Document:

Exhibit 10.1

PRO-DEX, INC.

 

1994 SECOND AMENDED STOCK OPTION
PLAN

 

 

            This
Second Amended Stock Option Plan (the “Plan”), adopted in consideration for
services rendered and to be rendered to Pro-Dex, Inc. and related companies, is
amended this 4th day of December, 2007.

 

1.   Definitions.  The terms used in this Plan shall, unless otherwise
indicated or required by the particular
context, have the following meanings:

 

Board:    
The Board of Directors of Pro-Dex, Inc.

 

Code:     
The Internal Revenue Code of 1986, as amended.

 

Common Stock:   
The no par value common stock of Pro-Dex, Inc.

 

Company: 
       Pro-Dex, Inc., a corporation incorporated under the laws of

California, and any successors in
interest by merger, operation of law, assignment or purchase of all or
substantially all of the property, assets or business of the Company.

 

                        Date
of Grant:    The date on which an Option (see below) is granted under the
Plan.

 

                        Disinterested
Person:  A director who has not been granted or awarded equity securities
pursuant to any plan of the Company or of any Related Company of the Company
during one year prior to that director’s service as an administrator of the
Plan, except as otherwise provided in Rule 16b-3 promulgated under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”) with respect
to (a) participation in formula plans or ongoing securities acquisitions plans,
and (b) an election to receive securities for an annual retainer fee.

 

                        Employee:   
An Employee is an employee of the Company or any Related Company.

 

                       Fair
Market Value:   The Fair Market Value of the Option Shares.  Such Fair
Market Value as of any date shall be determined by the Option Committee as of
the last business day for which the prices or quotes discussed in this sentence
are available prior to the date an Option is granted and shall mean (a) the
average (on that date) of the high and low prices of the Common Stock on the
principal national securities exchange by which the Common Stock is traded, if
the stock is then traded on a national securities exchange; or, (b) the last
reported sale price (on that date) of the Common Stock on NASDAQ or other
securities market, if the stock is not then traded on a national securities
exchange; or (c) the closing bid price (or average of bid prices) last quoted
(on that date) by an established securities market or quotation service for
over-the-counter securities, if the last sale price is not reported for the
stock on the service or market on which the stock is quoted.  However, if the
Common Stock is not publicly-traded at the time an Option is granted under the
Plan, Fair Market Value shall be deemed to be the fair value of the stock as
determined in good faith by the Board or the Option Committee, and a written
record of the method of determining such value shall be maintained.  Such
valuation shall take into account all available information material to the
value of the company, including but not limited to the value of the tangible
and intangible assets of the company, the present value of its anticipated
future cash flows, the market value of the stock or equity interests in other
entities engaged in substantially the same business, recent arm’s length
transactions involving the sale of such stock, and other relevant factors.

 

 

1

 

 

                        Incentive
Stock Options (“ISOs”):  “Incentive Stock Options” as that term is defined
in Section 422A of the Code.

 

                        Key
Employee:     A person designated by the Option Committee who either is
employed by the Company or a Related Company (see below) and upon whose
judgment, initiative and efforts the Company or a Related Company is largely
dependent for the successful conduct of its business; provided, however, that
Key Employees shall not include those members of the Board who are not
employees of the Company or a Related Company.

 

                        Non-Incentive
Stock Options (“Non-ISOs”):     Options which are not intended to qualify
as “Incentive Stock Options” under Section 422A of the Code.

 

                        Option:    
The rights granted to an Employee to purchase Common Stock pursuant to the
terms and conditions of an Option Agreement (see below).

 

                        Option
Agreement:     The written agreement (and any amendment or supplement
thereto) between the Company and an Employee designating the terms and
conditions of an Option.

 

                        Option
Committee:     With respect to grants of Options to Employees who are not
also Officers and/or Directors of the Company, the Plan shall be administered
by an Option Committee (“Option Committee”) composed of the Board or at least
two members of the Board.  With respect to grants of Options to Employees who
are also Officers or Directors, the Plan shall be administered by a committee,
selected by the Board, consisting of two or more persons, each of whom is a
Disinterested Person.  Such committee may also be deemed an Option Committee.

 

                        Option
Shares:     The shares of Common Stock underlying an Option granted to an
Employee.

 

                        Optionee:    
An Employee who has been granted an Option.

 

 

 

2

 

 

 

                        Related
Company:     Any corporation that is a “parent corporation” or a
“subsidiary corporation” with respect to the Company, as those terms are
defined in Section 425 of the Code.  The determination of whether a corporation
is a Related Company shall be made without regard to whether the corporation or
the relationship between the corporation and the Company now exists or comes
into existence hereinafter.

 

2.    Purpose and Scope.

 

(a)    The
purpose of this Plan is to advance the interests of the Company and
its shareholders by affording Employees an opportunity for investment in the
Company and the incentive advantages inherent in stock ownership in this
Company.

 

(b)    This
Plan authorizes the Option Committee to grant Options to purchase shares
of Common Stock to Employees selected by the Option Committee while considering
criteria such as employment position or other relationship with the Company,
duties and responsibilities, ability, productivity, length of service or
association, morale, interest in the Company, recommendations by supervisors,
and other matters.

 

3.      
Administration of the Plan.  The Plan shall be administered by
the OptionCommittee.  The Option Committee
shall have the authority granted to it under this section and under each other
section of the Plan.

 

In accordance
with and subject to the provisions of the Plan, the OptionCommittee shall select the
Optionees, shall determine (a) the number of shares of Common Stock to be
subject to each Option, which number shall be fixed as of the date of grant,
(b) the time at which each Option is to be granted, (c) whether an Option shall
be granted in exchange for the cancellation and termination of a previously
granted option or options under the Plan or otherwise, (d) the purchase price
for the Option Shares, which price shall not be less than 100% of the per share
Fair Market Value of the shares on the date of grant, (e) the option period,
and (f) the manner in which the Option becomes exercisable.  In addition, the
Option Committee shall fix such other terms of each Option as the Option
Committee may deem necessary or desirable.  The Option Committee shall
determine the form of Option Agreement to evidence each Option.

 

The Option
Committee from time to time may adopt such rules and regulations for carrying out the
purposes of the Plan as it may deem proper and in the best interests of the
Company.  The Option Committee shall keep minutes of its meetings and those
minutes shall be distributed to every member of the Board.

 

The Board may
from time to time make such changes in and additions to the Plan as it may deem
proper and in the best interest of the Company; provided, however, that no such
change or addition shall impair any Option previously granted under the Plan,
and that the approval by the affirmative vote of the holders of a majority of
the Company's securities entitled to vote and represented at a meeting duly held
in accordance with the applicable laws of the State of California, shall be
required for any amendment which would:

 

3

 

 

 

(a)        modify
the eligibility requirements for receiving Options under the Plan;

 

(b)        increase
the benefits accruing to Employees under the Plan; or

 

(c)        increase
the number of shares of Common Stock that may be issued under the
Plan.

