Document:

2003 Stock Plan

 Exhibit 10.3 
  
 ALPHASMART, INC. 
  
 2003 STOCK PLAN 
  
 (As amended, April 2004) 
  
 1. Purposes of the Plan. The purposes of this Plan are: 
  

	 	•	to attract and retain the best available personnel for positions of substantial responsibility, 

  

	 	•	to provide additional incentive to Employees, Directors and Consultants, and 

  

	 	•	to promote the success of the Company’s business. 

  
 The Plan permits the grant of Incentive Stock Options, Nonstatutory Stock Options, Stock Purchase Rights, Restricted Stock, Stock
Appreciation Rights, Performance Units and Performance Shares. This Plan will become effective only upon the closing of the first underwritten public offering of the Company’s Common Stock. 
  
 2. Definitions. As used herein, the following definitions will apply:

  
 (a) “Administrator” means
the Board or any of its Committees as will be administering the Plan, in accordance with Section 4 of the Plan. 
  
 (b) “Affiliated SAR” means an SAR that is granted in connection with a related Option, and which automatically will be
deemed to be exercised at the same time that the related Option is exercised. 
  
 (c) “Applicable Laws” means the requirements relating to the administration of stock-based awards 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 Awards are, or will be, granted under the Plan. 
  
 (d) “Award” means, individually or collectively, a grant under the Plan of Options, SARs,
Stock Purchase Rights, Restricted Stock, Performance Units or Performance Shares. 
  
 (e) “Award Agreement” means the written or electronic agreement setting forth the terms and provisions applicable to each
Award granted under the Plan. The Award Agreement is subject to the terms and conditions of the Plan. 
  
 (f) “Beneficial Owner” means a “beneficial owner” (as defined in Rule 13d-3 of the Securities Exchange Act of
1934, as amended), directly or indirectly, of securities of the Company representing 1% or more of the total voting power represented by the Company’s outstanding voting securities on the date of any grant hereunder. 
  

 (g) “Board” means the Board of Directors of the Company. 
  
 (h) “Change in Control” means the
occurrence of any of the following events: 
  
 (i) Any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) becomes the “beneficial owner” (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of securities of the Company
representing fifty percent (50%) or more of the total voting power represented by the Company’s then outstanding voting securities; or 
  
 (ii) The consummation of the sale or disposition by the Company of all or substantially all of the Company’s assets; 
  
 (iii) A change in the composition of the Board occurring
within a two-year period, as a result of which fewer than a majority of the directors are Incumbent Directors. “Incumbent Directors” means directors who either (A) are Directors as of the effective date of the Plan, or (B) are elected, or
nominated for election, to the Board with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination (but will not include an individual whose election or nomination is in connection with an
actual or threatened proxy contest relating to the election of directors to the Company); or 
  
 (iv) The consummation of a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which
would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or its parent) at least fifty
percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity or its parent outstanding immediately after such merger or consolidation. 
  
 (i) “Code” means the Internal Revenue Code
of 1986, as amended. Any reference to a section of the Code herein will be a reference to any successor or amended section of the Code. 
  
 (j) “Committee” means a committee of Directors appointed by the Board in accordance with Section 4 of the Plan.

  
 (k) “Common Stock” means the
common stock of the Company. 
  
 (l)
“Company” means AlphaSmart, Inc., a Delaware corporation, or any successor thereto. 
  
 (m) “Consultant” means any person, including an advisor, engaged by the Company or a Parent or Subsidiary to render
services to such entity. 
  
 (n)
“Director” means a member of the Board. 
  
 (o) “Disability” means total and permanent disability as defined in Section 22(e)(3) of the Code, provided that in the case of Awards other than Incentive Stock Options, the Administrator in its
discretion may determine whether a permanent and total disability exists in 

  

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accordance with uniform and non-discriminatory standards adopted by the Administrator from time to time. 
  
 (p) “Employee” means any person, including
Officers and Directors, employed by the Company or any Parent or Subsidiary of the Company. Neither service as a Director nor payment of a director’s fee by the Company will be sufficient to constitute “employment” by the Company.

  
 (q) “Exchange Act” means the
Securities Exchange Act of 1934, as amended. 
  
 (r) “Exchange Program” means a program under which (a) outstanding Awards are surrendered or cancelled in exchange for Awards of the same type (which may have lower exercise prices and different terms), Awards of a
different type, and/or cash, and/or (b) the exercise price of an outstanding Award is reduced. The terms and conditions of any Exchange Program will be determined by the Administrator in its sole discretion. 
  
 (s) “Fair Market Value” means, as of any
date, the value of Common Stock determined as follows: 
  
 (i) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value will 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 day of determination, 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 will be the mean between the high bid and low asked prices for the Common Stock on the day of determination, 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 will be determined in good faith by the
Administrator. 
  
 (t) “Fiscal
Year” means the fiscal year of the Company. 
  
 (u) “Freestanding SAR” means a SAR that is granted independently of any Option. 
  
 (v) “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. 
  
 (w) “Inside Director” means a Director who is an Employee. 
  
 (x) “Nonstatutory Stock Option” means an Option that by its terms does not qualify or is not intended to qualify as an
Incentive Stock Option. 
  

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 (y) “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. 
  
 (z) “Option” means a stock option granted pursuant to the Plan. 
  
 (aa) “Optioned Stock” means the Common
Stock subject to an Award. 
  
 (bb)
“Outside Director” means a Director who is neither an Employee nor a Beneficial Owner and who, at the time of being elected or appointed a Director, does not hold Unvested Awards. 
  
 (cc) “Parent” means a “parent
corporation,” whether now or hereafter existing, as defined in Section 424(e) of the Code. 
  
 (dd) “Participant” means the holder of an outstanding Award granted under the Plan. 
  
 (ee) “Performance Share” means an Award
granted to a Participant pursuant to Section 10. 
  
 (ff) “Performance Unit” means an Award granted to a Participant pursuant to Section 10. 
  
