Document:

exhibit10-19.htm

    Exhibit
10.19

      

       

      

       

      HI/FN,
INC.

       

      1996
EQUITY INCENTIVE PLAN

       

      ADOPTED
NOVEMBER 21, 1996

       

      AS
AMENDED AND RESTATED EFFECTIVE October 23, 2008

       

      

       

      1.         Purposes

       

      (a)         The
purpose of the Plan is to provide a means by which selected Employees and
Directors of and Consultants to the Company, and its Affiliates, may be given an
opportunity to benefit from increases in value of the stock of the Company
through the granting of (i) Incentive Stock Options, (ii) Nonstatutory Stock
Options, (iii) stock bonuses, (iv) rights to purchase restricted stock, and (v)
stock appreciation rights, all as defined below.

       

      (b)         The
Company, by means of the Plan, seeks to retain the services of persons who are
now Employees or Directors of or Consultants to the Company or its Affiliates,
to secure and retain the services of new Employees, Directors and Consultants,
and to provide incentives for such persons to exert maximum efforts for the
success of the Company and its Affiliates.

       

      (c)         The
Company intends that the Stock Awards issued under the Plan shall, in the
discretion of the Board or any Committee to which responsibility for
administration of the Plan has been delegated pursuant to subsection 3(c), be
either (i) Options granted pursuant to Section 6 hereof, including Incentive
Stock Options and Nonstatutory Stock Options, (ii) stock bonuses or rights to
purchase restricted stock granted pursuant to Section 7 hereof, or (iii) stock
appreciation rights granted pursuant to Section 8 hereof. All Options shall be
separately designated Incentive Stock Options or Nonstatutory Stock Options at
the time of grant, and in such form as issued pursuant to Section 6, and a
separate certificate or certificates will be issued for shares purchased on
exercise of each type of Option.

       

      2.         Definitions

       

      (a)         "Administrator"
means the Board or any of its Committees as shall be administering the Plan, in
accordance with Section 3 of the Plan.

       

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

       

      (c)         "Applicable
Laws" means the requirements relating to the administration of stock 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 Common Stock is listed or quoted
and the applicable laws of any foreign country or jurisdiction where Stock
Awards are, or will be, granted under the Plan.

       

      
        
          
          

        

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

       

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

       

      (f)         "Committee"
means a committee appointed by the Board in accordance with Section 3 of the
Plan.

       

      (g)         "Common
Stock" means the common stock of the Company.

       

      (h)         "Company"
means hi/fn, inc., a Delaware corporation.

       

      (i)        
 "Concurrent Stock Appreciation Right" or "Concurrent Right" means a right
granted pursuant to subsection 9(c)(ii) of the Plan.

       

      (j)       
  "Consultant" means any person, including an advisor, engaged by the
Company or an Affiliate to render consulting services; provided, however that a
Consultant shall not include a Director.

       

      (k)         "Continuous
Status as an Employee, Director or Consultant" means that the service of an
individual to the Company, whether as an Employee, Director or Consultant, is
not interrupted or terminated.

       

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

       

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

       

      (n)         "Employee"
means any person, including Officers and Directors, employed by the Company or
any Affiliate of the Company. An individual's continuous status as an Employee
shall not be deemed to be interrupted or terminated 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 and its Affiliates, 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.

       

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

       

      (p)         "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, including
without limitation the NASDAQ Global Market, the NASDAQ Global Select Market or
the NASDAQ

       

      
        
          
          

        

        
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      Capital
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 on the date of grant, or if such exchange is
not open on the date of grant, on the last market trading day prior to the date
of grant, as reported in The Wall Street Journal or such other source as the
Administrator deems reliable;

       

       (ii)
If the Common Stock is regularly quoted by a recognized securities dealer but
selling prices are not reported, the Fair Market Value of a share of Common
Stock shall be the mean between the high bid and low asked prices for the Common
Stock on the date of grant, or if the date of grant falls on a non-market
trading day, then on the last market trading day prior to the date of grant, as
reported in The Wall Street Journal or such other source as the Administrator
deems reliable; or

       

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

       

      (q)         "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.

       

      (r)         "Independent
Stock Appreciation Right" or "Independent Right" means a right granted pursuant
to subsection 9(c)(iii) of the Plan.

       

      (s)         "Inside
Director" means a Director who is an Employee.

       

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

       

      (u)         "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
thereunder.

       

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

       

      (w)         "Option
Agreement" means a written agreement between the Company and an Optionee
evidencing the terms and conditions of an individual Option grant. Each Option
Agreement shall be subject to the terms and conditions of the Plan.

       

      (x)         "Optionee"
means a person who holds an outstanding Option.

       

      (y)         "Option
Exchange Program" means a program whereby outstanding Options are surrendered in
exchange for Options with a lower exercise price.

       

      (z)        
"Outside Director" means a Director who is not an Employee.

       

      (aa)      
"Plan" means this hi/fn, inc. 1996 Equity Incentive Plan.

       

      (bb)      
"Rule 16b-3" means Rule 16b-3 of the Exchange Act or any successor to Rule
16b-3, as in effect when discretion is being exercised with respect to the
Plan.

       

      
        
          
          

        

        
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      (cc)       "Stock
Appreciation Right" means any of the various types of rights which may be
granted under Section 9 of the Plan.

       

      (dd)       "Stock
Award" means any right granted under the Plan, including any Option, any stock
bonus, any right to purchase restricted stock, and any Stock Appreciation
Right.

       

      (ee)       
"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.

       

      (ff)        
"Tandem Stock Appreciation Right" or "Tandem Right" means a right granted
pursuant to subsection 9(c)(i) of the Plan.

       

      3.         Administration

       

      (a)         Procedure.

       

       (i)
Multiple Administrative Bodies. The Plan may be administered by different
Committees with respect to different groups of Employees, Directors or
Consultants.

       

       (ii)
Section 162(m). To the extent that the Administrator determines it to be
desirable to qualify transactions hereunder as "performance-based compensation"
within the meaning of Section 162(m) of the Code, the transactions contemplated
hereunder shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.

       

       (iii)
Rule 16b-3. Except as provided in Section 8, to the extent that the
Administrator determines it to be desirable to qualify transactions hereunder as
exempt under Rule 16b-3, the transactions contemplated hereunder shall be
structured to satisfy the requirements for exemption under Rule
16b-3.

       

       (iv)
Other Administration. Other than as provided above, the Plan shall be
administered by (A) the Board or (B) a Committee, which committee shall be
constituted to satisfy Applicable Laws.

       

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

       

       (i)  to
determine the Fair Market Value;

       

       (ii)
to select the Employees, Directors and Consultants to whom Stock Awards may be
granted hereunder;

       

       (iii)
to determine the number of shares of Common Stock to be covered by each Stock
Award granted hereunder;

       

      
        
          
          

        

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

       

       (v)
to determine the terms and conditions, not inconsistent with the terms of the
Plan, of any Stock Award granted hereunder. Such terms and conditions include,
but are not limited to, the exercise price, the time or times when Stock Awards
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 Stock Award or the shares of Common Stock relating
thereto, based in each case on such factors as the Administrator, in its sole
discretion, shall determine;

       

       (vi)
to reduce the exercise price of any Stock Award to the then current Fair Market
Value if the Fair Market Value of the Common Stock covered by such Stock Award
shall have declined since the date the Stock Award was granted;

       

       (vii)
to institute an Option Exchange Program;

       

       (viii)
to construe and interpret the terms of the Plan and awards granted pursuant to
the Plan;

       

       (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 modify or amend each Stock Award (subject to Section 15(c) of the
Plan);

       

       (xi)
to allow holders of Stock Awards to satisfy withholding tax obligations by
electing to have the Company withhold from the shares to be issued upon exercise
of a Stock Award 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 a holder of a Stock Award 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;

       

       (xii)
to authorize any person to execute on behalf of the Company any instrument
required to effect the grant of Stock Award previously granted by the
Administrator;

       

       (xiii)
to make all other determinations deemed necessary or advisable for administering
the Plan.

       

      (c)         Effect
of Administrator's Decision. The Administrator's decisions, determinations and
interpretations shall be final and binding on all holders of Stock
Awards.

       

      4.         Shares
Subject to the Plan

       

      
        
          
          

        

        
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      (a)       
  Subject to the provisions of the Plan relating to adjustments upon
changes in stock, the stock that may be issued pursuant to all Stock Awards
under this Plan shall not exceed in the aggregate five million four hundred and
forty-nine thousand nine hundred (5,449,900) shares of the Company's Common
Stock. If any Stock Award shall for any reason expire or otherwise terminate, in
whole or in part, without having been exercised in full, or is surrendered
pursuant to an Option Exchange Program, the stock not acquired under such Stock
Award shall revert to and again become available for issuance under the Plan.
Shares subject to Stock Appreciation Rights exercised in accordance with Section
9 of the Plan shall not be available for subsequent issuance under the
Plan.

       

      (b)         The
stock subject to the Plan may be unissued shares or reacquired shares, bought on
the market or otherwise.

       

      5.         Eligibility

       

      (a)         Incentive
Stock Options and Stock Appreciation Rights appurtenant thereto may be granted
only to Employees. Stock Awards other than Incentive Stock Options and Stock
Appreciation Rights appurtenant thereto may be granted only to Employees,
Directors or Consultants.

       

      6.         Discretionary
Option Provisions

       

      Each
Option shall be in such form and shall contain such terms and conditions as the
Board shall deem appropriate. 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)         Option
Designation. 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 Affiliate) exceeds $100,000, such Options shall
be treated as Nonstatutory Stock Options. For purposes of this Section 6(a),
Incentive Stock Options 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.

       

      (b)         Share
Limitations. The following limitations shall apply to grants of
Options:

       

       (i)
No Employee, Director or Consultant shall be granted, in any fiscal year of the
Company, Options to purchase more than 1,000,000 shares.