 

All actions
taken and all interpretations and determinations made by the Option Committee in good
faith (including determinations of Fair Market Value) shall be final and
binding upon all Employees, the Company and all other interested persons.  No
member of the Option Committee shall be personally liable for any action,
determination or interpretation made in good faith with respect to the Plan,
and all members of the Option Committee shall, in addition to rights they may
have as Directors of the Company be fully protected by the Company with respect
to any such action, determination or interpretation.

 

4.     
Number of Shares.  The Board is authorized to appropriate, issue
and sell for the purposes of the Plan, and
the Option Committee is authorized to grant Options with respect to, a total
number, not in excess of 1,500,000 shares of Common Stock, either treasury or
authorized but unissued, or the number and kind of shares of stock or other
securities which in accordance with Section 9 shall be substituted for the
1,500,000 shares or into which such 1,500,000 shares shall be adjusted.  All or
any unsold shares subject to an Option that for any reason expires or otherwise
terminates, may again be made subject to Options under the Plan.

 

5.     
Eligibility.  Options which are intended to qualify as ISOs will
be granted only to Key Employees.  Key
Employees and other Employees may hold more than one Option under the Plan and
may hold Options under the Plan and options granted pursuant to other plans or
otherwise.

 

6.     
Option Price.  The Option Committee shall determine the purchase
price for the Options Shares, provided
that the purchase price to be paid by Optionees for the Option Shares shall not
be less than 100 percent of the Fair Market Value of the Option Shares at the
time the Option is granted.  The purchase price for the Option Shares shall be
a fixed, and cannot be a fluctuating, price.

 

7.     
Duration and Exercise of Options.

 

(a)      Each
Option granted under the Plan shall be exercisable on such date or dates
and during such period and for such number of shares as shall be determined
pursuant to the provisions of the instrument evidencing such Option.  The
Option Committee shall have the right to accelerate the date of exercise of any
Option, provided that the Option Committee shall not accelerate the exercise of
any ISO granted if such acceleration would violate the annual vesting
limitation contained in Section 422(d) (1) of the Code.  The Option Committee
shall not amend or extend any Award in such a way as
might, under the Regulations promulgated under Section 409A of the Code,
provide for the additional deferral of compensation or an effective decrease in
the exercise price of the Award to a price below what was the Fair Market Value
of the Common Stock on the date of grant.

                                                                       

4

 

 

 

 

 

 

 

(b)       Except
as otherwise permitted under Section 11, during the lifetime of
the Optionee, the Option shall be exercisable only by the Optionee; provided,
that in the event of the legal disability of an Optionee, the guardian or
personal representative of the Optionee may exercise the Option.  However, if
the Option is an ISO it may be exercised by the guardian or personal
representative of the Optionee only if such guardian or personal representative
obtains a ruling from the Internal Revenue Service or an opinion of counsel to
the effect that neither the grant nor the exercise of such power is violative
of Section 422A(b) (5) of the Code.  Any opinion of counsel must be both from
counsel arid in a form acceptable to the Option Committee.

 

(c)       The
Option Committee may determine whether any Option shall be exercisable
as provided in Paragraph (a) of this Section 7 or whether the Options shall be
exercisable in installments only; if the Option Committee determines the
latter, it shall determine the number of installments and the percentage of the
Option exercisable at each installment date.  All such installments shall be
cumulative.

 

(d)       If
the Optionee ceases to be employed by either the Company or a Related
Company because of the death or permanent and total disability (as defined in
Section 22(e) (3) of the Code) of the Optionee, any Option held by the Optionee
at the time his employment ceases may be exercised within 90 days after the
date his employment ceased, but only to the extent that the Option was
exercisable according to its terms on the date the Optionee’s employment
ceased.  After such 90-day period, any unexercised portion of an Option shall
expire.

 

(e)        Notwithstanding
the provisions of Paragraph (d) of this Section 7,if an Optionee’s employment by the Company or a Related Company ceases for any reason
other than the Optionee’s death or permanent and total disability, any
unexercised portion of any Option held by the Optionee at the time his
employment ceases may be exercised within 30 days after the date his employment
ceased, but only to the extent that the Option was exercisable according to its
terms on the date the Optionee’s employment ceased.  After such date, any
unexercised portion of an Option shall expire.

 

(f)         Each
Option shall be exercised in whole or part by delivering to the office of
the Treasurer of the Company written notice of the number of shares with
respect to which the Option is to be exercised and by paying in full the
purchase price for the Option Shares purchased as set forth in Section 8;
provided, that an Option may not be exercised in part unless the purchase price
for the Option Shares purchased is at least $2,000.

 

 

5

 

 

 

(g)        To
the extent required to qualify for the exemption provided by Rule 16b-3
under the Exchange Act, and any successor provision, at least six months must
elapse from the date of acquisition of an Option by any person who is subject
to the reporting requirements of Section 16(a) of the Exchange Act to the date
of exercise of such Option or disposition of the Option Shares.

 

8.     
Payment for Option Shares.  If the purchase price of the Option
Sharespurchased by any Optionee at one
time exceeds $2,000, the Option Committee may permit all or part of the
purchase price for the Option Shares to be paid by the Optionee by (a)
delivering to the Company shares of the Company’s common Stock previously owned
by the Optionee with a Fair Market Value as of the date of payment equal to the
portion of the purchase price for the Option Shares that the Optionee does not
pay in cash, (b) having shares withheld from the amount of shares to be
received by the Optionee, (c) delivering an irrevocable subscription agreement
obligating the Optionee to take and pay for the shares to be purchased within
one year of the date of such exercise, or (d) complying with any other payment
mechanisms as the Option Committee may approve from time to time.  As a
condition to the exercise of any Option granted under this Plan, the Optionee
shall make such arrangements as the Option Committee may require for the
satisfaction of any federal, state or withholding tax obligations which may
arise in connection with such exercise.  The issuance, transfer or delivery of
certificates of shares of Common Stock pursuant to the exercise or Options may
be delayed, at the discretion of the Option Committee, until the Option
Committee is satisfied that the applicable requirements of federal and state
securities laws and the withholding provisions of the Code have been met. 
Until such person has been issued a certificate or certificates for the Option
Shares so purchased, he or she shall possess no rights of a recordholder with
respect to any of such shares.