 (gg) “Period of Restriction” means the period during which the transfer of Shares of Restricted Stock are subject to
restrictions and therefore, the Shares are subject to a substantial risk of forfeiture. Such restrictions may be based on the passage of time, the achievement of target levels of performance, or the occurrence of other events as determined by the
Administrator. 
  
 (hh) “Plan”
means this 2003 Stock Plan. 
  
 (ii)
“Registration Date” means the effective date of the first registration statement that is filed by the Company and declared effective pursuant to Section 12(g) of the Exchange Act, with respect to any class of the Company’s
securities. 
  
 (jj) “Restricted
Stock” means shares of Common Stock acquired pursuant to a grant of Stock Purchase Rights under Section 7 of the Plan, issued pursuant to a Restricted Stock award under Section 8 of the Plan, or issued pursuant to the early exercise of an
Option. 
  
 (kk) “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. 
  
 (ll) “Section 16(b) “ means Section 16(b) of the Exchange Act. 
  
 (mm) “Service Provider” means an Employee,
Director or Consultant. 
  
 (nn)
“Share” means a share of the Common Stock, as adjusted in accordance with Section 14 of the Plan. 
  

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 (oo) “Stock Appreciation Right” or “SAR” means an
Award, granted alone or in connection with an Option, that pursuant to Section 9 is designated as a SAR. 
  
 (pp) “Stock Purchase Right” means the right to purchase Common Stock pursuant to Section 7 of the Plan. 
  
 (qq) “Subsidiary” means a “subsidiary
corporation”, whether now or hereafter existing, as defined in Section 424(f) of the Code. 
  
 (rr) “Tandem SAR” means a SAR that is granted in connection with a related Option, the exercise of which will require
forfeiture of the right to purchase an equal number of Shares under the related Option (and when a Share is purchased under the Option, the SAR will be canceled to the same extent). 
  
 (ss) “Unvested Awards” shall mean Options or Restricted Stock that (i) were granted to an
individual in connection with such individual’s position as an Employee and (ii) are still subject to vesting or lapsing of Company repurchase rights or similar restrictions. 
  
 3. Stock Subject to the Plan. 
  
 (a) Stock Subject to the Plan. Subject to the provisions of Section 14 of the Plan, the maximum
aggregate number of Shares that may be optioned and sold under the Plan is such number of Shares which have been reserved but not issued under the Company’s 1998 Stock Plan (the “1998 Plan”) as of the Registration Date, plus (a) any
Shares returned to the 1998 Plan as a result of termination of options or repurchase of Shares issued under such plan, and (b) an annual increase to be added on the first day of the Company’s fiscal year beginning in 2005, equal to the
lesser of (i) 800,000 Shares, (ii) 3% of the outstanding Shares on such date or (iii) an amount determined by the Board. The Shares may be authorized, but unissued, or reacquired Common Stock. Shares shall not be deemed to have been issued
pursuant to the Plan with respect to any portion of an Award that is settled in cash. Upon payment in Shares pursuant to the exercise of an SAR, the number of Shares available for issuance under the Plan shall be reduced only by the number of Shares
actually issued in such payment. If the exercise price of an Option is paid by tender to the Company, or attestation to the ownership, of Shares owned by the Participant, the number of Shares available for issuance under the Plan shall be reduced by
the gross number of Shares for which the Option is exercised. 
  
 (b) Lapsed Awards. If an Award expires or becomes unexercisable without having been exercised in full, or is surrendered pursuant to an Exchange Program, the unpurchased Shares which were subject thereto will
become available for future grant or sale under the Plan (unless the Plan has terminated); provided, however, that Shares that have actually been issued under the Plan, whether upon exercise of an Award, will not be returned to the Plan and
will not become available for future distribution under the Plan, except that if unvested Shares are forfeited or repurchased by the Company, such Shares will become available for future grant under the Plan. 
  
 (c) Share Reserve. The Company, during the term of
this Plan, will at all times reserve and keep available such number of Shares as will be sufficient to satisfy the requirements of the Plan. 
  

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 4. Administration of the Plan. 
  
 (a) Procedure. 
  
 (i) Multiple Administrative Bodies. Different Committees with respect to different groups of Service
Providers may administer the Plan. 
  
 (ii)
Section 162(m). To the extent that the Administrator determines it to be desirable to qualify Options granted hereunder as “performance-based compensation” within the meaning of Section 162(m) of the Code, the Plan will 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. To the extent desirable to qualify transactions hereunder as exempt under Rule 16b-3, the transactions
contemplated hereunder will be structured to satisfy the requirements for exemption under Rule 16b-3. 
  
 (iv) Other Administration. Other than as provided above, the Plan will be administered by (A) the Board or (B) a Committee, which
committee will 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 will have the
authority, in its discretion: 
  
 (i) to
determine the Fair Market Value; 
  
 (ii) to
select the Service Providers to whom Awards may be granted hereunder; 
  
 (iii) to determine the number of Shares to be covered by each Award granted hereunder; 
  
 (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 Award granted
hereunder. Such terms and conditions include, but are not limited to, the exercise price, the time or times when 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 Award or the Shares relating thereto, based in each case on such factors as the Administrator will determine; 
  
 (vi) to institute an Exchange Program; 
  
 (vii) to construe and interpret the terms of the Plan and Awards granted pursuant to the Plan; 
  

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 (viii) 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 satisfying applicable foreign laws; 
  
 (ix) to modify or amend each Award (subject to Section 18(c) of the Plan), including the discretionary authority to extend the
post-termination exercisability period of Awards longer than is otherwise provided for in the Plan; 
  
 (x) to allow Participants to satisfy withholding tax obligations by electing to have the Company withhold from the Shares to be issued
upon exercise of an Award that number of Shares having a Fair Market Value equal to the minimum amount required to be withheld (the Fair Market Value of the Shares to be withheld will be determined on the date that the amount of tax to be withheld
is to be determined and all elections by a Participant to have Shares withheld for this purpose will be made in such form and under such conditions as the Administrator may deem necessary or advisable); 
  
 (xi) to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an Award previously granted by the Administrator; 
  
 (xii) to allow a Participant to defer the receipt of the payment of cash or the delivery of Shares that would otherwise be due to such
Participant under an Award 
  
 (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 will be final
and binding on all Participants and any other holders of Awards. 
  
