option or Stock Purchase Right shall terminate upon the expiration of such
period. For the purposes of this paragraph, the Option or Stock Purchase Right
shall be considered assumed if, following the merger or Change of Control, the
option or right confers the right to purchase or receive, for each Share of
Optioned Stock subject to the Option or Stock Purchase Right immediately prior
to the merger or Change of Control, the consideration (whether stock, cash, or
other securities or property) received in the merger or Change of Control by
holders of Common Stock for each Share held on the effective date of the
transaction (and if holders were offered a choice of consideration, the type of
consideration chosen by the holders of a majority of the outstanding Shares);
provided, however, that if such consideration received in the merger or Change
of Control is not solely common stock of the successor corporation or its
Parent, the Administrator may, with the consent of the successor corporation,
provide for the consideration to be received upon the exercise of the Option or
Stock Purchase Right, for each Share of Optioned Stock subject to the Option or
Stock Purchase Right, to be solely common stock of the successor corporation or
its Parent equal in fair market value to the per share consideration received by
holders of Common Stock in the merger or Change of Control.

                  (d)      Acceleration in the Event of Termination following a
Change of Control. If within eighteen (18) months following a Change of Control
(i) an Optionee terminates his or her status as a Service Provider due to Good
Reason, or (ii) the Company or the successor corporation or a Parent or
Subsidiary of the successor corporation terminates an Optionee's status as a
Service Provider for other than Cause, death or Disability, then all outstanding
Options and Stock Purchase Rights that would then otherwise remain unvested as
of such date shall immediately vest and become exercisable (that is, in addition
to the Optioned Stock which has vested and become exercisable as of the date of
such termination), but in no event shall the number of Shares which so vest
exceed the total number of Shares of Optioned Stock. In addition, any Restricted
Stock acquired pursuant to a Stock Purchase Right or upon the exercise of an
Option as to unvested Shares that would then otherwise remain unvested as of
such date shall immediately vest and have any Company repurchase option lapse
with respect to such Restricted Stock (that is, in addition to the Restricted
Stock which has vested and had any Company repurchase option lapse as of the
date of such termination), but in no event shall the number of Shares which so
vest exceed the original number of Shares of Restricted Stock acquired pursuant
to the Stock Purchase Right or exercise of the Option as to unvested Shares.

                                      -10-
<PAGE>

         13.      Time of Granting Options and Stock Purchase Rights. The date
of grant of an Option or Stock Purchase Right shall, for all purposes, be the
date on which the Administrator makes the determination granting such Option or
Stock Purchase Right, or such other date as is determined by the Administrator.
Notice of the determination shall be given to each Service Provider to whom an
Option or Stock Purchase Right is so granted within a reasonable time after the
date of such grant.

         14.      Amendment and Termination of the Plan.

                  (a)      Amendment and Termination. The Board may at any time
amend, alter, suspend or terminate the Plan.

                  (b)      Shareholder Approval. The Board shall obtain
shareholder approval of any Plan amendment to the extent necessary and desirable
to comply with Applicable Laws.

                  (c)      Effect of Amendment or Termination. No amendment,
alteration, suspension or termination of the Plan shall impair the rights of any
Optionee, unless mutually agreed otherwise between the Optionee and the
Administrator, which agreement must be in writing and signed by the Optionee and
the Company. Termination of the Plan shall not affect the Administrator's
ability to exercise the powers granted to it hereunder with respect to Options
granted under the Plan prior to the date of such termination.

         15.      Conditions Upon Issuance of Shares.

                  (a)      Legal Compliance. Shares shall not be issued pursuant
to the exercise of an Option unless the exercise of such Option and the issuance
and delivery of such Shares shall comply with Applicable Laws and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.

                  (b)      Investment Representations. As a condition to the
exercise of an Option, the Administrator may require the person exercising such
Option to represent and warrant at the time of any such exercise that the Shares
are being purchased only for investment and without any present intention to
sell or distribute such Shares if, in the opinion of counsel for the Company,
such a representation is required.

         16.      Inability to Obtain Authority. The inability of the Company to
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.

         17.      Reservation of Shares. The Company, during the term of this
Plan, shall at all times reserve and keep available such number of Shares as
shall be sufficient to satisfy the requirements of the Plan.

         18.      Shareholder Approval. The Plan shall be subject to approval by
the shareholders of the Company within twelve (12) months after the date the
Plan is adopted. Such shareholder approval shall be obtained in the degree and
manner required under Applicable Laws.

                                      -11-
<PAGE>

         19.      Information to Optionees and Purchasers. The Company shall
provide to each Optionee and to each individual who acquires Shares pursuant to
the Plan, not less frequently than annually during the period such Optionee or
purchaser has one or more Options or Stock Purchase Rights outstanding, and, in
the case of an individual who acquires Shares pursuant to the Plan, during the
period such individual owns such Shares, copies of annual financial statements.
The Company shall not be required to provide such statements to key employees
whose duties in connection with the Company assure their access to equivalent
information.

                                      -12-

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