 

9.     
Change in Stock, Adjustments, Inc.

 

(a)      In the
event that each of the outstanding shares of Common Stock (other than
shares held by dissenting shareholders which are not changed or exchanged)
should be changed into, or exchanged for, a different number or kind of shares
of stock or other securities of the Company, or, if further changes or
exchanges of any stock or other securities into which the Common Stock shall
have been changed, or for which it shall have been exchanged, shall be made
(whether by reason of merger, consolidation reorganization, recapitalization,
stock dividends, reclassification, split-up, combination or shares or
otherwise), then there shall be substituted for each share of Common Stock that
is subject to the Plan but not subject to an outstanding Option thereunder, the
number and kind of shares of stock or other securities into which each
outstanding share of Common Stock (other than shares held by dissenting
shareholders which are not changed or exchanged) shall be so changed or for
which each outstanding share of Common Stock (other than shares held by
dissenting shareholders) shall be exchanged.  Any securities so substituted
shall be subject to similar successive adjustments.

 

6

 

 

 

 

 

 

 

In the event
of any such changes or exchanges, the Option Committee shall determine whether,
in order to prevent dilution or enlargement of rights, an adjustment should be
made in the number, or kind, or Option price of the shares or other securities
then subject to an Option or Options granted pursuant to the Plan and the
Option Committee shall make any such adjustment, and such adjustments shall be
made and shall be effective and binding for all purposes of the Plan.

 

(b)       The
Company completed a Plan of Reorganization and Merger(“Reorganization”)
whereby P-D Acquiring Corp., a California corporation, merged with and into the
Company in exchange for shares of Pro-Dex Holdings, Inc., a Colorado
corporation.  Post Reorganization, the Plan is the Plan of Pro-Dex, Inc.

 

10.  Relationship
to Employment.  Nothing contained in the Plan, or in any Option granted pursuant to the
Plan, shall confer upon any Optionee any right with respect to continuance of
employment by the Company, or interfere in any way with the right of the Company
to terminate the Optionee’s employment at any time.

 

11.  Nontransferability
of Option.  No Option granted under the Plan shall betransferable by the Optionee,
either voluntarily or involuntarily, except by will or the laws of descent and
distribution, pursuant to a qualified domestic relations order as defined in
the Code, or pursuant to the Employee Retirement Income Security Act or rules
promulgated thereunder; except that (a) Optionees who are not subject to
Section 16(b) of the Exchange Act may upon written notice transfer an Option
(i) to an Optionee’s spouse, parents, siblings, or lineal descendants, or (ii)
to a trust for the benefit of the Optionee or any of the Optionee’s spouse,
parents, siblings, or lineal descendants, or (iii) to any corporation or
partnership controlled by the Optionee; and (b) Optionees who are subject to
Section 16(b) of the Exchange Act may transfer Options to immediate family
members and family trusts.  No Option shall be subject to execution, attachment
or similar process.  Except as specifically provided herein, any attempt to
transfer the Option shall void the Option.

 

12.  Rights
as a Shareholder.  No person shall have any rights as a shareholder with respect to any shares
covered by an Option until that person shall become the holder of record of
such shares and, except as provided in Section 9, no adjustments shall be made
for dividends or other distributions or other rights as to which there is an
earlier record date.

 

7

 

 

13.  Securities
Laws Requirements.  No Option Shares shall be issued unlessand until, in the opinion of the
Company, any applicable registration requirements of the Securities Act of
1933, as amended (“Securities Act”), any applicable listing requirements of any
securities exchange on which stock of the same class is then listed, and any
other requirements of law or of any regulatory bodies having jurisdiction over
such issuance and delivery, have been fully complied with.  Each Option and
each Option Share certificate may be imprinted with legends reflecting federal
and state securities laws, restrictions and conditions, and the Company may
comply therewith and issue “stop transfer” instructions to its transfer agent
and registrar in good faith without liability.

 

14.  Disposition
of Shares.  Each Optionee, as a condition of exercise, shall represent, warrant and agree, in
a form of written certificate approved by the Company, as follows:  (a) that
all Option Shares are being acquired solely for his own account and not on
behalf of any other person or entity; (b) that no Option Shares will be sold or
otherwise distributed in violation of the Securities Act, or any other
applicable federal or state securities laws; (c) that if he is subject to
reporting requirements under Section 16(a) of the Exchange Act, he will (i) not
violate Section 16(b) of the Exchange Act, (ii) furnish the Company with a copy
of each Form 4 and Form 5 filed by him, and (iii) timely file all reports
required under the federal securities laws; and (d) that he will report all
sales of Option Shares to the Company in writing on a form prescribed by the
Company.

 

15.  Effective
Date of Plan; Termination Date of Plan.  The Plan shall be effective on the date of the
approval of the Plan by the affirmative vote of the holders of a majority of
the Company’s securities entitled to vote and represented at a meeting duly
held in accordance with applicable law.  The Plan shall terminate on May 25,
2004, except as to Options previously granted and outstanding under the Plan at
that time.  No Options shall be granted after the date on which the Plan
terminates.  The Plan may be abandoned or terminated at any earlier time by the
Board, except with respect to any Options then outstanding under the Plan.

 

16.  Limitation
on Amount of Option.  With respect to ISOs, the aggregate Fair Market Value (determined as of
the time the ISO is granted) of the stock as to which an ISO may first become
exercisable in a particular calendar year may not exceed $100,000.

 

17.  Ten
Percent Shareholder Rule.  With respect to ISOs, no Option may be granted to a Key Employee who, at
the time the Option is granted, owns stock possessing more than 10 percent of
the total combined voting power of all classes of stock of the Company or of
any “parent corporation” or “subsidiary corporation” as those terms are defined
in Section 425 of the Code, unless at the time the Option is granted the
purchase price for the Option shares is at least 110 percent of the Fair Market
Value of the Option Shares at the time the ISO is granted and such Option by
its terms is not exercisable after the  expiration of five years from the Date
of Grant.  For purposes of the preceding sentence, stock ownership shall be
determined as provided in Section 425 of the Code.

 

18.  Withholding
Taxes.  The Company, or any Related Company, may take such steps as it may deem
necessary or appropriate for the withholding of any taxes which the Company, or
any Related Company, is required by any law or regulation or any governmental
authority, whether federal, state or local, domestic or foreign, to withhold in
connection with any Option including, but riot limited to, the withholding of
all or any portion of any payment or the withholding of issuance of Option
Shares to be issued upon the exercise of any Option.