 5. Eligibility. Nonstatutory Stock Options, Stock Purchase Rights, Restricted Stock, Stock Appreciation Rights, Performance Units and Performance Shares may be granted to Service Providers. Incentive Stock Options may be granted only
to Employees. 
  
 6. Stock Options. 
  
 (a) Limitations. 
  
 (i) Each Option will be designated in the Award 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 Participant during any calendar year (under all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such Options will be treated as Nonstatutory Stock Options. For purposes of this Section 6(a), Incentive Stock Options
will be taken into account in the order in which they were granted. The Fair Market Value of the Shares will be determined as of the time the Option with respect to such Shares is granted. 
  
 (ii) The following limitations will apply to grants of
Options and Stock Appreciation Rights: 
  
 (1)
No Service Provider will be granted, in any Fiscal Year, Options to purchase more than 333,350 Shares. 
  

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 (2) In connection with his or her initial service, a Service Provider may be granted
Options to purchase up to an additional 1,333,400 Shares, which will not count against the limit set forth in Section 6(a)(2)(ii)(1) above. 
  
 (3) The foregoing limitations will be adjusted proportionately in connection with any change in the Company’s capitalization as
described in Section 14. 
  
 (4) If an Option is
cancelled in the same Fiscal Year 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 (1) and (2) 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. 
  
 (b) Term of Option. The term of each Option will be stated in the Award Agreement. In the case of an Incentive Stock Option, the
term will be ten (10) years from the date of grant or such shorter term as may be provided in the Award Agreement. Moreover, in the case of an Incentive Stock Option granted to a Participant 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 Parent or Subsidiary, the term of the Incentive Stock Option will be five (5) years from the date of grant or such
shorter term as may be provided in the Award Agreement. 
  
 (c) Option Exercise Price and Consideration. 
  
 (i) Exercise Price. The per share exercise price for the Shares to be issued pursuant to exercise of an Option will be determined
by the Administrator, subject to the following: 
  
 (1) 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 Parent or Subsidiary, the per Share
exercise price will 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 will be no
less than 100% of the Fair Market Value per Share on the date of grant. 
  
 (2) In the case of a Nonstatutory Stock Option, the per Share exercise price will 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 will be no less than 100% of the Fair Market Value per Share on the date of grant. 
  

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 (3) Notwithstanding the foregoing, Incentive Stock Options may be granted with a 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. 
  
 (ii) Waiting Period and Exercise Dates. At the time an Option is granted, the Administrator will fix the period within which the
Option may be exercised and will determine any conditions that must be satisfied before the Option may be exercised. 
  
 (iii) Form of Consideration. The Administrator will 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 will determine the acceptable form of consideration at the time of grant. Such consideration may consist entirely of: (1) cash; (2) check; (3) promissory
note; (4) other Shares, provided Shares acquired directly or indirectly from the Company, (A) have been owned by the Participant and not subject to substantial risk of forfeiture 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 will be exercised; (5) consideration received by the Company under a cashless exercise program implemented by the Company in connection
with the Plan; (6) a reduction in the amount of any Company liability to the Participant, including any liability attributable to the Participant’s participation in any Company-sponsored deferred compensation program or arrangement; (7) any
combination of the foregoing methods of payment; or (8) such other consideration and method of payment for the issuance of Shares to the extent permitted by Applicable Laws. 
  
 (d) Exercise of Option. 
  
 (i) Procedure for Exercise; Rights as a Stockholder. Any Option granted hereunder will be exercisable
according to the terms of the Plan and at such times and under such conditions as determined by the Administrator and set forth in the Award Agreement. An Option may not be exercised for a fraction of a Share. 
  
 An Option will be deemed exercised when the Company
receives: (i) written or electronic notice of exercise (in accordance with the Award Agreement) from the person entitled to exercise the Option, and (ii) full payment for the Shares with respect to which the Option is exercised. Full payment may
consist of any consideration and method of payment authorized by the Administrator and permitted by the Award Agreement and the Plan. Shares issued upon exercise of an Option will be issued in the name of the Participant or, if requested by the
Participant, in the name of the Participant and his or her spouse. Until the Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive
dividends or any other rights as a stockholder will exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Company will issue (or cause to be issued) such Shares promptly after the Option is exercised. No
adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 14 of the Plan. 
  
 Exercising an Option in any manner will decrease the number of Shares thereafter available, both for
purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised. 
  

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 (ii) Termination of Relationship as a Service Provider. If a Participant ceases to
be a Service Provider, other than upon the Participant’s death or Disability, the Participant may exercise his or her Option within such period of time as is specified in the Award Agreement to the extent that the Option is vested on the date
of termination (but in no event later than the expiration of the term of such Option as set forth in the Award Agreement). In the absence of a specified time in the Award Agreement, the Option will remain exercisable for three (3) months following
the Participant’s termination. Unless otherwise provided by the Administrator, if on the date of termination the Participant is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option will revert to
the Plan. If after termination the Participant does not exercise his or her Option within the time specified by the Administrator, the Option will terminate, and the Shares covered by such Option will revert to the Plan. 
  
 (iii) Disability of Participant. If a Participant
ceases to be a Service Provider as a result of the Participant’s Disability, the Participant may exercise his or her Option within such period of time as is specified in the Award Agreement to the extent the Option is vested on the date of
termination (but in no event later than the expiration of the term of such Option as set forth in the Award Agreement). In the absence of a specified time in the Award Agreement, the Option will remain exercisable for twelve (12) months following
the Participant’s termination. Unless otherwise provided by the Administrator, if on the date of termination the Participant is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option will revert to
the Plan. If after termination the Participant does not exercise his or her Option within the time specified herein, the Option will terminate, and the Shares covered by such Option will revert to the Plan. 
  