       

      (A) In
connection with his or her initial service, an Employee Director or Consultant
may be granted Options to purchase up to an additional 1,000,000 shares which
shall not count against the limit set forth in subsection (i)
above.

       

      
        
          
          

        

        
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      (B) The
foregoing limitations shall be adjusted proportionately in connection with any
change in the Company's capitalization as described in Section 14.

       

      (C) If an
Option is cancelled in the same fiscal year of the Company in which it was
granted (other than in connection with a transaction described in Section 14),
the cancelled Option will be counted against the limits set forth in subsections
(A) and (B) above. For this purpose, if the exercise price of an Option is
reduced, the transaction will be treated as a cancellation of the Option and the
grant of a new Option.

       

      (c)         Term.
The term of each Option shall be stated in the Option Agreement. In the case of
an Incentive Stock Option, the term shall be ten (10) years from the date of
grant or such shorter term as may be provided in the Option Agreement. Moreover,
in the case of an Incentive Stock Option granted to an Optionee who, at the time
the Incentive Stock Option is granted, owns stock representing more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company or any Affiliate, the term of the Incentive Stock Option shall be five
(5) years from the date of grant or such shorter term as may be provided in the
Option Agreement.

       

      (d)         Price.
The per share exercise price for the stock to be issued pursuant to exercise of
an Option shall be determined by the administrator, subject to the
following:

       

       (i)
In the case of an Incentive Stock Option

       

      (A)
granted to an Employee who, at the time the Incentive Stock 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 Affiliate, the per share exercise price
shall be no less than 110% of the Fair Market Value per share on the date of
grant.

       

      (B)
granted to any Employee other than an Employee described in paragraph (A)
immediately above, 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, the per share exercise price shall
be determined by the Administrator. In the case of a Nonstatutory Stock Option
intended to qualify as "performance-based compensation" within the meaning of
Section 162(m) of the Code, the per share exercise price shall be no less than
100% of the Fair Market Value per share on the date of grant.

       

       (iii)
Notwithstanding the foregoing, Options may be granted with per share exercise
price of less than 100% of the Fair Market Value per share on the date of grant
pursuant to a merger or other corporate transaction.

       

      (e)         Consideration.
The Administrator shall determine the acceptable form of consideration for
exercising an Option, including the method of payment. In the case of an
Incentive Stock Option, the Administrator shall determine the acceptable form of
consideration at the time of grant. Such consideration may consist entirely
of:

       

      
        
          
          

        

        
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           (i)
cash;

       

       (ii)
check;

       

       (iii)
promissory note;

       

       (iv)
other shares which (A) 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 (B) have a Fair Market Value on the date of surrender equal to
the aggregate exercise price of the shares as to which said Option shall be
exercised;

       

       (v)
consideration received by the Company under a cashless exercise program
implemented by the Company in connection with the Plan;

       

       (vi)
a reduction in the amount of any Company liability to the Optionee, including
any liability attributable to the Optionee's participation in any
Company-sponsored deferred compensation program or arrangement;

       

       (vii)
any combination of the foregoing methods of payment; or

       

       (viii)
such other consideration and method of payment for the issuance of shares to the
extent permitted by Applicable Laws.

       

      (f)         
Transferability. Unless otherwise provided by the Administrator, an Option shall
not be transferable except by will or the laws of descent and distribution or
pursuant to a qualified domestic relations order, and shall be exercisable
during the lifetime of the person to whom the Option is granted only by such
person. Notwithstanding the foregoing, the person to whom the Option is granted
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 Optionee,
shall thereafter be entitled to exercise the Option. If the Administrator makes
an Option transferable, such Option shall contain such additional terms and
conditions as the Administrator deems appropriate.

       

      (g)         Vesting.
The total number of shares of stock subject to an Option may, but need not, be
allotted in periodic installments (which may, but need not, be equal). The
Option Agreement may provide that from time to time during each of such
installment periods, the Option may become exercisable ("vest") with respect to
some or all of the shares allotted to that period, and may be exercised with
respect to some or all of the shares allotted to such period and/or any prior
period as to which the Option became vested but was not fully
exercised.

       

      (h)         Termination
of Employment or Relationship as a Director or Consultant. In the event an
Optionee's Continuous Status as an Employee, Director or Consultant terminates
(other than upon the Optionee's death or Disability), the Optionee may exercise
his or her Option (to the extent that the Optionee was entitled to exercise it
as of the date of termination) but only within such period of time ending on the
earlier of (i) the date three (3) months after the termination of the Optionee's
Continuous Status as an Employee, Director or Consultant (or such longer or
shorter period

       

      
        
          
          

        

        
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      specified
in the Option Agreement), or (ii) the expiration of the term of the Option as
set forth in the Option Agreement. If, after termination, the Optionee does not
exercise his or her Option within the time specified in the Option Agreement,
the Option shall terminate, and the shares covered by such Option shall revert
to and again become available for issuance under the Plan.

       

      An
Optionee's Option Agreement may also provide that if the exercise of the Option
following the termination of the Optionee's Continuous Status as an Employee,
Director, or Consultant (other than upon the Optionee's death or Disability)
would result in liability under Section 16(b) of the Exchange Act, then the
Option shall terminate on the earlier of (i) the expiration of the term of the
Option set forth in the Option Agreement, or (ii) the tenth (10th) day after the
last date on which such exercise would result in such liability under Section
16(b) of the Exchange Act. Finally, an Optionee's Option Agreement may also
provide that if the exercise of the Option following the Termination of the
Optionee's Continuous Status as an Employee, Director or Consultant (other than
upon the Optionee's death or Disability) would be prohibited at any time solely
because the issuance of shares would violate the registration requirements under
the Act, then the Option shall terminate on the earlier of (i) the expiration of
the term of the Option set forth in the first paragraph of this subsection 6(f),
or (ii) the expiration of a period of three (3) months after the termination of
the Optionee's Continuous Status as an Employee, Director or Consultant during
which the exercise of the Option would not be in violation of such registration
requirements.

       

      (i)         Disability
of Optionee. In the event an Optionee's Continuous Status as an Employee,
Director or Consultant terminates as a result of the Optionee's Disability, the
Optionee may exercise his or her Option (to the extent that the Optionee was
entitled to exercise it 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), or (ii) the expiration of the term of the Option as set forth
in the Option Agreement. If, at the date of termination, the Optionee is not
entitled to exercise his or her entire Option, the shares covered by the
unexercisable portion of the Option shall revert to and again become available
for issuance under 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 and again
become available for issuance under the Plan.

       

      (j)         Death
of Optionee. In the event of the death of an Optionee during, or within a period
specified in the Option Agreement after the termination of, the Optionee's
Continuous Status as an Employee, Director or Consultant, the Option may be
exercised (to the extent the Optionee was entitled to exercise the Option as of
the date of death) by the Optionee'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 Optionee's death pursuant to subsection 6(g), but
only within the period ending on the earlier of (i) the date eighteen (18)
months following the date of death (or such longer or shorter period specified
in the Option Agreement), or (ii) the expiration of the term of such Option as
set forth in the Option Agreement. If, at the time of death, the Optionee was
not entitled to exercise his or her entire Option, the shares covered by the
unexercisable portion of the Option shall revert to and again become available
for issuance under the Plan. If, after death, the Option is not

       

      
        
          
          

        

        
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      exercised
within the time specified herein, the Option shall terminate, and the shares
covered by such Option shall revert to and again become available for issuance
under the Plan.

       

      (k)        Early
Exercise. The Option may, but need not, include a provision whereby the Optionee
may elect at any time while an Employee, Director or Consultant to exercise the
Option as to any part or all of the shares subject to the Option prior to the
full vesting of the Option. Any unvested shares so purchased shall be subject to
a repurchase right in favor of the Company, with the repurchase price to be
equal to the original purchase price of the stock, or to any other restriction
the Administrator determines to be appropriate.

       

      (l)         Re-Load
Options. Without in any way limiting the authority of
the     Administrator to make or not to make grants of
Options hereunder, the     Administrator shall have the
authority (but not an obligation) to include as part of any Option Agreement a
provision entitling the Optionee to a further Option (a "Re-Load Option") in the
event the Optionee 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 (i) shall be for a number of shares equal to the number of shares
surrendered as part or all of the exercise price of such Option; (ii) shall 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) shall have an
exercise price on the date of exercise of the Original Option which complies
with Section 6(d).

       

      Any such
Re-Load Option may be an Incentive Stock Option or a Nonstatutory Stock Option,
as the Administrator may designate at the time of the grant of the original
Option; provided, however, that the designation of any Re-Load Option as an
Incentive Stock Option shall be subject to the one hundred thousand dollar
($100,000) annual limitation on exercisability of Incentive Stock Options
described in Section 6(a) of the Plan 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 under subsection 4(a) and
shall be subject to such other terms and conditions as the Administrator may
determine which are not inconsistent with the express provisions of the Plan
regarding the terms of Options.

       

      7.         Formula
Option Provisions.

       

      All
grants of Options to Outside Directors pursuant to this Section shall be
automatic and nondiscretionary and shall be made strictly in accordance with the
following provisions:

       

      (a)         All
Options granted pursuant to this Section shall be Nonstatutory Stock Options
and, except as otherwise provided herein, shall be subject to the other terms
and conditions of the Plan.

       

      (b)         No
person shall have any discretion to select which Outside Directors shall be
granted Options under this Section or to determine the number of shares to be
covered by such Options.

       

      (c)         Each
person who first becomes an Outside Director following the effective date of the
distribution of the Company's Common Stock held by Stac, Inc., a Delaware
corporation and parent

       

      
        
          
          

        

        
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      company
of the Company, pursuant to a registration statement on Form 10 filed with the
Securities and Exchange Commission shall be automatically granted an Option to
purchase 30,000 shares (the "First Option") or the date on which such person
first becomes an Outside Director, whether through election by the stockholders
of the Company or appointment by the Board to fill a vacancy; provided, however,
that an Inside Director who ceases to be an Inside Director but who remains a
Director shall not receive a First Option.