                                                                       

8

 

 

 

19.  Change
in Control, Stock Dividends, Reorganization and Other Extraordinary Actions.

 

(a)     If (i)
the company shall at any time be involved in a transaction described n
Section 424(a) of the Code (or any successor provision) or any “corporate
transaction” described in the regulations thereunder; (ii) the Company shall
declare dividends payable in, or shall subdivide or combine, its Common Stock
or (iii) any other event with substantially the same effect shall occur, the
Option Committee shall, with respect to each outstanding Option, proportionately
adjust the number of Option Shares and/or the exercise price per share so as to
preserve the rights of the Optionee substantially proportionate to the rights
of the Optionee prior to such event, and to the extent that such action shall
include an increase or decrease in the number of Option Shares subject to
outstanding Options, the number of shares available under this Plan shall
automatically be increased or decreased, as this case may be, proportionately,
without further action on the part of the Option Committee, the Company or the
Company’s shareholders.

 

(b)     If the Company is liquidated or dissolved, the Option Committee
may allow the holders of any outstanding Options to exercise all or any part of
the unvested portion of the Options held by them; provided, however, that such
Options must be exercised prior to the effective date of such liquidation or
dissolution.  If the Option Holders do not exercise their Options prior to such
effective date, each outstanding Option shall terminate as of the effective
date of the liquidation or dissolution.

 

(c)        The
grant of an Option shall not affect in any way the right or power of the Company
to make adjustments, reclassifications, reorganizations or  changes of its
capital or business structure, to merge, consolidate or dissolve, to liquidate
or to sell or transfer all or part of its business or assets.

 

(d)       In
the event of a Change in Control (as defined below) of the Company, the
Option Committee may, in its discretion, accelerate all outstanding Options so
that they immediately become fully vested and immediately exercisable for the
duration of the Option Term.  For purposes of this subsection (d), “Change in
Control” shall mean either one of the following:  (i) when any “person,” as
such term is used in Sections 13(d) and 14(d) of the Exchange Act (other than a
shareholder of the Company on the date of this Plan), the Company, a subsidiary
or a Company Employee Benefit Plan, (including any trustee of such Plan acting
as trustee) becomes, after the date of this Plan, the “beneficial owner” (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 35% or more of the combined voting power
of the Company’s then outstanding securities; or (ii) the occurrence of a
transaction requiring shareholder approval, arid involving the sale of all or
substantially all of the assets of the Company or the merger of the Company
with or into another corporation.

 

9

 

 

 

 

 

 

 

(e)        If
at any time the Company declares an Extraordinary Dividend, as defined
below, all Options shall accelerate and thereupon become fully vested and
immediately exercisable for the duration of the Option Term.  For purposes of
this subsection (e), “Extraordinary Dividend” shall mean a cash dividend
payable to holders of record of the Common Stock in an amount in excess of 10%
of the then Fair Market Value of the Company’s Common Stock.

 

20.  Other
Provisions.

(a)     
    The use of a masculine gender in the Plan shall also include within its
meaning the feminine, and the singular may include the plural, and the plural
may include the singular, unless the context clearly indicates to the contrary.

 

(b)     
Any expenses of administering the Plan shall be borne by the Company.

 

(c)     
This Plan shall be construed to be in addition to any and all other compensation
plans or programs.  Neither the adoption of the Plan by the Board nor the
submission of the Plan to the shareholders of the Company shall be construed as
creating any limitations on the power of authority of the Board to adopt such
other additional incentive or other compensation arrangements as the Board may
deem necessary or desirable.

 

(d)     
The validity, construction, interpretation, administration and effect of the Plan and
its rules and regulations, and the rights of any and all personnel having or
claiming to have an interest therein or thereunder shall be governed by and
determined exclusively and solely in accordance with the laws of the State of
California; provided, however, if the Reorganization described in Section 9(b)
hereof shall be consummated, the laws of the State of Colorado shall govern and
determine construction, etc. of this Plan.

 

 

********* 

10Exhibit 10.2

PRO-DEX, INC.

SECOND AMENDED AND RESTATED

2004 STOCK OPTION PLAN

 

This Second Amended and Restated 2004 Stock Option Plan (the “Plan”)
is adopted in consideration for services rendered and to be rendered to
Pro-Dex, Inc. or any Related Company (as defined below).

1.          Definitions. The terms used in this Plan shall, unless otherwise
indicated or required by the particular context, have the following meanings:

(a)      Award Shares: The shares of Common Stock underlying an Option or
Restricted Stock granted to an Employee.

(b)      Board: The Board of Directors of Pro-Dex, Inc.

(c)      Code: The Internal Revenue Code of 1986, as amended.

(d)      Common Stock: The no par value common stock of Pro-Dex, Inc.

(e)      Company: Pro-Dex, Inc., a corporation incorporated under the laws
of Colorado, and any successors in interest by merger, operation of law,
assignment or purchase of all or substantially all of the property, assets or
business of the Company.

(f)        Date of Grant: The date on which an Option is granted under the
Plan.

(g)      Disinterested Person: A director who has not been granted or
awarded equity securities pursuant to any plan of the Company or of any Related
Company of the Company during one year prior to that director’s service as an
administrator of the Plan, except as otherwise provided in Rule 16b-3 promulgated
under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)
with respect to (i) participation in formula plans or ongoing securities
acquisitions plans, and (ii) an election to receive securities for an annual
retainer fee.

(h)       Employee: An Employee is an employee of the Company or any
Related Company.

(i)        
Fair Market Value: The Fair Market Value of the Option Shares.
Such Fair Market Value as of any date shall be determined by the Option
Committee as of the last business day for which the prices or quotes discussed
in this sentence are available prior to the date an Option is granted and shall
mean (i) the average (on that date) of the high and low prices of the Common
Stock on the principal national securities exchange by which the Common Stock
is traded, if the stock is then traded on a national securities exchange; or,
(ii) the last reported sale price (on that date) of the Common Stock on an
established securities market, if the stock is not then traded on a national
securities exchange; or (iii) the closing bid price (or average of bid prices)
last quoted (on that date) by an established securities market or quotation
service for over-the-counter securities, if the last sale price is not reported
for the stock on the service or market on which the stock is quoted.  However,
if the Common Stock is not publicly-traded at the time an Option is granted
under the Plan, Fair Market Value shall be deemed to be the fair value of the
stock as determined in good faith by the Board or the Option Committee, provided that such valuation shall take into account all
available information material to the value of the company, including but not
limited to the value of the tangible and intangible assets of the company, the
present value of its anticipated future cash flows, the market value of the
stock or equity interests in other entities engaged in substantially the same
business, recent arm’s length transactions involving the sale of such stock,
and other relevant factors, and a written record of the method of
determining such value shall be maintained.

 

 

 

 

(j)          Incentive Stock Options (“ISOs”): “Incentive Stock Options” as
that term is defined in Section 422 of the Code.

(k)        Key Employee: A person designated by the Option Committee who
either is employed by the Company or a Related Company (see below) and upon
whose judgment, initiative and efforts the Company or a Related Company is
largely dependent for the successful conduct of its business; provided,
however, that Key Employees shall not include those members of the Board who
are not employees of the Company or a Related Company.