 (iv) Death of Participant. If a Participant dies
while a Service Provider, the Option may be exercised following the Participant’s death within such period of time as is specified in the Award Agreement to the extent that the Option is vested on the date of death (but in no event may the
option be exercised later than the expiration of the term of such Option as set forth in the Award Agreement), by the Participant’s designated beneficiary, provided such beneficiary has been designated prior to Participant’s death in a
form acceptable to the Administrator. If no such beneficiary has been designated by the Participant, then such Option may be exercised by the personal representative of the Participant’s estate or by the person(s) to whom the Option is
transferred pursuant to the Participant’s will or in accordance with the laws of descent and distribution. In the absence of a specified time in the Award Agreement, the Option will remain exercisable for twelve (12) months following
Participant’s death. Unless otherwise provided by the Administrator, if at the time of death Participant is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option will immediately revert to the Plan.
If the Option is not so exercised within the time specified herein, the Option will terminate, and the Shares covered by such Option will revert to the Plan. 
  
 7. Stock Purchase Rights. 
  
 (a) Rights to Purchase. Stock Purchase Rights may be issued either alone, in addition to, or in tandem with other awards granted
under the Plan and/or cash awards made outside of the Plan. After the Administrator determines that it will offer Stock Purchase Rights under the Plan, it will advise the offeree in writing or electronically, by means of an Award Agreement, of the
terms, conditions and restrictions related to the offer, including the number of Shares that the offeree will 

  

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be entitled to purchase, the price to be paid, and the time within which the offeree must accept such offer. The offer will be accepted as determined by the
Administrator. 
  
 (b) Repurchase Option.
Unless the Administrator determines otherwise, the Award Agreement will grant the Company a repurchase option exercisable upon the voluntary or involuntary termination of the purchaser’s service with the Company for any reason (including death
or Disability). The purchase price for Shares repurchased pursuant to the Award Agreement will be determined by the Administrator and may be paid by cancellation of any indebtedness of the purchaser to the Company. The repurchase option will lapse
at a rate determined by the Administrator. 
  
 (c) Other Provisions. The Award Agreement will contain such other terms, provisions and conditions not inconsistent with the Plan as may be determined by the Administrator. 
  
 (d) Rights as a Stockholder. Once the Stock Purchase
Right is exercised, the purchaser will have the rights equivalent to those of a stockholder, and will be a stockholder when his or her purchase is entered upon the records of the duly authorized transfer agent of the Company. No adjustment will be
made for a dividend or other right for which the record date is prior to the date the Stock Purchase Right is exercised, except as provided in Section 14 of the Plan. 
  
 8. Restricted Stock. 
  

(a) Grant of Restricted Stock. Subject to the terms and provisions of the Plan, the Administrator, at any time and from time to
time, may grant Shares of Restricted Stock to Service Providers in such amounts as the Administrator, in its sole discretion, will determine. 
  
 (b) Restricted Stock Agreement. Each Award of Restricted Stock will be evidenced by an Award Agreement that will specify the Period
of Restriction, the number of Shares granted, and such other terms and conditions as the Administrator, in its sole discretion, will determine. Unless the Administrator determines otherwise, Shares of Restricted Stock will be held by the Company as
escrow agent until the restrictions on such Shares have lapsed. 
  
 (c) Transferability. Except as provided in this Section 8, Shares of Restricted Stock may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated until the end of the applicable
Period of Restriction. 
  
 (d) Other
Restrictions. The Administrator, in its sole discretion, may impose such other restrictions on Shares of Restricted Stock as it may deem advisable or appropriate. 
  
 (e) Removal of Restrictions. Except as otherwise provided in this Section 8, Shares of Restricted
Stock covered by each Restricted Stock grant made under the Plan will be released from escrow as soon as practicable after the last day of the Period of Restriction. The Administrator, in its discretion, may accelerate the time at which any
restrictions will lapse or be removed. 
  
 (f)
Voting Rights. During the Period of Restriction, Service Providers holding Shares of Restricted Stock granted hereunder may exercise full voting rights with respect to those Shares, unless the Administrator determines otherwise. 

 

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 (g) Dividends and Other Distributions. During the Period of Restriction, Service
Providers holding Shares of Restricted Stock will be entitled to receive all dividends and other distributions paid with respect to such Shares unless otherwise provided in the Award Agreement. If any such dividends or distributions are paid in
Shares, the Shares will be subject to the same restrictions on transferability and forfeitability as the Shares of Restricted Stock with respect to which they were paid. 
  
 (h) Return of Restricted Stock to Company. On the date set forth in the Award Agreement, the
Restricted Stock for which restrictions have not lapsed will revert to the Company and again will become available for grant under the Plan. 
  
 9. Stock Appreciation Rights. 
  
 (a) Grant of SARs. Subject to the terms and conditions of the Plan, an SAR may be granted to Service Providers at any time and from
time to time as will be determined by the Administrator, in its sole discretion. The Administrator may grant Affiliated SARs, Freestanding SARs, Tandem SARs, or any combination thereof. 
  
 (b) Number of Shares. The Administrator will have complete discretion to determine the number of SARs
granted to any Service Provider. 
  
 (c)
Exercise Price and Other Terms. The Administrator, subject to the provisions of the Plan, will have complete discretion to determine the terms and conditions of SARs granted under the Plan. However, the exercise price of Tandem or Affiliated
SARs will equal the exercise price of the related Option. 
  
 (d) Exercise of Tandem SARs. Tandem SARs may be exercised for all or part of the Shares subject to the related Option upon the surrender of the right to exercise the equivalent portion of the related Option. A
Tandem SAR may be exercised only with respect to the Shares for which its related Option is then exercisable. With respect to a Tandem SAR granted in connection with an Incentive Stock Option: (a) the Tandem SAR will expire no later than the
expiration of the underlying Incentive Stock Option; (b) the value of the payout with respect to the Tandem SAR will be for no more than one hundred percent (100%) of the difference between the exercise price of the underlying Incentive Stock Option
and the Fair Market Value of the Shares subject to the underlying Incentive Stock Option at the time the Tandem SAR is exercised; and (c) the Tandem SAR will be exercisable only when the Fair Market Value of the Shares subject to the Incentive Stock
Option exceeds the Exercise Price of the Incentive Stock Option. 
  
