Document:

Exhibit 10.41

 

OVERLAND
STORAGE, INC.

2003 EQUITY INCENTIVE PLAN

 

NOTICE OF RESTRICTED STOCK AWARD

 

You
have been granted restricted shares of Common Stock of Overland Storage, Inc.
(the “Company”) on the following terms:

 

Name of Recipient:

 

Total Number of Shares Granted:

 

Fair Market Value per Share:

 

Total Fair Market Value of Award:

 

Date of Grant:

 

Vesting Schedule:

 

You and the Company agree
that these shares are granted under and governed by the terms and conditions of
the Overland Storage, Inc. 2003 Equity Incentive Plan (the “Plan”) and the
Restricted Stock Agreement, which is attached to and made a part of this
document.

 

You
further agree that the Company may deliver by email all documents relating to
the Plan or this award (including, without limitation, prospectuses required by
the Securities and Exchange Commission) and all other documents that the
Company is required to deliver to its security holders (including, without
limitation, annual reports and proxy statements).  You also agree that the Company may deliver
these documents by posting them on a web site maintained by the Company or by a
third party under contract with the Company. 
If the Company posts these documents on a web site, it will notify you
by email.

 

	
  Recipient:

  	
  Overland
  Storage, Inc.

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
					

 

 

OVERLAND STORAGE, INC.

2003 EQUITY INCENTIVE PLAN

 

RESTRICTED STOCK AGREEMENT

 

	
  Payment
  for Shares

  	
  No payment is
  required for the shares that you are receiving.

  
	
   

  	
   

  
	
  Vesting

  	
  The shares that
  you are receiving will vest in installments, as shown in the Notice of
  Restricted Stock Award.  In addition,
  the shares vest in full if the following event occurs:

  
	
   

  	
   

  
	
   

  	
  •                  Your
  Service terminates because of total and permanent disability, or death, or

  
	
   

  	
   

  
	
   

  	
  No additional
  shares vest after your Service has terminated for any reason.

  
	
   

  	
   

  
	
   

  	
  For all purposes
  under this Agreement, “total and permanent disability” means that you are
  unable to engage in any substantial gainful activity by reason of any
  medically determinable physical or mental impairment which can be expected to
  result in death or which has lasted, or can be expected to last, for a
  continuous period of not less than one year.

  
	
   

  	
   

  
	
  Shares
  Restricted

  	
  Unvested shares
  will be considered “Restricted Shares.” 
  You may not sell, transfer, pledge or otherwise dispose of any
  Restricted Shares without the written consent of the Company, except as
  provided in the next sentence.  You may
  transfer Restricted Shares to your spouse, children or grandchildren or to a
  trust established by you for the benefit of yourself or your spouse, children
  or grandchildren, or pursuant to a Domestic Relations Order.  However, a transferee of Restricted Shares
  must agree in writing on a form prescribed by the Company to be bound by all provisions
  of this Agreement.

  
	
   

  	
   

  
	
  Forfeiture

  	
  If your Service
  terminates for any reason, then your shares will be forfeited to the extent
  that they have not vested before the termination date and do not vest as a
  result of the termination.  This means
  that the Restricted Shares will immediately revert to the Company.  You receive no payment for Restricted
  Shares that are forfeited.

  

 

 

	
   

  	
  The Company
  determines when your Service terminates for this purpose.

  
	
   

  	
   

  
	
  Leaves
  of Absence and Part-Time Work

  	
  For purposes of
  this award, your Service does not terminate when you go on a military leave,
  a sick leave or another bona fide
  leave of absence, if the leave was approved by the Company in writing and if
  continued crediting of Service is required by applicable law, the Company’s
  leave of absence policy or the terms of your leave.  But your Service terminates when the
  approved leave ends, unless you immediately return to active work.