(l)          Non-Incentive Stock Options (“Non-ISOs”): Options which are not
intended to qualify as “Incentive Stock Options” under Section 422 of the Code.

(m)         Option: The rights granted to an Employee to purchase Common
Stock pursuant to the terms and conditions of an Option Agreement.

(n)         Option Agreement: The written agreement (and any amendment or
supplement thereto) between the Company and an Employee designating the terms
and conditions of an Option.

(o)           Option Committee: With respect to grants of Options to Employees
who are not also Officers and/or Directors of the Company, the Plan shall be
administered by an Option Committee (“Option Committee”) composed of the
Board or at least two members of the Board. With respect to grants of Options
to Employees who are also Officers or Directors, the Plan shall be administered
by a committee, selected by the Board, consisting of two or more persons, each
of whom is a Disinterested Person. Such committee may also be deemed an Option
Committee.

(p)            Option Shares: The shares of Common Stock underlying an Option
granted to an Employee.

(q)            Optionee: An Employee who has been granted an Option.

(r)             Related Company: Any corporation that is a “parent corporation”
or a “subsidiary corporation” with respect to the Company, as those terms are
defined in Section 425 of the Code. The determination of whether a corporation
is a Related Company shall be made without regard to whether the corporation or
the relationship between the corporation and the Company now exists or comes
into existence hereinafter.

 

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(s)             Restricted Stock: Shares of Common Stock granted pursuant to the
terms of Section 12 hereof.

(t)            Restricted Stock Agreement: The written agreement (and any
amendment or supplement thereto) between the Company and an Employee
designating the terms and conditions of Restricted Stock.

(u)             Stock Award: Any Option or Restricted Stock granted under this
Plan.

2.          Purpose and Scope.

(a)            The purpose of this Plan is to advance the interests of the Company and
its shareholders by affording Employees an opportunity for investment in the
Company and the incentive advantages inherent in stock ownership in this
Company.

(b)            This Plan authorizes the Option Committee to grant Stock Awards to
Employees selected by the Option Committee while considering criteria such as
employment position or other relationship with the Company, duties and
responsibilities, ability, productivity, length of service or association,
morale, interest in the Company, recommendations by supervisors, and other matters.

3.          Administration of the Plan.

(a)             The Plan shall be administered by the Option Committee. The Option
Committee shall have the authority granted to it under this Section and under
each other Section of the Plan.

(b)             In accordance with and subject to the provisions of the Plan, the Option
Committee shall select the Employees to receive Stock Awards and shall
determine (i) the number of shares of Common Stock to be subject to each Stock
Award, which number shall be fixed as of the date of grant, (ii) the time at
which each Stock Award is to be granted, (iii) whether a Stock Award shall be
granted in exchange for the cancellation and termination of a previously
granted option or options under the Plan or otherwise, (iv) the purchase price
for the Option Shares, (v) the option period, and (vi) the manner in which the
Option becomes exercisable. In addition, the Option Committee shall fix such
other terms of each Stock Award as the Option Committee may deem necessary or
desirable. The Option Committee shall determine the form of Option Agreement or
Restricted Stock Agreement to evidence each Stock Award.

(c)             The Option Committee from time to time may adopt such rules and
regulations for carrying out the purposes of the Plan as it may deem proper and
in the best interests of the Company. The Option Committee shall keep minutes
of its meetings and those minutes shall be distributed to every member of the
Board.

(d)        The Board may from time to time make such changes in and additions to
the Plan as it may deem proper and in the best interest of the Company;
provided, however, that no such change or addition shall impair any Stock Award
previously granted under the Plan, and that the approval by the affirmative
vote of the holders of a majority of the Company’s securities entitled to vote
and represented at a meeting duly held in accordance with the applicable laws
of the State of California, shall be required for any amendment which would:

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(i)     materially modify the eligibility requirements for receiving Stock
Awards under the Plan;

(ii)     materially increase the benefits accruing to Employees under the Plan;
or

(iii)     increase the number of shares of Common Stock that may be issued under
the Plan.

(e)         All actions taken and all interpretations and determinations made by the
Option Committee in good faith (including determinations of Fair Market Value)
shall be final and binding upon all Employees, the Company and all other
interested persons. No member of the Option Committee shall be personally
liable for any action, determination or interpretation made in good faith with
respect to the Plan, and all members of the Option Committee shall, in addition
to rights they may have as Directors of the Company be fully protected by the
Company with respect to any such action, determination or interpretation.

(f)          It is the further intent of the Plan that it conform in all respects
with the requirements of Rule 16b-3 of the Securities and Exchange Commission
under the Exchange Act (“Rule 16b-3”). To the extent that any aspect of
the Plan or its administration is at any time viewed as inconsistent with the
requirements of Rule 16b-3 or, in connection with ISOs, the Code, that aspect
shall be deemed to be modified, deleted, or otherwise changed as necessary to
ensure continued compliance with the Rule 16b-3 requirements.

4.         Number of Shares. The Board is authorized to appropriate, issue
and sell for the purposes of the Plan, and the Option Committee is authorized
to grant Options with respect to, a total number, not in excess of 2,000,000
shares of Common Stock, either treasury or authorized but unissued, or the
number and kind of shares of stock or other securities which in accordance with
Section 9 shall be substituted for the 2,000,000 shares or into
which such 2,000,000 shares shall be adjusted. Such number of shares
shall include any options granted under any other stock option plan of the
Company that may from time to time become subject to and governed by the terms
and conditions of this Plan. All or any unsold shares subject to a Stock Award
that for any reason expires or otherwise terminates, may again be made subject
to Stock Awards under the Plan.

5.          Eligibility. Options which are intended to qualify as ISOs will
be granted only to Key Employees. Key Employees and other Employees may hold
more than one Option under the Plan and may hold Stock Awards under the Plan
and options or awards granted pursuant to other plans or otherwise.

6.          Option Price. The Option Committee shall determine the purchase
price for the Options Shares, provided that the purchase price to be paid by
Optionees for the Option Shares shall not be less than 100 percent of the Fair
Market Value of the Option Shares at the time the Option is granted. The
purchase price for the Option Shares shall be a fixed, and cannot be a
fluctuating, price.