 (e) Exercise of Affiliated SARs. An Affiliated SAR will be deemed to be exercised upon the exercise of the related Option. The deemed exercise of an Affiliated SAR will not necessitate a reduction in the number
of Shares subject to the related Option. 
  
 (f)
Exercise of Freestanding SARs. Freestanding SARs will be exercisable on such terms and conditions as the Administrator, in its sole discretion, will determine. 
  
 (g) SAR Agreement. Each SAR grant will be evidenced by an Award Agreement that will specify the
exercise price, the term of the SAR, the conditions of exercise, and such other terms and conditions as the Administrator, in its sole discretion, will determine. 
  

 -12- 

 (h) Expiration of SARs. An SAR granted under the Plan will expire upon the date
determined by the Administrator, in its sole discretion, and set forth in the Award Agreement. Notwithstanding the foregoing, the rules of Section 6(d) also will apply to SARs. 
  
 (i) Payment of SAR Amount. Upon exercise of an SAR, a Participant will be entitled to receive payment
from the Company in an amount determined by multiplying: 
  
 (i) The difference between the Fair Market Value of a Share on the date of exercise over the exercise price; times 
  
 (ii) The number of Shares with respect to which the SAR is exercised. 
  
 At the discretion of the Administrator, the payment upon SAR exercise may be in cash, in Shares of equivalent value, or in
some combination thereof. 
  
 10. Performance Units and
Performance Shares. 
  
 (a) Grant of
Performance Units/Shares. Performance Units and Performance Shares may be granted to Service Providers at any time and from time to time, as will be determined by the Administrator, in its sole discretion. The Administrator will have complete
discretion in determining the number of Performance Units and Performance Shares granted to each Participant. 
  
 (b) Value of Performance Units/Shares. Each Performance Unit will have an initial value that is established by the Administrator on
or before the date of grant. Each Performance Share will have an initial value equal to the Fair Market Value of a Share on the date of grant. 
  
 (c) Performance Objectives and Other Terms. The Administrator will set performance objectives in its discretion which, depending on
the extent to which they are met, will determine the number or value of Performance Units/Shares that will be paid out to the Service Providers. The time period during which the performance objectives must be met will be called the “Performance
Period.” Each Award of Performance Units/Shares will be evidenced by an Award Agreement that will specify the Performance Period, and such other terms and conditions as the Administrator, in its sole discretion, will determine. The
Administrator may set performance objectives based upon the achievement of Company-wide, divisional, or individual goals, applicable federal or state securities laws, or any other basis determined by the Administrator in its discretion. 

 
 (d) Earning of Performance Units/Shares. After the
applicable Performance Period has ended, the holder of Performance Units/Shares will be entitled to receive a payout of the number of Performance Units/Shares earned by the Participant over the Performance Period, to be determined as a function of
the extent to which the corresponding performance objectives have been achieved. After the grant of a Performance Unit/Share, the Administrator, in its sole discretion, may reduce or waive any performance objectives for such Performance Unit/Share.

  
 (e) Form and Timing of Payment of
Performance Units/Shares. Payment of earned Performance Units/Shares will be made as soon as practicable after the expiration of the applicable Performance Period. The Administrator, in its sole discretion, may pay earned Performance
Units/Shares in the form of cash, in Shares (which have an aggregate Fair Market Value equal to the 

  

 -13- 

 
value of the earned Performance Units/Shares at the close of the applicable Performance Period) or in a combination thereof. 
  
 (f) Cancellation of Performance Units/Shares. On the
date set forth in the Award Agreement, all unearned or unvested Performance Units/Shares will be forfeited to the Company, and again will be available for grant under the Plan. 
  
 11. Formula Option Grants to Outside Directors. 
  
 All grants of Options to Outside Directors pursuant to this Section will be automatic and nondiscretionary and will be made
in accordance with the following provisions: 
  
 (a) Type of Option. All Options granted pursuant to this Section will be Nonstatutory Stock Options and, except as otherwise provided herein, will be subject to the other terms and conditions of the Plan. 
  
 (b) No Discretion. No person will have any discretion
to select which Outside Directors will be granted Options under this Section or to determine the number of Shares to be covered by such Options (except as provided in Sections 11(g) and 14). 
  
 (c) First Option. Each person who first becomes an
Outside Director following the Registration Date will be automatically granted an Option to purchase 24,000 Shares (the “First Option”) on or about 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 or Beneficial Owner who ceases to be an Inside Director or Beneficial Owner, respectively, but who remains a Director will
not receive a First Option. 
  
 (d) Subsequent
Option. Each Outside Director will be automatically granted an Option to purchase 6000 Shares (a “Subsequent Option”) on January 1 of each calendar year beginning in 2005, if as of such date, he or she will have served on the Board for
at least the preceding six (6) months. 
  
 (e)
Terms. The terms of each Option granted pursuant to this Section will be as follows: 
  
 (i) The term of the Option will be ten (10) years. 
  
 (ii) The exercise price per Share will be 100% of the Fair Market Value per Share on the date of grant of
the Option. 
  
 (iii) Subject to Section 14, the
First Option will vest and become exercisable as to 100% of the Shares subject to such Option on the fourth anniversary of its date of grant, provided that the Participant continues to serve as a Service Provider through such date. 
  
 (f) Subject to Section 14, the Subsequent Option will vest
and become exercisable in one installment upon the Participant’s completion of the four (4)-year period of service measured from the grant date. 
  

 -14- 

 (g) Amendment. The Administrator in its discretion may change the number of Shares
subject to the First Options and Subsequent Options. 
  