       

      (d)         Each
Outside Director shall be automatically granted an Option to purchase 10,000
shares (a "Subsequent Option") on the date of the annual meeting of the
stockholders of the Company (beginning in 1999), if as of such date, he or she
shall have served on the Board for at least the preceding six (6)
months.

       

      (e)         Notwithstanding
the provisions of subsections (c) and (d) hereof, any exercise of an Option
granted before the Company has obtained stockholder approval of the Plan in
accordance with Section 16 hereof shall be conditioned upon obtaining such
stockholder approval of the Plan in accordance with Section 16
hereof.

       

      (f)         The
terms of each Option granted pursuant to this Section shall be as
follows:

       

       (i)
the term of the Option shall be ten (10) years;

       

       (ii)
the exercise price per share shall be 100% of the Fair Market Value per share on
the date of grant of the Option;

       

       (iii)
subject to Section 14 hereof, the First Option shall vest and become exercisable
as to 20% of the shares subject to the Option on the first anniversary of its
date of jgrant, and as to 1/60th of the shares subject to the Option each full
month thereafter, provided that the Optionee continues to serve as a Director on
such dates;

       

       (iv)
subject to Section 14 hereof, the Subsequent Option shall vest and become
exercisable as to 100% of the shares subject to the Option the anniversary of
its date of grant, provided that the Optionee continues to serve as a Director
on such date.

       

      8.         Terms
of Stock Bonuses and Purchases of Restricted Stock

       

      Each
stock bonus or restricted stock purchase agreement shall be in such form and
shall contain such terms and conditions as the Administrator shall deem
appropriate. The terms and conditions of stock bonus or restricted stock
purchase agreements may change from time to time, and the terms and conditions
of separate agreements need not be identical, but each stock bonus or 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 as appropriate:

       

      (a)         Purchase
Price. The purchase price under each restricted stock purchase agreement shall
be such amount as the Administrator shall determine and designate in such
agreement.

       

      
        
          
          

        

        
          -11-

          
            

          

        

        
          
          

        

      

       

      Notwithstanding
the foregoing, the Administrator may determine that eligible participants in the
Plan may be awarded stock pursuant to a stock bonus agreement in consideration
for past services actually rendered to the Company or for its
benefit.

       

      (b)         Transferability.
Unless otherwise provided by the Administrator, no rights under a stock bonus or
restricted stock purchase agreement shall be transferable except by will or the
laws of descent and distribution or pursuant to a qualified domestic relations
order, provided, however that any stock awarded under such agreement remains
subject to the terms of the applicable agreement. If the Administrator makes a
stock bonus or right to purchase stock transferable, such stock bonus or right
to purchase stock shall contain such additional terms and conditions as the
Administrator deems appropriate.

       

      (c)         Consideration.
The purchase price of stock acquired pursuant to a stock purchase agreement
shall be paid either: (i) in cash at the time of purchase; (ii) at the
discretion of the Administrator, according to a deferred payment or other
arrangement with the person to whom the stock is sold; or (iii) in any other
form of legal consideration that may be acceptable to the Administrator in its
discretion. Notwithstanding the foregoing, the Administrator to which
administration of the Plan has been delegated may award stock pursuant to a
stock bonus agreement in consideration for past services actually rendered to
the Company or for its benefit.

       

      (d)         Vesting.
Shares of stock sold or awarded under the Plan may, but need not, be subject to
a repurchase option in favor of the Company in accordance with a vesting
schedule to be determined by the Administrator.

       

      (e)         Termination
of Employment or Relationship as a Director or Consultant. In the event an
individual's Continuous Status as an Employee, Director or Consultant
terminates, the Company may repurchase or otherwise reacquire any or all of the
shares of stock held by that person which have not vested as of the date of
termination under the terms of the stock bonus or restricted stock purchase
agreement between the Company and such person.

       

      (f)         Share
Limitations. The following limitations shall apply to grants of stock bonuses
and/or stock purchase right:

       

       (i)
No Employee, Director or Consultant shall be granted, in any fiscal year of the
Company, stock bonuses and/or stock purchase right to purchase more than
1,000,000 shares.

       

      (A) In
connection with his or her initial service, an Employee, Director or Consultant
may be granted a stock bonus and/or stock purchase right to purchase up to an
additional 1,000,000 shares which shall not count against the limit set forth in
subsection (i) above.

       

      (B) The
foregoing limitations shall be adjusted proportionately in connection with any
change in the Company's capitalization as described in Section 14.

       

      
        
          
          

        

        
          -12-

          
            

          

        

        
          
          

        

      

       

      (C) If a
stock bonus and/or stock purchase right is cancelled in the same fiscal year of
the Company in which it was granted (other than in connection with a transaction
described in Section 14), the cancelled stock bonus and/or restricted stock will
be counted against the limits set forth in subsections (A) and (B) above. For
this purpose, if the exercise price of a stock purchase right is reduced, the
transaction will be treated as a cancellation of the stock purchase right and
the grant of a new stock purchase right.

      9.         Stock
Appreciation Rights

       

      (a)         The
Administrator shall have full power and authority, exercisable in its sole
discretion, to grant Stock Appreciation Rights under the Plan to Employees or
Directors of or Consultants to, the Company or its Affiliates. To exercise any
outstanding Stock Appreciation Right, the holder must provide written notice of
exercise to the Company in compliance with the provisions of the Stock Award
Agreement evidencing such right. If a Stock Appreciation Right is granted to an
individual who is at the time subject to Section 16(b) of the Exchange Act (a
"Section 16(b) Insider"), the Stock Award Agreement of grant shall incorporate
all the terms and conditions at the time necessary to assure that the subsequent
exercise of such right shall qualify for the safe-harbor exemption from
short-swing profit liability provided by Rule 16b-3 promulgated under the
Exchange Act (or any successor rule or regulation). No limitation shall exist on
the aggregate amount of cash payments the Company may make under the Plan in
connection with the exercise of a Stock Appreciation Rights.

       

      (b)         Unless
otherwise provided by the Administrator, no Stock Appreciation Right shall be
transferable except by will or the laws of descent and distribution or pursuant
to a qualified domestic relations order, provided, however, the cash or stock
awarded under such agreement remains subject to the terms of the Stock
Appreciation Right. If the Administrator makes a Stock Appreciation Right
transferable, such Stock Appreciation Right shall contain such additional terms
and conditions as the Administrator deems appropriate.

       

      (c)         Three
types of Stock Appreciation Rights shall be authorized for issuance under the
Plan:

       

       (i)
Tandem Stock Appreciation Rights. Tandem Stock Appreciation Rights will be
granted appurtenant to an Option, and shall, except as specifically set forth in
this Section 8, be subject to the same terms and conditions applicable to the
particular Option grant to which it pertains. Tandem Stock Appreciation Rights
will require the holder to elect between the exercise of the underlying Option
for shares of stock and the surrender, in whole or in part, of such Option for
an appreciation distribution. The appreciation distribution payable on the
exercised Tandem Right shall be in cash (or, if so provided, in an equivalent
number of shares of stock based on Fair Market Value on the date of the Option
surrender) in an amount up to the excess of (A) the Fair Market Value (on the
date of the Option surrender) of the number of shares of stock covered by that
portion of the surrendered Option in which the Optionee is vested over (B) the
aggregate exercise price payable for such vested shares.

       

      
        
          
          

        

        
          -13-

          
            

          

        

        
          
          

        

      

       

       (ii)
Concurrent Stock Appreciation Rights. Concurrent Rights will be granted
appurtenant to an Option and may apply to all or any portion of the shares of
stock subject to the underlying Option and shall, except as specifically set
forth in this Section 8, be subject to the same terms and conditions applicable
to the particular Option grant to which it pertains. A Concurrent Right shall be
exercised automatically at the same time the underlying Option is exercised with
respect to the particular shares of stock to which the Concurrent Right
pertains. The appreciation distribution payable on an exercised Concurrent Right
shall be in cash (or, if so provided, in an equivalent number of shares of stock
based on Fair Market Value on the date of the exercise of the Concurrent Right)
in an amount equal to such portion as shall be determined by the Administrator
at the time of the grant of the excess of (A) the aggregate Fair Market Value
(on the date of the exercise of the Concurrent Right) of the vested shares of
stock purchased under the underlying Option which have Concurrent Rights
appurtenant to them over (B) the aggregate exercise price paid for such
shares.

       

       (iii)
Independent Stock Appreciation Rights. Independent Rights will be granted
independently of any Option and shall, except as specifically set forth in this
Section 8, be subject to the same terms and conditions applicable to
Nonstatutory Stock Options as set forth in Section 6. They shall be denominated
in share equivalents. The appreciation distribution payable on the exercised
Independent Right shall be not greater than an amount equal to the excess of (A)
the aggregate Fair Market Value (on the date of the exercise of the Independent
Right) of a number of shares of Company stock equal to the number of share
equivalents in which the holder is vested under such Independent Right, and with
respect to which the holder is exercising the Independent Right on such date,
over (B) the aggregate Fair Market Value (on the date of the grant of the
Independent Right) of such number of shares of Company stock. The appreciation
distribution payable on the exercised Independent Right shall be in cash or, if
so provided, in an equivalent number of shares of stock based on Fair Market
Value on the date of the exercise of the Independent Right.

       

      (d)         Share
Limitations. The following limitations shall apply to grants of Stock
Appreciation Rights:

       

       (i)
No Employee, Director or Consultant shall be granted, in any fiscal year of the
Company, Stock Appreciation Rights to purchase more than 1,000,000
shares.

       

      (A) In
connection with his or her initial service, an Employee, Director or Consultant
may be granted Stock Appreciation Rights to purchase up to an additional
1,000,000 shares which shall not count against the limit set forth in subsection
(i) above.

       

      (B) The
foregoing limitations shall be adjusted proportionately in connection with any
change in the Company's capitalization as described in Section 14.