 

-4-

 

 

 

7.          Duration and Exercise of Options.

(a)         Each Option granted under the Plan shall be exercisable on such date or
dates and during such period and for such number of shares as shall be
determined pursuant to the provisions of the instrument evidencing such Option.
The Option Committee shall have the right to accelerate the date of exercise of
any Option, provided that the Option Committee shall not accelerate the
exercise of any ISO granted if such acceleration would violate the annual
vesting limitation contained in Section 422(d)(1) of the Code.  In no event
shall the Option Committee have the discretion to extend an Option beyond the
earlier of the last date that the Option could have been exercised under the
initial term of the Option and the date that is 10 years after the initial date
of grant, unless said extension is granted at a time when the exercise price of
the Option does not equal or exceed the Fair Market Value of the stock that
could be purchased pursuant to the Option.

(b)         Except as otherwise permitted under Section 11, during the
lifetime of the Optionee, the Option shall be exercisable only by the Optionee;
provided, that in the event of the legal disability of an Optionee, the
guardian or personal representative of the Optionee may exercise the Option.
However, if the Option is an ISO it may be exercised by the guardian or
personal representative of the Optionee only if such guardian or personal
representative obtains a ruling from the Internal Revenue Service or an opinion
of counsel to the effect that neither the grant nor the exercise of such power
is violative of Section 422(b)(5) of the Code. Any opinion of counsel must be
both from counsel and in a form acceptable to the Option Committee.

(c)          The Option Committee may determine whether any Option shall be
exercisable as provided in Subsection (a) of this Section 7 or whether
the Options shall be exercisable in installments only; if the Option Committee
determines the latter, it shall determine the number of installments and the
percentage of the Option exercisable at each installment date. All such
installments shall be cumulative.

(d)           If the Optionee ceases to be employed by either the Company or a Related
Company because of the death or permanent and total disability (as defined in
Section 22(e) (3) of the Code) of the Optionee, any Option held by the Optionee
at the time his employment ceases may be exercised within 90 days after the
date his employment ceased, but only to the extent that the Option was
exercisable according to its terms on the date the Optionee’s employment ceased.
After such 90-day period, any unexercised portion of an Option shall expire.

(e)            Notwithstanding the provisions of Subsection (d) of this Section 7,
if an Optionee’s employment by the Company or a Related Company ceases for any
reason other than the Optionee’s death or permanent and total disability, any
unexercised portion of any Option held by the Optionee at the time his
employment ceases may be exercised within 30 days after the date his employment
ceased, but only to the extent that the Option was exercisable according to its
terms on the date the Optionee’s employment ceased. After such date, any
unexercised portion of an Option shall expire.

(f)               Each Option shall be exercised in whole or part by delivering to the
office of the Treasurer of the Company written notice of the number of shares
with respect to which the Option is to be exercised and by paying in full the
purchase price for the Option Shares purchased as set forth in Section 8;
provided, that an Option may not be exercised in part unless the purchase price
for the Option Shares purchased is at least $2,000.

-5-

 

 

 

 

(g)              To the extent required to qualify for the exemption provided by Rule
16b-3 under the Exchange Act, and any successor provision, at least six months
must elapse from the date of acquisition of an Option by any person who is
subject to the reporting requirements of Section 16(a) of the Exchange Act to
the date of exercise of such Option or disposition of the Option Shares.

8.         Payment for Option Shares. If the purchase price of the Option
Shares purchased by any Optionee at one time exceeds $2,000, the Option
Committee may permit all or part of the purchase price for the Option Shares to
be paid by the Optionee by (a) delivering to the Company shares of the
Company’s Common Stock previously owned by the Optionee with a Fair Market
Value as of the date of payment equal to the portion of the purchase price for
the Option Shares that the Optionee does not pay in cash, (b) having shares
withheld from the amount of shares to be received by the Optionee, (c)
delivering an irrevocable subscription agreement obligating the Optionee to
take and pay for the shares to be purchased within one year of the date of such
exercise, or (d) complying with any other payment mechanisms as the Option
Committee may approve from time to time. As a condition to the exercise of any
Option granted under this Plan, the Optionee shall make such arrangements as
the Option Committee may require for the satisfaction of any federal, state or
withholding tax obligations which may arise in connection with such exercise.
The issuance, transfer or delivery of certificates of shares of Common Stock
pursuant to the exercise or Options may be delayed, at the discretion of the
Option Committee, until the Option Committee is satisfied that the applicable
requirements of federal and state securities laws and the withholding
provisions of the Code have been met. Until such person has been issued a
certificate or certificates for the Option Shares so purchased, he or she shall
possess no rights of a recordholder with respect to any of such shares.

9.          Change in Stock, Adjustments, Inc.

(a)          In the event that each of the outstanding shares of Common Stock (other
than shares held by dissenting shareholders which are not changed or exchanged)
should be changed into, or exchanged for, a different number or kind of shares
of stock or other securities of the Company, or, if further changes or
exchanges of any stock or other securities into which the Common Stock shall
have been changed, or for which it shall have been exchanged, shall be made
(whether by reason of merger, consolidation reorganization, recapitalization,
stock dividends, reclassification, split-up, combination or shares or
otherwise), then there shall be substituted for each share of Common Stock that
is subject to the Plan but not subject to an outstanding Option thereunder, the
number and kind of shares of stock or other securities into which each
outstanding share of Common Stock (other than shares held by dissenting
shareholders which are not changed or exchanged) shall be so changed or for
which each outstanding share of Common Stock (other than shares held by
dissenting shareholders) shall be exchanged, provided, in the event that the
Optionee is providing direct services to the Company at the time the shares are
substituted, such shares shall constitute “service recipient stock” as that
term is defined by the IRS for purposes of Section 409A of the Code.  Any
securities so substituted shall be subject to similar successive adjustments.

 

-6-

 

 

 

 

 

 

(b)         In the event of any such changes or exchanges, the Option Committee
shall determine whether, in order to prevent dilution or enlargement of rights,
an adjustment should be made in the number, or kind, or Option price of the
shares or other securities then subject to an Option or Options granted
pursuant to the Plan and the Option Committee shall make any such adjustment,
and such adjustments shall be made and shall be effective and binding for all
purposes of the Plan.

10.       Relationship to Employment. Nothing contained in the Plan, or in
any Stock Award granted pursuant to the Plan, shall confer upon any recipient
or holder of a Stock Award any right with respect to continuance of employment
by the Company or any Related Company, or interfere in any way with the right
of the Company or any Related Company to terminate the employment of a Stock
Award recipient or holder at any time.

11.       Nontransferability of Option. No Option granted under the Plan
shall be transferable by the Optionee, either voluntarily or involuntarily,
except by will or the laws of descent and distribution, pursuant to a qualified
domestic relations order as defined in the Code, or pursuant to the Employee
Retirement Income Security Act or rules promulgated thereunder; except that (a)
Optionees who are not subject to Section 16(b) of the Exchange Act may upon
written notice transfer an Option (i) to an Optionee’s spouse, parents,
siblings, or lineal descendants, or (ii) to a trust for the benefit of the
Optionee or any of the Optionee’s spouse, parents, siblings, or lineal
descendants, or (iii) to any corporation or partnership controlled by the
Optionee; and (b) Optionees who are subject to Section 16(b) of the Exchange
Act may transfer Options to immediate family members and family trusts. No
Option shall be subject to execution, attachment or similar process. Except as
specifically provided herein, any attempt to transfer the Option shall void the
Option.