 12.
Leaves of Absence. Unless the Administrator provides otherwise, vesting of Awards granted hereunder will be suspended during any unpaid leave of absence. A Service Provider will not cease to be an Employee in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of the Company or between the Company, its Parent, or any Subsidiary. For purposes of Incentive Stock Options, no such leave may exceed ninety (90) 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, then three months following the 91st day of such leave any Incentive Stock Option held by the Participant will cease to be treated as an Incentive Stock Option and will be treated for tax
purposes as a Nonstatutory Stock Option. 
  
 13.
Transferability of Awards. Unless determined otherwise by the Administrator, an Award may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and
may be exercised, during the lifetime of the Participant, only by the Participant. If the Administrator makes an Award transferable, such Award will contain such additional terms and conditions as the Administrator deems appropriate. 
  
 14. Adjustments; Dissolution or Liquidation; Merger or Change in
Control. 
  
 (a) Adjustments. In the
event that any dividend or other distribution (whether in the form of cash, Shares, other securities, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase, or exchange of Shares or other securities of the Company, or other change in the corporate structure of the Company affecting the Shares occurs, the Administrator, in order to prevent diminution or enlargement of the benefits or
potential benefits intended to be made available under the Plan, may (in its sole discretion) adjust the number and class of Shares that may be delivered under the Plan and/or the number, class, and price of Shares covered by each outstanding Award,
the numerical Share limits in Sections 3 and 6 of the Plan and the number of Shares issuable pursuant to Section 11. 
  
 (b) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, the Administrator will
notify each Participant as soon as practicable prior to the effective date of such proposed transaction. To the extent it has not been previously exercised, an Award will terminate immediately prior to the consummation of such proposed action.

  
 (c) Change in Control. In the event of
a Change in Control, each outstanding Option, Stock Purchase Right and Stock Appreciation Right will be assumed or an equivalent option or right substituted by the successor corporation or a Parent or Subsidiary of the successor corporation. In the
event that the successor corporation refuses to assume or substitute for the Option, Stock Purchase Right or Stock Appreciation Right, the Participant will fully vest in and have the right to exercise the Option, Stock Purchase Right or Stock
Appreciation Right as to all of the Optioned Stock, including Shares as to which it would not otherwise be vested or exercisable (subject to consummation of the Change in Control). If an Option, Stock Purchase Right or Stock Appreciation Right
becomes fully vested and exercisable in lieu of assumption or substitution in the event of a 

  

 -15- 

 
Change in Control, the Administrator will notify the Participant in writing or electronically that the Option, Stock Purchase Right or Stock Appreciation
Right will be fully vested and exercisable for a period of time determined by the Administrator in its sole discretion, and the Option, Stock Purchase Right or Stock Appreciation Right will terminate upon the expiration of such period. 

 
 With respect to Options, SARs and/or Stock Purchase
Rights granted to an Outside Director that are assumed or substituted for, if on the date of or following such assumption or substitution the Participant’s status as a Director or a director of the successor corporation, as applicable, is
terminated other than upon a voluntary resignation by the Participant, then the Participant will fully vest in and have the right to exercise the Option, SAR and/or Stock Purchase Rights as to all of the Optioned Stock, including Shares as to which
it would not otherwise be vested or exercisable. 
  
 For the purposes of this subsection (c), the Option, Stock Purchase Right or Stock Appreciation Right will be considered assumed if, following the Change in Control, the option or right confers the right to purchase or receive, for each
Share subject to the Option, Stock Purchase Right or Stock Appreciation Right immediately prior to the Change in Control, the consideration (whether stock, cash, or other securities or property) or, in the case of a Stock Appreciation Right upon the
exercise of which the Administrator determines to pay cash, the fair market value of the consideration, received in the merger or Change in Control by holders of Common Stock for each Share held on the effective date of the transaction (and if
holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the Change in Control is not solely common stock of
the successor corporation or its Parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of the Option, Stock Purchase Right or Stock Appreciation Right, for each
Share subject to the Option, Stock Purchase Right or Stock Appreciation Right, to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the
Change in Control. 
  
 15. No Effect on Employment or
Service. Neither the Plan nor any Award will confer upon a Participant any right with respect to continuing the Participant’s relationship as a Service Provider with the Company, nor will they interfere in any way with the
Participant’s right or the Company’s right to terminate such relationship at any time, with or without cause, to the extent permitted by Applicable Laws. 
  
 16. Date of Grant. The date of grant of an Award will be, for all purposes, the date on which the Administrator makes
the determination granting such Award, or such other later date as is determined by the Administrator. Notice of the determination will be provided to each Participant within a reasonable time after the date of such grant. 
  

 -16- 

 17. Term of Plan. Subject to Section 21 of the Plan, the Plan will become effective upon its
adoption by the Board. It will continue in effect for a term of ten (10) years unless terminated earlier under Section 18 of the Plan. 
  
 18. Amendment and Termination of the Plan. 
  
 (a) Amendment and Termination. The Board may at any time amend, alter, suspend or terminate the Plan. 
  
 (b) Stockholder Approval. The Company will 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 will impair the rights of
any Participant, unless mutually agreed otherwise between the Participant and the Administrator, which agreement must be in writing and signed by the Participant and the Company. Termination of the Plan will not affect the Administrator’s
ability to exercise the powers granted to it hereunder with respect to Awards granted under the Plan prior to the date of such termination. 
  
 19. Conditions Upon Issuance of Shares. 
  
 (a) Legal Compliance. Shares will not be issued pursuant to the exercise of an Award unless the exercise of such Award and the
issuance and delivery of such Shares will comply with Applicable Laws and will be further subject to the approval of counsel for the Company with respect to such compliance. 
  
 (b) Investment Representations. As a condition to the exercise of an Award, the Company may require
the person exercising such Award to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for
the Company, such a representation is required. 
  
 20.
Inability to Obtain Authority. The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company’s counsel to be necessary to the lawful issuance and sale of any
Shares hereunder, will relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority will not have been obtained. 
  