       

      (C) If a
Stock Appreciation Right is cancelled in the same fiscal year of the Company in
which it was granted (other than in connection with a transaction described in
Section 14), the cancelled Stock Appreciation Right will be counted against the
limits set forth in subsections (A) and (B) above. For this purpose, if the
exercise price of a

       

      
        
          
          

        

        
          -14-

          
            

          

        

        
          
          

        

      

       

      Stock
Appreciation Right is reduced, the transaction will be treated as a cancellation
of the Stock Appreciation Right and the grant of a new Stock Appreciation
Right.

       

      10.         Cancellation
and Re-Grant of Options

       

      The
Administrator shall have the authority to effect, at any time and from time to
time, (i) the repricing of any outstanding Options and/or any Stock Appreciation
Rights under the Plan and/or (ii) with the consent of the affected holders of
Options and/or Stock Appreciation Rights, the cancellation of any outstanding
Options and/or any Stock Appreciation Rights under the Plan and the grant in
substitution therefor of new Options and/or Stock Appreciation Rights under the
Plan covering the same or different numbers of shares of stock.

       

      11.         Covenants
of the Company

       

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

       

      (b)        
The Company shall seek to obtain from each regulatory commission or agency
having jurisdiction over the Plan such authority as may be required to issue and
sell shares of stock upon exercise of the Stock Award; provided, however, that
this undertaking shall not require the Company to register under the Securities
Act of 1933, as amended (the "Securities Act") either the Plan, any Stock Award
or any 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 the lawful issuance and sale of stock under the Plan, the Company shall be
relieved from any liability for failure to, issue and sell stock upon exercise
of such Stock Awards unless and until such authority is obtained.

       

      12.         Use
of Proceeds from Stock

       

      (a)         Proceeds
from the sale of stock pursuant to Stock Awards shall constitute general funds
of the Company.

       

      13.         Miscellaneous

       

      (a)         Neither
an Employee, Director or Consultant nor any person to whom a Stock Award is
transferred under subsection 6(f), 8(b), or 9(b) shall be deemed to be the
holder of, or to have any of the rights of a holder with respect to, any shares
subject to such Stock Award unless and until such person has satisfied all
requirements for exercise of the Stock Award pursuant to its terms.

       

      (b)        Throughout
the term of any Stock Award, the Company shall deliver to the holder of such
Stock Award, not later than one hundred twenty (120) days after the close of
each of the Company's fiscal years during the term of such Stock Award, a
balance sheet and an income statement. This Section shall not apply when
issuance is limited to key employees whose duties in connection with the Company
assure them access to equivalent information.

       

      
        
          
          

        

        
          -15-

          
            

          

        

        
          
          

        

      

       

      (c)         Nothing
in the Plan or any instrument executed or Stock Award granted pursuant thereto
shall confer upon any Employee, Director, Consultant or other holder of Stock
Awards any right to continue in the employ of the Company or any Affiliate (or
to continue acting as a Director or Consultant) or shall affect the right of the
Company or any Affiliate to terminate the employment of any Employee with or
without cause, to remove any Director as provided in the Company's Bylaws and
the provisions of the General Corporation Law of the State of Delaware or to
terminate the relationship of any Consultant in accordance with the terms of
that Consultant's agreement with the Company or Affiliate to which such
Consultant is providing services.

       

      (d)         The
Company may require any person to whom a Stock Award is granted, or any person
to whom a Stock Award is transferred pursuant to subsection 6(g), 7(b) or 8(b),
as a condition of exercising or acquiring stock under any Stock Award, to give
written assurances satisfactory to the Company, if any, that are necessary to
ensure compliance with federal securities laws. These requirements, and any
assurances given pursuant to such requirements, shall be inoperative if (i) the
issuance of the shares upon the exercise or acquisition of stock under the Stock
Award has been registered under a then currently effective registration
statement under the Securities Act, or (ii) 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.

       

      (e)         To
the extent provided by the terms of a Stock Award Agreement, the person to whom
a Stock Award is granted may satisfy any federal, state or local tax withholding
obligation relating to the exercise or acquisition of stock under a Stock Award
by any of the following means or by a combination of such means: (i) tendering a
cash payment; (ii) authorizing the Company to withhold shares from the shares of
the Common Stock otherwise issuable to the participant as a result of the
exercise or acquisition of stock under the Stock Award; or (iii) delivering to
the Company owned and unencumbered shares of the Common Stock.

       

      14.        Adjustments
upon changes in stock

       

      (a)         If
any change is made in the 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 shares subject to the Plan pursuant to subsection 4(a), and the
outstanding Stock Awards will be appropriately adjusted in the class(es) and
number of shares and price per share of stock subject to such outstanding Stock
Awards. (The conversion of any convertible securities of the Company shall not
be treated as a "transaction not involving the receipt of consideration by the
Company".)

       

      (b)         In
the event of: (i) a merger or consolidation in which the Company is not the
surviving corporation or (ii) a reverse merger in which the Company is the
surviving corporation but the shares of the Company's Common Stock outstanding
immediately preceding the merger are converted by virtue of the merger into
other property, whether in the form of securities, cash or otherwise, then to
the extent not prohibited by applicable law: (A) any surviving corporation or an
Affiliate of such

       

      
        
          
          

        

        
          -16-

          
            

          

        

        
          
          

        

      

       

      surviving
corporation shall assume any Stock Awards outstanding under the Plan or shall
substitute similar Stock Awards for those outstanding under the Plan, or (B)
such Stock Awards shall continue in full force and effect. In the event any
surviving corporation and its Affiliates refuse to assume such Stock Awards, or
to substitute similar Stock Awards for those outstanding under the Plan, then
such Stock Awards shall terminate if not exercised prior to such
event.

       

      (c)         In
the event of a dissolution or liquidation of the Company, any Stock Awards
outstanding under the Plan shall terminate if not exercised prior to such
event.

       

      15.        Amendment
of the plan and stock awards

       

      (a)         Amendment
and Termination. The Board may at any time amend, alter, suspend or terminate
the Plan. Unless sooner terminated, the Plan shall terminate on November 20,
2011, which shall be within fifteen (15) years from 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)         Stockholder
Approval. The Company shall obtain stockholder 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.

       

      16.        Effective
Date of Plan

       

      The Plan
shall become effective as determined by the Board, but no Stock Awards granted
under the Plan shall be exercised 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, and, if
required, an appropriate permit has been issued by the Commissioner of
Corporations of the State of California.

       

      
        
          
          

        

        
          -17-

          
            

          

        

        
          
          

        

      

       

      HI/FN,
INC.

       

      1996
EQUITY INCENTIVE PLAN

       

      STOCK
OPTION AGREEMENT

       

      Unless
otherwise defined herein, the terms defined in the Plan shall have the same
defined meanings in this Option Agreement.

       

      I. NOTICE OF STOCK OPTION
GRANT

       

      [Optionee’s
Name and Address]

       

      You have
been granted an option to purchase Common Stock of the Company, subject to the
terms and conditions of the Plan and this Option Agreement, as
follows:

       

      
      

       

      
        	 Grant
      Number 	 	 
	 	 	 
	 Date of
      Grant	 	 
	 	 	 
	 Vesting
      Commencement Date   	 	 
	 	 	 
	 Exercise Price
      per Share    	 $	 
	 	 	 
	 Total Number
      of Shares Granted  	 	 
	 	 	 
	 Total Exercise
      Price         	 $	 
	 	 	 
	 Type of
      Option:   	 Incentive
      Stock Option	 
	 	 	 
	 Term/Expiration
      Date:        	 	 

      

       

      Vesting
Schedule:

       

      Subject
to the Optionee continuing to be a Service Provider on such dates, this Option
shall vest and become exercisable in accordance with the following
schedule:

       

      

       

      

       

      Termination
Period:

       

      This
Option may be exercised for three months after Optionee ceases to be a Service
Provider.  Upon the death or Disability of the Optionee, this Option
may be exercised for such longer period as

       

      
        
          
          

        

        
          -1-

          
            

          

        

        
          
          

        

      

       

      provided
in the Plan.  In no event shall this Option be exercised later than
the Term/Expiration Date as provided above.

       

      II.     AGREEMENT

       

      1.    Grant of
Option.  The Plan Administrator of the Company hereby grants to
the Optionee named in the Notice of Grant attached as Part I of this Agreement
(the “Optionee”) an option (the “Option”) to purchase the number of Shares, as
set forth in the Notice of Grant, at the exercise price per share set forth in
the Notice of Grant (the “Exercise Price”), subject to the terms and conditions
of the Plan, which is incorporated herein by reference.  Subject to
Section 14(b) of the Plan, in the event of a conflict between the terms and
conditions of the Plan and the terms and conditions of this Option Agreement,
the terms and conditions of the Plan shall prevail.

       

      2.    Exercise of
Option.

       

      (a) Right to
Exercise.  This Option is exercisable during its term in
accordance with the Vesting Schedule set out in the Notice of Grant and the
applicable provisions of the Plan and this Option Agreement.

       

      (b) Method of
Exercise.  This Option is exercisable by delivery of an
exercise notice, in the form attached as Exhibit A (the “Exercise Notice”),
which shall state the election to exercise the Option, the number of Shares in
respect of which the Option is being exercised (the “Exercised Shares”), and
such other representations and agreements as may be required by the Company
pursuant to the provisions of the Plan.  The Exercise Notice shall be
completed by the Optionee and delivered to the Stock
Administrator.  The Exercise Notice shall be accompanied by payment of
the aggregate Exercise Price as to all Exercised Shares.  This Option
shall be deemed to be exercised upon receipt by the Company of such fully
executed Exercise Notice accompanied by such aggregate Exercise
Price.

       

      (c) No Shares
shall be issued pursuant to the exercise of this Option unless such issuance and
exercise complies with Applicable Laws.  Assuming such compliance, for
income tax purposes the Exercised Shares shall be considered transferred to the
Optionee on the date the Option is exercised with respect to such Exercised
Shares.