12.        Restricted Stock: The Option Committee may grant shares of
Restricted Stock pursuant to this Plan.  To the extent consistent with the
Company’s Bylaws, at the Option Committee’s election, shares of Restricted
Stock may be (i) held in book entry form subject to the Company’s instructions
until any restrictions relating to the Restricted Stock lapse, or (ii) evidenced
by a certificate, which certificate shall be held in such form and manner as
determined by the Option Committee and shall contain an appropriate legend
clearly stating that the transferability of the Restricted Stock represented by
the certificate is restricted by the Restricted Stock Agreement and this Plan. 
The Restricted Stock Agreements shall be in such form and shall contain such
terms and conditions as the Option Committee shall deem appropriate from time
to time and the terms and conditions of separate Restricted Stock Agreements
need not be identical; provided, however, that each Restricted
Stock Agreement shall include (through incorporation of the provisions hereof
by reference in the agreement or otherwise) the substance of each of the following
provisions:

(a)        Consideration. Restricted Stock may be awarded in consideration
for (A) past or future services actually or to be rendered to the Company
or a Related Company, or (B) any other form of legal consideration that
may be acceptable to the Option Committee in its sole discretion and
permissible under applicable law.

 

-7-

 

 

 

(b)           Vesting. Shares of Restricted Stock may be subject to forfeiture
to the Company in accordance with a vesting schedule to be determined by the
Option Committee in its sole discretion and set forth in the Restricted Stock
Agreement.

(c)            Termination of Service. In the event a Restricted Stock holder
ceases to be employed by either the Company or a Related Company, the Company
may receive pursuant to a forfeiture provision to be determined by the Option
Committee in its sole discretion and set forth in the Restricted Stock
Agreement, any or all Restricted Shares that have not vested as of the date of
termination.

(d)            Transferability. Rights to acquire shares of Common Stock under a
Restricted Stock Agreement shall be transferable by the holder only upon such
terms and conditions as are set forth in the Restricted Stock Agreement, as the
Option Committee shall determine in its sole discretion, so long as such Common
Stock remains subject to the terms and conditions of the Restricted Stock
Agreement.

13.       Rights as a Shareholder. No person shall have any rights as a
shareholder with respect to any shares covered by an Stock Award until that
person shall become the holder of record of such shares (whether or not subject
to forfeiture) and, except as provided in Section 9, no adjustments
shall be made for dividends or other distributions or other rights as to which
there is an earlier record date.

14.      Securities Laws Requirements. No Award Shares shall be issued
unless and until, in the opinion of the Company, any applicable registration
requirements of the Securities Act of 1933, as amended (“Securities Act”),
any applicable listing requirements of any securities exchange on which stock
of the same class is then listed, and any other requirements of law or of any
regulatory bodies having jurisdiction over such issuance and delivery, have
been fully complied with. Each Option, each Restricted Stock certificate and
each Award Share certificate may be imprinted with legends reflecting federal
and state securities laws, restrictions and conditions, and the Company may
comply therewith and issue “stop transfer” instructions to its transfer agent
and registrar in good faith without liability.

15.       Disposition of Shares. Each Optionee, as a condition of exercise,
and each Restricted Stock holder, as a condition to the Restricted Stock grant,
shall represent, warrant and agree, in a form of written certificate approved
by the Company, as follows: (a) that all Award Shares are being acquired solely
for his own account and not on behalf of any other person or entity; (b) that
no Award Shares will be sold or otherwise distributed in violation of the
Securities Act, or any other applicable federal or state securities laws; (c) that
if he is subject to reporting requirements under Section 16(a) of the Exchange
Act, he will (i) not violate Section 16(b) of the Exchange Act, (ii)
furnish the Company with a copy of each Form 4 and Form 5 filed by him, and
(iii) timely file all reports required under the federal securities laws; and
(d) that he will report all sales of Award Shares to the Company in
writing on a form prescribed by the Company.

 

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16.       Effective Date of Plan; Termination Date of Plan. The Plan shall
be effective on the date of the approval of the Plan by the affirmative vote of
the holders of a majority of the Company’s securities entitled to vote and
represented at a meeting duly held in accordance with applicable law. The
initial Plan was adopted, subject to shareholder approval, by the Board as of
October 16, 2003 and approved by the shareholders on December 11, 2003. This
first amended and restated Plan was adopted, subject to shareholder approval,
by the Board as of October 18, 2006. The Plan shall terminate on October 16, 2013,
except as to Stock Awards previously granted and outstanding under the Plan at
that time. No Stock Awards shall be granted after the date on which the Plan
terminates. In no event may the Option period exceed ten years from the date on
which the Option is granted. The Plan may be abandoned or terminated at any
earlier time by the Board, except with respect to any Options then outstanding
under the Plan.

17.       Limitation on Amount of Option. The aggregate Fair Market Value
(determined at the time any ISO is granted) of the Common Stock with respect to
which an Optionee’s ISOs, together with incentive stock options granted under
any other plan of the Company and any parent, are exercisable for the first
time by such Optionee during any calendar year shall not exceed $100,000. If an
Optionee holds ISOs that become first exercisable (including as a result of
acceleration of exercisability under the Plan) in any one year for shares
having a Fair Market Value at the date of grant in excess of $100,000, then the
most recently granted of the ISOs, to the extent that they are exercisable for
shares having an aggregate Fair Market Value in excess of the limit, shall be
deemed to be NQOs.

18.       Ten Percent Shareholder Rule. With respect to ISOs, no Option may
be granted to a Key Employee who, at the time the Option is granted, owns stock
possessing more than 10 percent of the total combined voting power of all
classes of stock of the Company or of any “parent corporation” or “subsidiary
corporation” as those terms are defined in Section 425 of the Code, unless at
the time the Option is granted the purchase price for the Option shares is at
least 110 percent of the Fair Market Value of the Option Shares at the time the
ISO is granted and such Option by its terms is not exercisable after the
expiration of five years from the Date of Grant. For purposes of the preceding
sentence, stock ownership shall be determined as provided in Section 425 of the
Code.

19.       Withholding Taxes. The Company, or any Related Company, may take
such steps as it may deem necessary or appropriate for the withholding of any
taxes which the Company, or any Related Company, is required by any law or
regulation or any governmental authority, whether federal, state or local,
domestic or foreign, to withhold in connection with any Stock Award including,
but not limited to, the withholding of all or any portion of any payment or the
withholding of issuance of Option Shares to be issued upon the exercise of any
Option.