 21. Stockholder Approval. The Plan will be subject to approval by the stockholders of the Company within twelve (12)
months after the date the Plan is adopted. Such stockholder approval will be obtained in the manner and to the degree required under Applicable Laws. 
  

 -17- 

 THE ALPHASMART, INC. 2003 STOCK PLAN 
  
 SUB-PLAN FOR UK EMPLOYEES 
  
 1. The purpose of this Sub-Plan is to provide incentive for present and future employees of AlphaSmart Europe Limited through the grant of options over Common Stock.

  
 2. This Sub-Plan is governed by the AlphaSmart, Inc. 2003 Stock Plan and all
its provisions shall be identical to those of the Plan save that the following sections shall be as stated in this Sub-Plan in order to accommodate the specific requirements of UK law. 
  

	1.	Purposes of the Sub-Plan 

  
 The purposes of this Sub-Plan are: 
  

	 	•	to attract and retain the best available personnel for positions of substantial responsibility; 

  

	 	•	to provide additional incentive to Employees; and 

  

	 	•	to promote the success of the Company’s business. 

  
 The Sub-Plan permits the grant of Nonstatutory Stock Options, Stock Purchase Rights, Restricted Stock, Stock Appreciation Rights, Performance Units and
Performance Shares. 
  

	2.	Eligibility 

  
 Nonstatutory Stock Options, Stock Purchase Rights, Restricted Stock, Stock Appreciation Rights, Performance Units and Performance Shares may be granted to
Employees. 
  
 General 
  
 References to Incentive Stock Options shall not apply to Options granted
under the Sub Plan.Amendment No. 3 to the Credit Agreement, dated May 19, 2004

 EXHIBIT 10.41 
  

  
 PACIFICARE HEALTH SYSTEMS INC. 
  

  
 AMENDMENT NO. 3 
  
 dated as of 
  
 May 19, 2004 
  
 to 
  
 CREDIT AGREEMENT 
  
 dated as of 
  
 June 3, 2003 
  

  
 JPMORGAN CHASE BANK, 
 as Administrative Agent 
  

 AMENDMENT NO. 3 
  
 AMENDMENT NO. 3 dated as of May 19, 2004 (this “Amendment No. 3”) to the Credit Agreement referred to
below, between: PACIFICARE HEALTH SYSTEMS INC. (the “Borrower”); the Subsidiary Guarantors party to the Credit Agreement; and JPMORGAN CHASE BANK, as Administrative Agent thereunder. 
  
 The Borrower, the Subsidiary Guarantors, the Lenders, the Administrative
Agent and the Collateral Agent are parties to a Credit Agreement dated as of June 3, 2003 (as amended and in effect from time to time, the “Credit Agreement”), providing, subject to the terms and conditions thereof, for extensions
of credit to be made by the Lenders to the Borrower. 
  
 The
Borrower has requested certain amendments to the Credit Agreement and, accordingly, the parties hereto hereby agree as follows: 
  
 Section 1. Definitions. Except as otherwise defined in this Amendment No. 3, terms defined in the Credit Agreement are used herein as defined
therein. 
  
 Section 2. Amendments. Subject to the
satisfaction of the conditions precedent specified in Section 4 hereof, but effective as of the date hereof, the Credit Agreement shall be amended as follows: 
  

2.01. General References. References in the Credit Agreement (including references to the Credit Agreement as amended hereby) to “this
Agreement” (and indirect references such as “hereunder”, “hereby”, “herein” and “hereof”) shall be deemed to be references to the Credit Agreement as amended hereby. 
  
 2.02. Definitions. The definition of “Consolidated Fixed Charge
Coverage Ratio” in Section 1.01 of the Credit Agreement shall be amended by inserting, immediately after the words “Section 7.06(h)”, the following words: “and Section 7.06(i)”. 
  
 2.03. Investments. Section 7.05(p) of the Credit Agreement shall be
amended to read in its entirety as the following: 
  
 “(p) other Investments in an aggregate amount invested not to exceed the greater of (i) $50,000,000 and (ii) 5% of Consolidated Tangible Assets, determined as at the end of the immediately preceding fiscal quarter of the Borrower, plus
in either case the net reduction in any such Investments (but not exceeding the amount of such Investments) resulting from distributions on or repayments of such Investments or from the net cash proceeds or cash or Permitted Investments from the
Disposition of such Investments.” 
  
 2.04. Restricted
Payments. Section 7.06 of the Credit Agreement shall be amended by: (a) deleting the word “and” at the end of clause (g) thereof, (b) replacing the period at the end of clause (h) thereof with a semi-colon followed by the word
“and”, and (c) inserting, immediately following such clause (h), a new clause (i) to read as following: 
  
 Amendment No. 3 

 “(i) so long as no Default shall occurred and be continuing, the Borrower may, at
any time after May 19, 2004, purchase or repurchase its common stock in an aggregate amount not to exceed $150,000,000, provided that, after giving effect to each such purchase or repurchase, the Borrower shall be in pro forma compliance with
Section 7.09.” 
  
 Section 3. Representations and
Warranties. The Borrower represents and warrants to the Lenders as of the date hereof that (a) the representations and warranties of the Borrower set forth in the Credit Agreement are true and correct, and of each Obligor in each of the other
Loan Documents to which it is a party are true and correct in all material respects, in each case on and as of the date hereof with the same force and effect as if made on and as of the date hereof (or, if any such representation and warranty is
expressly stated to have been made as of a specific date, as of such specific date) and as if each reference herein to “this Agreement” (or words of similar import) or in such other Loan Documents to “the Credit Agreement” (or
words of similar import) included reference to this Amendment No. 3 and (b) no Default has occurred and is continuing. 
  
 Section 4. Conditions Precedent. The amendments to the Credit Agreement set forth in Section 2 shall become effective as of the date hereof upon
the satisfaction of each of the following conditions: 
  
 4.01. Amendment No. 3. The Administrative Agent shall have received one or more counterparts of this Amendment No. 3 executed by each Obligor and the Administrative Agent (with the written consent of the Required Lenders provided in
the form of the Lender Consent attached hereto as Exhibit A (the “Lender Consent”)). 
  