       

      3.    Method of
Payment.  Payment of the aggregate Exercise Price shall be by
any of the following, or a combination thereof, at the election of the
Optionee:

       

      (a) cash;

       

      (b) check;

       

      (c) consideration
received by the Company under a cashless exercise program implemented by the
Company in connection with the Plan; or

       

      
        
          
          

        

        
          -2-

          
            

          

        

        
          
          

        

      

       

      surrender
of other Shares which (i) in the case of Shares acquired upon exercise of an
option, have been owned by the Optionee for more than six (6) months on the date
of surrender, and (ii)
have a Fair Market Value on the date of surrender equal to the aggregate
Exercise Price of the Exercised Shares.

       

      4.     Non-Transferability of
Option.  This Option may not be transferred in any manner
otherwise than by will or by the laws of descent or distribution and may be
exercised during the lifetime of Optionee only by the Optionee.  The
terms of the Plan and this Option Agreement shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.

       

      5.     Term of
Option.  This Option may be exercised only within the term set
out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option Agreement.

       

      6.     Tax
Consequences.  Some of the federal tax consequences relating to
this Option, as of the date of this Option, are set forth below.  THIS
SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT
TO CHANGE.  THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE
EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.

       

      (a) Exercising the
Option.  The Optionee may incur regular federal income tax
liability upon exercise of an NSO.  The Optionee will be treated as
having received compensation income (taxable at ordinary income tax rates) equal
to the excess, if any, of the Fair Market Value of the Exercised Shares on the
date of exercise over their aggregate Exercise Price.  If the Optionee
is an Employee or a former Employee, the Company will be required to withhold
from his or her compensation or collect from Optionee and pay to the applicable
taxing authorities an amount in cash equal to a percentage of this compensation
income at the time of exercise, and may refuse to honor the exercise and refuse
to deliver Shares if such withholding amounts are not delivered at the time of
exercise.

       

      (b) Disposition of
Shares.  If the Optionee holds NSO Shares for at least one
year, any gain realized on disposition of the Shares will be treated as
long-term capital gain for federal income tax purposes.

       

      7.     Entire Agreement; Governing
Law.  The Plan is incorporated herein by
reference.  The Plan and this Option Agreement con­sti­tute
the entire agreement of the parties with respect to the subject matter hereof
and supersede in their entirety all prior undertakings and agreements of the
Company and Optionee with respect to the subject matter hereof, and may not be
modified adversely to the Optionee’s interest except by means of a writing
signed by the Company and Optionee.  This agreement is governed by the
internal substantive laws, but not the choice of law rules, of the State of
Delaware.

       

      
        
          
          

        

        
          -3-

          
            

          

        

        
          
          

        

      

       

      NO GUARANTEE OF CONTINUED
SERVICE.  OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF
SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY CONTINUING AS A
SERVICE PROVIDER AT THE WILL OF THE COMPANY (AND NOT THROUGH THE ACT OF BEING
HIRED, BEING GRANTED AN OPTION OR PURCHASING SHARES
HEREUNDER).  OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS
AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET
FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED
ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT
ALL, AND SHALL NOT INTERFERE WITH OPTIONEE’S RIGHT OR THE COMPANY’S RIGHT TO
TERMINATE OPTIONEE’S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR
WITHOUT CAUSE.

       

      By your
signature and the signature of the Company’s representative below, you and the
Company agree that this Option is granted under and governed by the terms and
conditions of the Plan and this Option Agreement.  Optionee has
reviewed the Plan and this Option Agreement in their entirety, has had an
opportunity to obtain the advice of counsel prior to executing this Option
Agreement and fully understands all provisions of the Plan and Option
Agreement.  Optionee hereby agrees to accept as binding, conclusive
and final all decisions or interpretations of the Administrator upon any
questions relating to the Plan and Option Agreement.  Optionee further
agrees to notify the Company upon any change in the residence address indicated
below.

       

      
         

        
          	 OPTIONEE	 	 HI/FN,
      INC.	 
	 	 	 	 
	 	 	 	 
	 Signature  	 	 By	 
	 	 	 	 
	 	 	 	 
	 Print
      Name	 	 Title	 
	 	 	 	 
	 	 	 	 
	 Residence
      Address	 	 	 
	 	 	 	 
	 	 	 	 

        

         

      

       

      
        
          
          

        

        
          -4-

          
            

          

        

        
          
          

        

      

      
 

       

      EXHIBIT
A

       

      HI/FN,
INC.

       

      EXERCISE
NOTICE

      
        

      

      
        Hi/fn,
Inc.

      

      
        750
University Ave.

        Los
Gatos, CA  95032

        

      

      
        Date
of Exercise: _______________________                                                      

      

      
        

        Attention: Stock
Administrator

        

        This constitutes notice under my stock
option that I elect to purchase the number of shares for the price set forth
below.

         

         

        

         

        
          	 	 Type of option
      (check one): 	 Incentive                                      Nonstatutory  	 
	 	 	 	 
	 	 Stock option
      dated:   	 	 
	 	 	 	 
	 	 Number
      of shares as to which option
      is
      exercised:         	 	 
	 	 	 	 
	 	 Certificates
      to be issued
      in name of:  	 	 
	 	 	 	 
	 	 Total exercise
      price:   	 $ 	 
	 	 	 	 
	 	 Cash
      payment delivered herewith:  	 $	 
	 	 	 	 
	 	 Shares to be
      sent to: 	 Home                                        
          Broker  	 
	 	 	 	 
	 	 Address:      	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 Broker Fax
      #   	 	 
	 	 	 	 
	 	 Account # (if
      broker): 	 	 

        

         

        

          
            
               

            

            
              -1-

              
                

              

            

            
               

            

          

        

         

      

      
        
          1.     
Exercise of Option.
By this exercise, I agree (i) to provide such additional documents as you
may require pursuant to the terms of the 1996 Equity Incentive Plan or the 2001
Nonstatutory Stock Option Plan, (ii) to provide for the payment by me to
you (in the manner designated by you) of your withholding obligation, if any,
relating to the exercise of this option, and (iii) if this exercise relates
to an incentive stock option, to notify you in writing within fifteen (15) days
after the date of any disposition of any shares of Common Stock issued upon
exercise of this option that occurs within two (2) years after the date of grant
of this option or within one (1) year after such shares of Common Stock are
issued upon exercise of this option.

        

      

       

      2.    
 Delivery of
Payment.  Purchaser herewith delivers to the Company the full
purchase price for the Shares.

       

      3.    
 Representations of
Purchaser.  Purchaser acknowledges that Purchaser has received,
read and understood the Plan and the Option Agreement and agrees to abide by and
be bound by their terms and conditions.

       

      4.    
 Rights as
Shareholder.  Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the Shares, no right to vote or receive dividends or
any other rights as a shareholder shall exist with respect to the Optioned
Stock, notwithstanding the exer­cise of the Option.  The Shares so
acquired shall be issued to the Optionee as soon as practicable after exercise
of the Option.  No adjustment will be made for a divi­dend or
other right for which the record date is prior to the date of issuance, except
as pro­vided in Sec­tion 12 of the Plan.

       

      5.    
 Tax
Consultation.  Purchaser understands that Purchaser may suffer
adverse tax consequences as a result of Purchaser’s purchase or disposition of
the Shares.  Purchaser represents that Purchaser has consulted with
any tax consultants Purchaser deems advisable in connection with the purchase or
dis­position of the Shares and that Purchaser is not relying on the Company
for any tax advice.

       

      6.    
 Entire Agreement;
Governing Law.  The Plan and Option Agreement are incorporated
herein by reference.  This Agreement, the Plan and the Option
Agreement con­sti­tute the entire agreement of the parties with respect
to the subject matter hereof and supersede in their entirety all prior
undertakings and agreements of the Company and Purchaser with respect to the
subject matter hereof, and may not be modified adversely to the Purchaser’s
interest except by means of a writing signed by the Company and
Purchaser.  This agreement is governed by the internal substantive
laws, but not the choice of law rules, of California.

       

      
        
          
          

        

        
          -2-

          
            

          

        

        
          
          

        

      

       

       

      
      

       

      
        	 Submitted
      by: 	 	 	 Accepted
      by:	 	 
	 PURCHASER	 	 	 HI/FN,
      INC.	 	 
	 	 	 	 	 	 
	  	 	 	 	 	 
	 Signature 	 	 	 By	 	 
	 	 	 	 	 	 
	 	 	 	 	 	 
	 Print
      Name 	 	 	 Title	 	 
	 	 	 	 	 	 
	 	 	 	 	 	 
	 	 	 	 Date
      Received	 	 
	 Address:	 	 	 Address:	 	 
	 	 	 	 	 	 
	 	 	 	 	 	 
	 	 	 	 	 	 
	 	 	 	 	 	 

      

       

       

      
        
          
          

        

        
          -3-

          
            

          

        

        
          
          

        

      

       

      HI/FN,
INC.

       

      1996
EQUITY INCENTIVE PLAN

       

      NOTICE
OF GRANT OF RESTRICTED STOCK UNITS

       

      Unless
otherwise defined herein, the terms defined in the Plan shall have the same
defined meanings in this Option Agreement.

       

      [Optionee’s
Name and Address]

       

      You have
been granted ______ Restricted Stock Units
(“RSUs”).  Additional terms of this grant are as follows:

       

      Date of
Grant:

       

      Grant
Number:

       

      Vesting
Schedule:

       

      Expiration
Date:

       

      You must
sign and return this Notice of Grant to the Company prior to the Expiration
Date.  If you fail to do so, then the Award granted hereunder will be
deemed null and void.

       

      You will
not receive a certificate representing the Shares upon the RSUs becoming
nonforfeitable, unless and until you have made satisfactory arrangements with
the Company with respect to the payment of any income, employment and other
taxes which the Company determines must be withheld with respect to such Shares
upon the RSUs becoming nonforfeitable.  You hereby agree to
accept as binding, conclusive and final all decisions or interpretations of the
Committee upon any questions relating to the Plan and this Award.