20.        Change in Control, Stock Dividends, Reorganization and Other
Extraordinary Actions.

(a)        If (i) the Company shall at any time be involved in a transaction
described in Section 424(a) of the Code (or any successor provision) or any
“corporate transaction” described in the regulations thereunder; (ii) the
Company shall declare dividends payable in, or shall subdivide or combine, its
Common Stock or (iii) any other event with substantially the same effect shall
occur, the Option Committee shall, with respect to each outstanding Option,
proportionately adjust the number of Option Shares and/or the exercise price
per share so as to preserve the rights of the Optionee substantially
proportionate to the rights of the Optionee prior to such event, and to the
extent that such action shall include an increase or decrease in the number of
Option Shares subject to outstanding Options, the number of shares available
under this Plan shall automatically be increased or decreased, as this case may
be, proportionately, without further action on the part of the Option
Committee, the Company or the Company’s shareholders.

-9-

 

 

 

 

(b)        If the Company is liquidated or dissolved, the Option Committee may
allow the holders of any outstanding Options to exercise all or any part of the
unvested portion of the Options held by them; provided, however, that such
Options must be exercised prior to the effective date of such liquidation or
dissolution. If the Option Holders do not exercise their Options prior to such
effective date, each outstanding Option shall terminate as of the effective
date of the liquidation or dissolution. 

(c)        The grant of a Stock Award shall not affect in any way the right or
power of the Company to make adjustments, reclassifications, reorganizations or
changes of its capital or business structure, to merge, consolidate or
dissolve, to liquidate or to sell or transfer all or part of its business or
assets. 

(d)        In the event of a Change in Control (as defined below) of the Company,
the Option Committee may, in its discretion, accelerate all outstanding Options
so that they immediately become fully vested and immediately exercisable for
the duration of the term of the Option. For purposes of this Subsection (d), “Change
in Control” shall mean either one of the following: (i) when any “person,”
as such term is used in Sections 13(d) and 14(d) of the Exchange Act (other
than a shareholder of the Company on the date of this Plan), the Company, a
subsidiary or a Company Employee Benefit Plan, (including any trustee of such
Plan acting as trustee) becomes, after the date of this Plan, the “beneficial owner”
(as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 35% or more of the combined voting power
of the Company’s then outstanding securities; or (ii) the occurrence of a
transaction requiring shareholder approval, arid involving the sale of all or
substantially all of the assets of the Company or the merger of the Company
with or into another corporation.

(e)          If at any time the Company declares an Extraordinary Dividend, as
defined below, all Options shall accelerate and thereupon become fully vested
and immediately exercisable for the duration of the term of the Option. For
purposes of this Subsection (e), “Extraordinary Dividend” shall mean a
cash dividend payable to holders of record of the Common Stock in an amount in
excess of 10% of the then Fair Market Value of the Company’s Common Stock.

21.        Other Provisions.

(a)          The use of a masculine gender in the Plan shall also include within its
meaning the feminine, and the singular may include the plural, and the plural
may include the singular, unless the context clearly indicates to the contrary.

(b)           Any expenses of administering the Plan shall be borne by the Company.

 

-10-

 

 

 

 

 

 

(c)         This Plan shall be construed to be in addition to any and all other
compensation plans or programs. Neither the adoption of the Plan by the Board
nor the submission of the Plan to the shareholders of the Company shall be
construed as creating any limitations on the power of authority of the Board to
adopt such other additional incentive or other compensation arrangements as the
Board may deem necessary or desirable.

(d)         The corporate laws of the State of Colorado shall govern all issues
concerning the relative rights of the Company and its shareholders under the
Plan. All other questions and obligations under the Plan shall be construed and
enforced in accordance with the internal laws of the State of California,
without giving effect to any choice of law or conflict of law provision or rule
(whether of the State of California or any other jurisdiction) that would cause
the application of the laws of any jurisdiction other than the State of
California.

(e)         Notwithstanding anything to the contrary contained in this Plan, the
following provisions, in compliance with the California Corporate Securities
Law of 1968 and the rules and regulations promulgated thereunder, shall apply
to the Plan and all Options granted under the Plan:

(i)        Each Option shall be exercisable in whole or in consecutive
installments, cumulative or otherwise, during its term as determined in the
discretion of the Option Committee. Each Option granted to an Optionee shall
provide for the right to exercise at the rate of at least 20% per year over
five years from the date the Option is granted, subject to reasonable
conditions such as continued employment; however, in the case of an Option
granted to officers, directors, managers or consultants of the Company, the
Option may become fully exercisable, subject to reasonable conditions such as
continued employment, at any time or during any period established by the
Company.

(ii)       (A) if the Optionee’s employment with the Company terminates for any
reason (other than involuntary dismissal for “cause” or voluntary resignation
in violation of any agreement to remain in the employ of the Company), he or
she may, at any time before the expiration of thirty days after termination or
before expiration of the Option, whichever first occurs, exercise the Option
(to the extent that the Option was exercisable by him or her on the date of the
termination of his or her employment); (B) if the Optionee’s employment
terminates due to disability (as defined in Section 22(e)(3) of the Code and
subject to such proof of disability as the Option Committee may require), the
Option may be exercised by the Optionee (or by his guardian(s), or
conservator(s), or other legal representative(s)) before the expiration of six
months after termination or before expiration of the Option, whichever first
occurs (to the extent that the Option was exercisable by him or her on the date
of the termination of his or her employment); and (C) in the event of the death
of the Optionee, an Option exercisable by him or her at the date of his or her
death shall be exercisable by his or her legal representative(s), legatee(s),
or heir(s), or by his or her beneficiary or beneficiaries so designated by him
or her, as the case may be, within six months after his or her death or before
the expiration of the Option, whichever first occurs (to the extent that the
Option was exercisable by him or her on the date of his or her death).

(iii)       Optionees under the Plan who do not otherwise have access to financial
statements of the Company will receive the Company’s financial statements at
least annually.

 

-11-

 

 

 

 

 

 

(iv)         Except as permitted by rule 701 of the Securities Act, Options granted
under the Plan are nontransferable other than by will, by the laws of descent
and distribution, by instrument to an inter vivos or testamentary trust in
which the Options are to be passed to beneficiaries upon the death of the
trustor (settlor), or by gift to immediate family. The term “immediate family”
means any child, stepchild, grandchild, parent, stepparent, grandparent,
spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law,
brother-in-law or sister-in-law, and also includes adoptive relationships.

 

 

 

 

 

 

 

 

 

-12-

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