 4.02. Payment of Fees. The Administrative Agent shall have received evidence satisfactory to the Administrative Agent of payment
(or irrevocable instructions for payment) by the Borrower in full of an amendment fee to the Administrative Agent for the account of each Lender that has approved this Amendment No. 3 by executing a Lender Consent and delivering it to the
Administrative Agent on or before 5:00 p.m., New York City time, on May 19, 2004, such amendment fee to be in an amount equal to 0.03% of the sum of the aggregate unpaid principal amount of the Term Loans, if any, held by such Lender and the
Revolving Credit Commitment then in effect, if any, of such Lender. 
  
 Section 5. Confirmation of Guarantees and Security Interests. Each of the Obligors hereby confirms and ratifies all of its respective obligations under the Loan Documents to which it is a party (including, in the case of each
Subsidiary Guarantor, its respective obligations as a guarantor under Article III of the Credit Agreement (as amended hereby)) and the Liens granted by it under the respective Loan Documents (as amended hereby) and hereby represents, warrants and
confirms that all references in such Loan Documents to the Credit Agreement (or words of similar import) fully and effectively mean the Credit Agreement as amended hereby without impairing any such obligations or Liens in any respect.

  
 Section 6. Miscellaneous. Except as herein provided,
the Credit Agreement shall remain unchanged and in full force and effect. This Amendment No. 3 may be executed in any number of counterparts, all of which taken together shall constitute one and the same amendatory 
  
 Amendment No. 3 
  

 - 2 - 

 instrument and any of the parties hereto may execute this Amendment No. 3 by signing any such counterpart. This Amendment
No. 3 shall be governed by, and construed in accordance with, the law of the State of New York. 
  
 Amendment No. 3 
  

 - 3 - 

 IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 3 to be duly executed and delivered
as of the day and year first above written. 
  
  

			
	 BORROWER

	
	 PACIFICARE HEALTH SYSTEMS, INC.

		
	 By
	 	 /s/ Gregory W. Scott

	 Name:
	 	 Gregory W. Scott

	 Title:
	 	 Executive Vice President & Chief Financial Officer

  
 Amendment No.
3 
  

 - 4 - 

	
	 SUBSIDIARY GUARANTORS

	
	 PACIFICARE HEALTH PLAN

	 ADMINISTRATORS, INC.

  

			
	 By
	 	 /s/ Gregory W. Scott

	 Name:
	 	 Gregory W. Scott

	 Title:
	 	 Chief Financial Officer

  

			
	 PACIFICARE eHOLDINGS, INC.

		
	 By
	 	 /s/ Gregory W. Scott

	 Name:
	 	 Gregory W. Scott

	 Title:
	 	 Chief Financial Officer

  

			
	 SENIORCO, INC.

		
	 By
	 	 /s/ Gregory W. Scott

	 Name:
	 	 Gregory W. Scott

	 Title:
	 	 Chief Financial Officer

  

			
	 RxSOLUTIONS, INC.

		
	 By
	 	 /s/ Gregory W. Scott

	 Name:
	 	 Gregory W. Scott

	 Title:
	 	 Chief Financial Officer

  
 Amendment No.
3 
  

 - 5 - 

			
	 PACIFICARE BEHAVIORAL HEALTH, INC.

		
	 By
	 	 /s/ Gregory W. Scott

	 Name:
	 	 Gregory W. Scott

	 Title:
	 	 Chief Financial Officer

	
	 SECUREHORIZONS USA, INC.

		
	 By
	 	 /s/ Gregory W. Scott

	 Name:
	 	 Gregory W. Scott

	 Title:
	 	 Chief Financial Officer

	
	 PACIFICARE OF ARIZONA, INC.

		
	 By
	 	 /s/ Gregory W. Scott

	 Name:
	 	 Gregory W. Scott

	 Title:
	 	 Chief Financial Officer

	
	 PACIFICARE OF OKLAHOMA, INC.

		
	 By
	 	 /s/ Gregory W. Scott

	 Name:
	 	 Gregory W. Scott

	 Title:
	 	 Treasurer

	
	 PACIFICARE SOUTHWEST OPERATIONS, INC.

		
	 By
	 	 /s/ Gregory W. Scott

	 Name:
	 	 Gregory W. Scott

	 Title:
	 	 Chief Financial Officer

  
 Amendment No.
3 
  

 - 6 - 

			
	 ADMINISTRATIVE AGENT

	
	 JPMORGAN CHASE BANK,
as Administrative Agent

		
	 By
	 	 /s/ Dawn Lee Lum

	 Name:
	 	 Dawn Lee Lum

	 Title:
	 	 Vice President

  
 Amendment No.
3 
  

 - 7 - 

 EXHIBIT A 
  
 LENDER CONSENT 
  
 Reference is made to the Credit Agreement dated as of June 3, 2003 (as amended and in effect from time to time, the “Credit Agreement”)
between PacifiCare Health Systems Inc., the Subsidiary Guarantors party to the Credit Agreement, the Lenders party to the Credit Agreement, JPMorgan Chase Bank, as Administrative Agent thereunder and JPMorgan Chase Bank, as Collateral Agent
thereunder. Capitalized terms used and not otherwise defined herein are deemed to have the respective meanings assigned to such terms in the Credit Agreement. 
  

The undersigned Lender party to the Credit Agreement hereby (i) consents to Amendment No. 3 to the Credit Agreement, dated as of May 19, 2004,
substantially in the form to which the form of this Lender Consent is attached (“Amendment No. 3”) and (ii) authorizes and directs the Administrative Agent to execute and deliver Amendment No. 3 on behalf of such Lender. 

 
 Full Name of Lender:
                                        

  

			
	 By:
	 	  

	 Name:
	 	 
	 Title:
	 	 

  
 Date:
May     , 2004 
  
 Amendment No. 3

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