       

      By your
signature below prior to the Expiration Date, you agree that this Notice of
Grant, the form of Restricted Stock Unit Agreement attached as Exhibit A hereto and
the 1996 Equity Incentive Plan constitute your entire agreement with respect to
this Award and may not be modified adversely to your interest except by means of
a writing signed by the Company and you.

       

      
 

      
        	GRANTEE:	 	HI/FN,
      INC.
	 	 	 
	
                 

              	 	
                By:

              
	
                Signature

              	 	
                Name:

              
	 
      	 	
                Title:

              
	
                 

              	 	 
      
	
                Print
      Name

              	 	 
      

      

      
 

      
        
          
          

        

        
          -1-

          
            

          

        

        
          
          

        

      

       

      HIFN,
INC, 

       

      1996 EQUITY INCENTIVE
PLAN 

       

      RESTRICTED STOCK UNIT
AGREEMENT 

       

      EXHIBIT
A 

       

      1.   
Grant.  The
Company hereby grants to ________ (the “Grantee”) an
award of Restricted Stock Units (“RSUs”), as set forth in the Notice of Grant of
Restricted Stock Units (the “Notice of Grant”) and subject to the terms and
conditions in this Restricted Stock Unit Agreement and the 1996 Equity Incentive
Plan, as may be amended from time to time (the “Plan”).  The term
“Restricted Stock Units” shall have the same meaning as that ascribed to the
term “Stock Units” in the Plan.  All terms used herein with initial
capital letters and not otherwise defined herein or in the Notice of Grant that
are defined in the Plan shall have the meanings assigned to them in the
Plan. 

       

      2.    Payment
of RSUs.  The RSUs covered by this Restricted Stock Unit
Agreement shall become payable to Grantee if they become nonforfeitable in
accordance with Section 3 (Vesting Schedule)
hereof. 

       

      3.    Vesting
Schedule.  Subject to Section 4 (Forfeiture upon Termination of
Service), the Grantee’s right to receive the Shares subject to the RSUs awarded
by this Restricted Stock Unit Agreement will vest in the Grantee according to
the vesting schedule specified in the Notice of
Grant. 

       

      4.  
 Forfeiture
upon Termination of Service.  Notwithstanding any
contrary provision of this Restricted Stock Unit Agreement or the Notice of
Grant, if the Grantee terminates Service with the Company for any or no reason
prior to vesting, the unvested RSUs awarded by this Restricted Stock Unit
Agreement will thereupon be forfeited at no cost to the
Company. 

       

      5.    Form
and Time of Payment of RSUs.  Except as otherwise provided for
in Section 8 (Adjustments), payment for the RSUs shall be made in form of the
Shares at the time they become nonforfeitable in accordance with Section 3
(Vesting Schedule) hereof. 

       

      6.    No
Dividend Equivalents.  The Grantee of RSUs shall not be
entitled to dividend equivalents. 

       

      7.    Grant
is Not Transferable. Subject to the provisions of Section 10(f) of the
Plan regarding the designation of beneficiaries, neither the RSUs granted hereby
nor any interest therein or in the Shares related thereto shall be transferable
other than by will or the laws of descent and distribution prior to
payment. 

       

      8.    Adjustments. In the event of
any change in the aggregate number of outstanding Shares by reason of (a) any
stock dividend, extraordinary dividend, stock split, combination of shares,
recapitalization or other change in the capital structure of the Company,
or (b) any Change in Control, merger, consolidation, spin-off, split-off,
spin-out, split-up, reorganization or partial or complete liquidation, or other
distribution of assets, issuance of rights or warrants to purchase securities,
or (c) any other corporate transaction or event having an effect similar to any
of the foregoing, then the Board of Directors (or the Committee) shall adjust
the number of RSUs then held by the Grantee in such

       

      
        
          
          

        

        
          -2-

          
            

          

        

        
          
          

        

      

       

      manner as
to prevent dilution or enlargement of the rights of the Grantee that otherwise
would result from such event.  Moreover, in the event of any such
transaction or event, the Board of Directors (or the Committee), in its
discretion, may provide in substitution for any or all of the Grantee’s rights
under this Restricted Stock Unit Agreement such alternative consideration as it
may determine to be equitable in the circumstances. 

       

      9.    Compliance
with Section 409A of the Code.  To the extent applicable, it is
intended that this Restricted Stock Unit Agreement and the Plan comply with the
provisions of Section 409A of the Code, so that the income inclusion provisions
of Section 409A(a)(1) do not apply to the Grantee.  This Restricted
Stock Unit Agreement and the Plan shall be administered in a manner consistent
with this intent. 

       

      10.    No
Service Contract. The grant of the RSUs
to the Grantee is a voluntary, discretionary bonus being made on a one-time
basis and it does not constitute a commitment to make any future
awards.  The grant of the RSUs and any payments made hereunder will
not be considered salary or other compensation for purposes of any severance pay
or similar allowance, except as otherwise required by law.  Nothing in
this Restricted Stock Unit Agreement will give the Grantee any right to continue
Service with the Company or any Subsidiary, as the case may be, or interfere in
any way with the right of the Company or a Subsidiary to terminate the Service
of the Grantee. 

       

      11.    No
Effect on Service.  The Grantee’s Service with the Company and
its Subsidiaries is on an at-will basis only.  Accordingly, the terms
of the Grantee’s Service with the Company and its Subsidiaries will be
determined from time to time by the Company or the Subsidiary to which the
Grantee provides Service (as the case may be), and the Company or the Subsidiary
will have the right, which is hereby expressly reserved, to terminate or change
the terms of the Service of the Grantee at any time for any reason whatsoever,
with or without good cause or notice. 

       

      12.    Address
for Notices.  Any notice to be given to the Company under the
terms of this Restricted Stock Unit Agreement will be addressed to the Company
at 750 University Ave, Suite 200, Los Gatos,  California 95032, or at
such other address as the Company may hereafter designate in writing or
electronically. 

       

      13.   
Taxes
and Withholding.  To the extent
that the Company is required to withhold any federal, state, local or foreign
tax in connection with any delivery of Shares pursuant to this Restricted Stock
Unit Agreement, and the amounts available to the Company are insufficient, it
shall be a condition to the receipt of such delivery that the Grantee make
arrangements satisfactory to the Company for payment of the balance of such
taxes required to be withheld.  Unless otherwise determined by the
Committee, this tax withholding obligation shall be satisfied by the retention
by the Company of Shares otherwise deliverable pursuant to this award; provided,
however,
that the Shares retained for payment of the tax must satisfy the minimum tax
withholding amount permissible under the method that results in the least amount
withheld.

       

      
        
          
          

        

        
          -3-

          
            

          

        

        
          
          

        

      

       

      14.   
Plan
Governs.  This Restricted Stock Unit Agreement and the Notice
of Grant are subject to all terms and provisions of the Plan.  In the
event of a conflict between one or more provisions of this Restricted Stock Unit
Agreement or the Notice of Grant and one or more provisions of the Plan, the
provisions of the Plan will govern. 

       

      15.    Committee
Authority.  The Committee will have the power to
interpret the Plan and this Restricted Stock Unit Agreement and to adopt such
rules for the administration, interpretation and application of the Plan as are
consistent therewith and to interpret or revoke any such rules (including, but
not limited to, the determination of whether or not any RSUs have
vested).  All actions taken and all interpretations and determinations
made by the Committee in good faith will be final and binding upon the Grantee,
the Company and all other interested persons.  No member of the
Committee will be personally liable for any action, determination or
interpretation made in good faith with respect to the Plan or this Restricted
Stock Unit Agreement. 

       

      16.    Data
Privacy.  Information about the Grantee and the Grantee’s
participation in the Plan may be collected, recorded, and held, used and
disclosed for any purpose related to the administration of the
Plan.  The Grantee understands that such processing of this
information may need to be carried out by the Company and its Subsidiaries and
by third party administrators whether such persons are located within the
Grantee’s country or elsewhere, including the United States of
America.  The Grantee consents to the processing of information
relating to the Grantee and the Grantee’s participation in the Plan in any one
or more of the ways referred to above. 

       

      17.    Amendments.  Any
amendment to the Plan shall be deemed to be an amendment to this Restricted
Stock Unit Agreement to the extent that the amendment is applicable hereto;
provided,
however,
that no amendment shall adversely affect the rights of the Grantee under this
Restricted Stock Unit Agreement without the Grantee’s
consent. 

       

      18.   
Severability.  If
any provision of this Restricted Stock Unit Agreement or the application of any
provision hereof to any person or circumstances is held invalid or
unenforceable, the remainder of this Restricted Stock Unit Agreement and the
application of such provision in any other person or circumstances shall not be
affected, and the provisions so held to be invalid or unenforceable shall be
reformed to the extent (and only to the extent) necessary to make it enforceable
and valid. 

       

      19.   
Successors
and Assigns.  Without limiting Section 7 (Grant is Not
Transferable) hereof, the provisions of this Restricted Stock Unit Agreement
shall inure to the benefit of, and be binding upon, the successors,
administrators, heirs, legal representatives and assigns of the Grantee, and the
successors and assigns of the Company. 

       

      20.   
Governing
Law.  This Restricted Stock Unit Agreement shall be governed by
and construed in accordance with the internal substantive laws of the State of
Delaware, without giving effect to any principle of law that would result in the
application of the law of any other jurisdiction.

    -4-ex10_3.htm

     

    

 

    
                                                                                                                                                                                                                                                                                             
EXHIBIT 10.3

       

    

                   
$150,000.00                                                                                September 15,
2008

    

    QUICK-MED
TECHNOLOGIES, INC.

    

    2008 SENIOR CONVERTIBLE
PROMISSORY NOTE 3

     

    FOR VALUE
RECEIVED, the undersigned, QUICK-MED TECHNOLOGIES, INC. (the “Borrower”),
promises unconditionally to pay to the order of Michael Granito, his successors
or assigns (the “Lender”) at the Lender’s offices at 1088 Shady Avenue,
Pittsburgh, Pennsylvania 15232, or at such other place as the Lender may from
time to time designate, the principal amount of up to one hundred fifty thousand
dollars ($150,000.00) (the “Principal Amount”) or so much thereof as is
disbursed to Borrower pursuant to this Note, together with interest on the
unpaid Principal Amount outstanding from time to time at the rate or rates
hereafter specified and any and all other sums which may be owing to the Lender
by the Borrower pursuant to this Note.   The following terms
shall apply to this Promissory Note:

     

    1.           Receipts of
Funds.  Borrower acknowledges that it received Fifty Thousand
Dollars ($50,000) each (the “Advance”) on the following dates – September 15,
2008, September 30, 2008, and October 15, 2008.

     

    2.           Interest
Rate.  Interest shall accrue on the outstanding Principal
Amount at the rate of eight percent (8%) per annum.  Interest shall be
calculated on the basis of a year of three hundred sixty five (365) days applied
to the actual days on which there exists an unpaid balance under this
Note.

     

    3.           Interest
Payments.  The Borrower shall pay accrued and unpaid interest
on the Maturity Date, as the case may be and as hereinafter defined, and
thereafter on demand until all sums due under this Note, whether principal,
interest, or other sums, have been paid in full.

     

    4.           Principal.  Unless
sooner paid or converted, the entire outstanding Principal Amount as well as all
other sums under this Note that remain unpaid shall be due and payable on
December 31, 2010 (the “Maturity Date”); provided that, the Borrower shall make
amortized payments on the outstanding principal plus interest during the term of
this Note depending on the free cash flow from operations in excess of
anticipated cost from operations as determined in the discretion of the
Borrower’s Board of Directors.

     

    5.           Prepayment.  Borrower
may prepay any portion of the outstanding principal amount of this Promissory
Note with 30 days prior written notice.

     

    6.           Conversion.  This
Note shall be convertible into shares of Common Stock of the Borrower, on the
terms and conditions set forth in this Section 6.

     

    (a)           Conversion
Right.  Subject to the provisions of Section 6(d), at any time
or times on or after the first date of this Note, the Lender shall be entitled
to convert any portion of the outstanding and unpaid Conversion Amount (as
defined below) into validly issued, fully paid and nonassessable shares of
Common Stock in accordance with Section 7(c), at the Conversion Rate (as defined
below).

     

    (b)           Conversion
Rate.  The number of shares of Common Stock issuable upon
conversion of any Conversion Amount pursuant to Section 6(a) shall be determined
by dividing (x) such Conversion Amount by (y) the Conversion Price (the
“Conversion Rate”).

     

    (i)           “Conversion
Amount” means the portion of the Principal and interest to be converted,
redeemed or otherwise with respect to which this determination is being
made.

     

    (ii)           “Conversion
Price” means, as of any Conversion Date (as defined below), the closing price
per share of the Borrower’s common stock at the date each Advance is
received.

     

    (iii)           Mechanics of
Conversion.

     

    (iv)           Optional
Conversion.  To convert any Conversion Amount into shares of
Common Stock on any date (a “Conversion Date”), the Lender shall (A) transmit by
facsimile (or otherwise deliver), for receipt on or prior to 5:00 p.m., Pacific
Time, on such date, a copy of an executed notice of conversion in the form
attached hereto as Exhibit A (the
“Conversion Notice”) to the Borrower and (B) if required by Section 6(c)(iii),
surrender this Note to a common carrier for delivery to the Borrower as soon as
practicable on or following such date (or an indemnification undertaking with
respect to this Note in the case of its loss, theft or
destruction).  The Borrower shall transmit by facsimile a confirmation
of receipt of such Conversion Notice to the Lender and the Borrower’s transfer
agent, (the “Transfer Agent”).  The Transfer Agent shall issue and
deliver to the address as specified in the Conversion Notice, a certificate or
certificates, registered in the name of the Lender or its designee, for the
number of shares of Common Stock to which the Lender shall be
entitled.  If this Note is physically surrendered for conversion as
required by Section 6(c)(iii) and the outstanding Principal of this Note is
greater than the Principal portion of the Conversion Amount being converted,
then the Borrower shall as soon as practicable and in no event later than ten
(10) Business Days after receipt of this Note and at its own expense, issue and
deliver to the holder a new Note (in accordance with Section 15(d)) representing
the outstanding Principal not converted.  The Person or Persons
entitled to receive the shares of Common Stock issuable upon a conversion of
this Note shall be treated for all purposes as the record holder or holders of
such shares of Common Stock on the Conversion Date.

     

    

    
      
        
           

        

        
          -1-

          
            

          

        

        
           

        

      

    

    

    (v)           Book-Entry.  Notwithstanding
anything to the contrary set forth herein, upon conversion of any portion of
this Note in accordance with the terms hereof, the Lender shall not be required
to physically surrender this Note to the Borrower unless (A) the full Conversion
Amount represented by this Note is being converted or (B) the Lender has
provided the Borrower with prior written notice (which notice may be included in
a Conversion Notice) requesting physical surrender and reissue of this
Note.  The Lender and the Borrower shall maintain records showing the
Principal converted and the dates of such conversions or shall use such other
method, reasonably satisfactory to the Lender and the Borrower, so as not to
require physical surrender of this Note upon conversion.

     

    (vi)           Legend.  The
Converted Shares shall bear a legend that reads:

     

    THE
SECURITIES EVIDENCED BY THIS STOCK CERTIFICATE MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR (B) AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT.

     

    7.           Adjustment.  If
the Borrower at any time on or after the date of this Note subdivides (by any
stock split, stock dividend, recapitalization or otherwise) one or more classes
of its outstanding shares of Common Stock into a greater number of shares, the
Conversion Price in effect immediately prior to such subdivision will be
proportionately reduced.  If the Borrower at any time on or after the
Closing Date combines (by combination, reverse stock split or otherwise) one or
more classes of its outstanding shares of Common Stock into a smaller number of
shares, the Conversion Price in effect immediately prior to such combination
will be proportionately increased..

     

    8.           Negative Covenants.
During the term of this Promissory Note and until all obligations hereunder are
satisfied,  Borrower shall not, without first obtaining the
affirmative written consent of the Lender, which shall not be unreasonably
withheld: (i) pay or declare any dividend or distribution on any common
stock or preferred stock (“Capital Stock”), or apply any of its assets to the
redemption, purchase or acquisition, directly or indirectly, through
subsidiaries or otherwise, of any share capital or assets of another entity;
(ii)  sell, transfer, lease, offer as collateral or otherwise dispose
of any of its Capital Stock, assets or properties other than in the ordinary
course of business transactions or as unanimously approved by the Board of
Directors; (iii)  enter into any  joint venture, business
combination, merger, consolidation, recapitalization or other
reorganization or permit any subsidiary to enter into any merger, consolidation,
recapitalization or other reorganization; (iv) enter into any agreement, or
allow any subsidiary, to enter any agreement to issue or offer any security,
including, without limitation, any equity security, convertible note, secured
note or promissory note and (v)  amend or repeal any provision of, or add
any provision to, the Borrower's certificate of incorporation or by-laws other
than for subject matters not involving the items subject to Lender’s prior
written consent listed

     

    above;
provided however, Lender shall not be obligated to provide affirmative written
consent, if in Lender’s reasonable opinion, consent to any of the foregoing
actions would: (a) impair Lender’s ability to be repaid under this Promissory
Note or (b) impair Borrower’s ability to perform its obligations under the Share
Exchange Agreement.

     

    9.           Repayment
Extension.  If any payment of principal or interest shall be
due on a Saturday, Sunday or any other day on which banking institutions in the
State of Florida are required or permitted to be closed, such payment shall be
made on the next succeeding business day and such extension of time shall be
included in computing interest under this Note.

     

    10.           Manner and Application of
Payments.  All payments due hereunder shall be paid in lawful
money of the United States of America which shall be legal tender in payment of
all debts and dues, public and private, in immediately available funds, without
offset, deduction or recoupment. Any payment by check or draft shall be subject
to the condition that any receipt issued therefore shall be ineffective unless
the amount due is actually received by the Lender.

     

    11.           Collateral; Security
Interest.  The Borrower hereby grants to the Lender as
collateral security for its obligations hereunder a security interest in and to
all right, title and interest of the Borrower in and to all of the Borrower’s
personal property assets of each and every type more specifically identified in
Article 9 of the Uniform Commercial Code as in effect in the State of Florida,
whether now owned or hereafter acquired, wherever located.  The Lender
is hereby authorized to file a financing statement naming the Borrower, as
debtor, and the Lender, as secured party, in respect of all such
collateral.  Lender’s interest in the collateral security shall be
limited to the outstanding principal and interest under the
Note.  Notwithstanding the foregoing, the Lender shall not
unreasonably withhold the Borrower’s request to restructure the security
interest in case of a future debt or equity financing.

     

    12.           No Other Outstanding
Notes. The Borrower represents to the Lender that it has no other
outstanding obligations, of which the Lender is unaware, and that this
Promissory Note shall rank senior to all outstanding obligations of the Lender,
unless previously agreed by the Lender; this Note shall rank pari passu with all senior
debt obligations owed to Michael Granito.

     

    13.           Events of
Default.  The occurrence of any one or more of the following
events shall constitute an “Event of Default” under this Note:

     

    (a)           the
failure of the Borrower to pay any sum due under this Note within three (3) days
after such payment was first due, whether by demand or otherwise;

     

    (b)           the
occurrence or commencement of a liquidation or bankruptcy or similar proceeding
in respect of the Borrower or any of its assets and;

     

    (c)           the
breach by Lender of any of the Negative Covenants set forth in Section 9 of this
Promissory Note.

     

    14.           Rights and Remedies Upon
Default.  Upon the occurrence of an Event of Default hereunder,
the Lender, in the Lender’s sole discretion and without notice to the Borrower
may:

     

    

    
      
        
           

        

        
          -2-

          
            

          

        

        
           

        

      

    

    

    (a)
declare the entire outstanding Principal Amount, together with all accrued
interest and all other sums due under this Note to be immediately due and
payable, and the same shall thereupon become immediately due and payable without
presentment, demand or notice which are hereby expressly waived; (b) exercise
its right of setoff against any money, funds, credits or other property of any
nature whatsoever of the Borrower now or at any time hereafter in the possession
of, in transit to or from, under the control or custody of, or on deposit with,
the Lender in any capacity whatsoever, including without limitation, any balance
of any deposit account and any credits with the Lender; (c) terminate any
outstanding commitments of the Lender to the Borrower; (d) exercise all rights
and remedies of a secured party in respect of the collateral referred to above
as provided under Article 9 of the Uniform Commercial Code as in effect on the
date hereof in the State of Florida; and (e) exercise any or all rights, powers,
and remedies now or hereafter existing at law, in equity, by statute or
otherwise.

     

    15.           Remedies
Cumulative.  Each right, power and remedy of the Lender
hereunder, or now or hereafter existing at law, in equity, by statute or
otherwise shall be cumulative and concurrent, and the exercise or beginning of
the exercise of any one or more of them shall not preclude the simultaneous or
later exercise by the Lender of any or all such other rights, powers or
remedies. No failure or delay by the Lender to insist upon the strict
performance of any one or more provisions of this Note or to exercise any right,
power or remedy consequent upon a breach thereof or default hereunder shall
constitute a waiver thereof or preclude the Lender from exercising any such
right, power or remedy. By accepting full or partial payment after the due date
of any amount of principal of or interest on this Note, or other amounts payable
on demand, the Lender shall not be deemed to have waived the right either to
require prompt payment when due and payable of all other amounts of principal of
or interest on this Note or other amounts payable on demand, or to exercise any
rights and remedies available to it in order to collect all such other amounts
due and payable under this Note.

     

    16.           Maximum Rate of
Interest.  Notwithstanding any provision of this Note to the
contrary, the Borrower shall not be obligated to pay interest pursuant to this
Note in excess of the maximum rate of interest permitted by the laws of any
state determined to govern this Note or the laws of the United States applicable
to loans in such state. If any provisions of this Note shall ever be construed
to require the payment of any amount of interest in excess of that permitted by
applicable law, then the interest to be paid pursuant to this Note shall be held
subject to reduction to the amount allowed under applicable law and any sums
paid in excess of the interest rate allowed by law shall be applied in reduction
of the principal balance outstanding pursuant to this Note.  The
Borrower acknowledges that it has been contemplated at all times by the Borrower
that the laws of the State of Florida will govern the maximum rate of interest
that it is permissible for the Lender to charge the Borrower pursuant to this
Note.

     

    17.           Waiver of
Presentment.  The Borrower waives demand, presentment, protest,
and notice of demand, of non-payment, of dishonor, protest and all other demands
in connection with the delivery, acceptance, performance or enforcement of this
Note.

     

    18.           Choice of Law; Forum
Selection; Consent to Jurisdiction.  This Note shall be
governed by, construed and interpreted in accordance with the laws of the State
of Florida. The Borrower hereby (a) agrees that all disputes and matters
whatsoever arising under, in connection with, or
incident to this Note shall be litigated, if at all, in and before a court
located in the State of Florida to the exclusion of the courts of any other
state or country and (b) irrevocably submits to the non-exclusive jurisdiction
of any Florida court or federal court sitting in the State of Florida in any
action or proceeding arising out of or relating to this Note, and hereby
irrevocably waives any objection to the laying of venue of any such action or
proceeding in any such court and any claim that any such action or proceeding
has been brought in an inconvenient forum. A final judgment in any such action
or proceeding shall be conclusive and may be enforced in any other jurisdiction
by suit on the judgment or in any other manner provided by law.

     

     

    
      
         

      

      
        -3-

        
          

        

      

      
         

      

    

     

    19.           Service of
Process.  The Borrower hereby consents to process being served
in any suit, action or proceeding instituted in connection with this Note by the
mailing of a copy thereof to the Borrower by certified mail, postage prepaid,
return receipt requested. The Borrower hereby irrevocably agrees that such
service shall be deemed to be service of process upon the Borrower in any such
suit, action or proceeding. Nothing in this Note shall affect the right of the
Lender to serve process in any other manner otherwise permitted by law, and
nothing in this Note will limit the right of the Lender otherwise to bring
proceedings against the Borrower in the courts of any other jurisdiction or
jurisdictions.

     

    20.           Notice.  Any
notice, demand, request or other communication which the Lender or the Borrower
may be required to give hereunder shall be in writing and shall be effective
when delivered and at the address provided below:

     

    
      	
               
      

            	
              (a)

            	
              if
      to the Lender, to Michael Granito at 1088 Shady Avenue, Pittsburgh,
      Pennsylvania 15232; and

            

    

     

    
      	
               
      

            	
              (b)

            	
              if
      to the Borrower, to it at Quick-Med Technologies, Inc., 902 N.W. 4th
      Street, Gainesville, Florida 32601, Attention: Chief Financial
      Officer.

            

    

     

    Notwithstanding
anything to the contrary, all notices and demands for payment from the Lender
actually received in writing by the Borrower shall be considered to be effective
upon the receipt thereof by the Borrower regardless of the procedure or method
utilized to accomplish delivery thereof to the Borrower.

     

    21.           Miscellaneous.  Time
is of the essence under this Note. The paragraph headings of this Note are for
convenience only, and shall not limit or otherwise affect any of the terms
hereof.  This Note, if any, constitute the entire agreement between
the parties with respect to their subject matter and supersede all prior
letters, representations, or agreements, oral or written, with respect
thereto.  The Lender may, without notice to or consent of the
Borrower, sell, assign, pledge or transfer this Note or sell, assign, transfer
or grant participations in all or any part of the obligations evidenced by this
Note to others at any time and from time to time, and the Lender may divulge to
any potential assignee, transferee or participant all information, reports,
financial statements and documents obtained in connection with this Note or
otherwise.  No modification, release, or waiver of this Note shall be
deemed to be made by the Lender unless in writing signed by the Lender, and each
such waiver, if any, shall apply only with respect to the specific instance
involved. No course of dealing or conduct shall be effective to modify, release
or waive any provisions
of this Note.  This Note shall inure to the benefit of and be
enforceable by the Lender and the Lender’s successors and assigns and any other
person to whom the Lender may grant an interest in the obligations evidenced by
this Note and shall be binding upon and enforceable against the Borrower and the
Borrower’s personal representatives, successors, heirs and assigns. Whenever
used herein, the singular number shall include the plural, the plural the
singular, and the use of the masculine, feminine, or neuter gender shall include
all genders. This Note may be executed in any number of counterparts, all of
which, when taken together shall constitute one Note.

     

    [signature
page follows]

     

    

    
      
        
          
             

             

             

          

           

        

        
          -4-

          
            

          

        

        
           

        

      

    

    

     

     

    IN WITNESS WHEREOF, the
Borrower has duly executed this Note as of the day and year first hereinabove
set forth.

     

     

    

     

     

    
      	
               
      

            	
              QUICK-MED
      TECHNOLOGIES, INC.

            
	 	 
	 	 By:
      /s/ Nam H. Nguyen
	 	 Name:  Nam
      H. Nguyen
	 	 Title:  Chief
      Financial Officer
	 	 
	 	 
	 	 LENDER
	 	 MICHAEL
      GRANITO
	 	 
	 	By:
      /s/ Michael R. Granito
	 	 
	 	 

    

     

    
    

    
    

    
    

    

    
    

     

     

     

     

    
 

    
    

    

    

    
    

     

     

    

    
      
        
           

        

        
          -5-

          
            

          

        

        
           

        

      

    

    

    EXHIBIT
A

    

    QUICK-MED
TECHNOLOGIES, INC.

    CONVERSION
NOTICE

     

    Reference
is made to the Senior Convertible Note (the “Note”) issued to the
undersigned by Quick-Med Technologies, Inc. (the “Company”).  In
accordance with and pursuant to the Note, the undersigned hereby elects to
convert the Conversion Amount (as defined in the Note) of the Note indicated
below into shares of Common Stock (as defined in the Note), as of the date
specified below.

     

    
      	
              Date
      of Conversion:

            	 
      
	
              Aggregate
      Conversion Amount to be converted:

            	 
      
	
              Please
      confirm the following information:

            
	
              Conversion
      Price:

            	 
      
	
              Number
      of shares of Common Stock to be issued:

            	 
      
	
              Please
      issue the Common Stock into which the Note is being converted in the
      following name and to the following address:

            
	
              Issue
      to:

            	 
      
	 
      	 
      
	 
      	 
      
	
              Facsimile
      Number:

            	 
      
	
              Authorization:

            	 
      
	
              By:

            	 
      
	
              Title:

            	 
      
	
              Dated:

            	 
      
	
              Account
      Number:

            	 
      
	
                (if
      electronic book entry transfer)

            	 
      
	
              Transaction
      Code Number:

            	 
      
	
                (if
      electronic book entry transfer)

            	 
      
	 
      	 
      

    

    

     

    ACKNOWLEDGMENT

     

    The
Company hereby acknowledges this Conversion Notice and hereby directs [Insert Name of Transfer Agent]
to issue the above indicated number of shares of Common Stock from the
Company and acknowledged and agreed to by [Insert Name of Transfer
Agent].

     

    

    
      	
              QUICK-MED
      TECHNOLOGIES, INC.

            
	
              By:                                                                

            
	
              Name:

            
	
              Title:

            

    

    

    

    

    
      
        
           

        

        
          -6-

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