  
	
   

  	
   

  
	
   

  	
  If you go on a
  leave of absence, then the vesting schedule specified in the Notice of
  Restricted Stock Award may be adjusted in accordance with the Company’s leave
  of absence policy or the terms of your leave. 
  If you commence working on a part-time basis, then the vesting schedule specified
  in the Notice of Restricted Stock Award may be adjusted in accordance with
  the Company’s part-time work policy or the terms of an agreement between you
  and the Company pertaining to your part-time schedule.

  
	
   

  	
   

  
	
  Stock
  Certificates

  	
  The certificates
  for Restricted Shares have stamped on them a special legend referring to the
  Company’s right of repurchase.  In
  addition to or in lieu of imposing the legend, the Company may hold the
  certificates in escrow.  As your vested
  percentage increases, you may request (at reasonable intervals) that the
  Company release to you a non-legended certificate for your vested shares.

  
	
   

  	
   

  
	
  Voting
  Rights

  	
  You may vote
  your shares even before they vest.

  
	
   

  	
   

  
	
  Withholding
  Taxes

  	
  No stock
  certificates will be released to you unless you have made acceptable
  arrangements to pay any withholding taxes that may be due as a result of this
  award or the vesting of the shares. 
  With the Company’s consent, these arrangements may include (a) withholding
  shares of Company stock that otherwise would be issued to you when they vest
  or (b) surrendering shares that you previously acquired. The fair market
  value of the shares you surrender, determined as of the date when taxes
  otherwise would have been withheld in cash, will be applied as a credit
  against the withholding taxes.

  

 

5

 

	
  Restrictions
  on Resale

  	
  You agree not to
  sell any shares at a time when Applicable Law, Company policies or an
  agreement between the Company and its underwriters prohibit a sale.  This restriction will apply as long as your
  Service continues and for such period of time after the termination of your
  Service as the Company may specify.

  
	
   

  	
   

  
	
  No
  Retention Rights

  	
  Your award or
  this Agreement does not give you the right to be employed or retained by the
  Company or a subsidiary of the Company in any capacity.  The Company and its subsidiaries reserve
  the right to terminate your Service at any time, with or without cause.

  
	
   

  	
   

  
	
  Adjustments

  	
  In the event of
  a stock split, a stock dividend or a similar change in Company stock, the
  number of Restricted Shares that remain subject to forfeiture will be
  adjusted accordingly.

  
	
   

  	
   

  
	
  Applicable
  Law

  	
  This Agreement
  will be interpreted and enforced under the laws of the State of California
  (without regard to its choice-of-law provisions).

  
	
   

  	
   

  
	
  The
  Plan and Other Agreements

  	
  The text of the
  Plan is incorporated in this Agreement by reference.

   

  This Agreement
  and the Plan constitute the entire understanding between you and the Company
  regarding this award.  Any prior
  agreements, commitments or negotiations concerning this award are superseded.  This Agreement may be amended only by
  another written agreement between the parties.

  

 

By signing the cover sheet of this Agreement, you
agree to all of the terms and conditions described above and in the Plan.

 

6Exhibit 10.42

 

1996
EMPLOYEE STOCK PURCHASE PLAN

OF

OVERLAND
STORAGE, INC.

 

(as
Amended and Restated Effective August 22, 2005)

 

 

TABLE OF CONTENTS

 

	
  1.

  	
  PURPOSE

  	
   

  
	
   

  	
   

  	
   

  
	
  2.

  	
  DEFINITIONS

  	
   

  
	
   

  	
   

  	
   

  
	
  3.

  	
  ELIGIBILITY

  	
   

  
	
   

  	
   

  	
   

  
	
  4.

  	
  PARTICIPATION

  	
   

  
	
   

  	
   

  	
   

  
	
  5.

  	
  OFFERING

  	
   

  
	
   

  	
   

  	
   

  
	
  6.

  	
  PURCHASE OF STOCK

  	
   

  
	
   

  	
   

  	
   

  
	
  7.

  	
  PAYMENT AND DELIVERY

  	
   

  
	
   

  	
   

  	
   

  
	
  8.

  	
  RECAPITALIZATION

  	
   

  
	
   

  	
   

  	
   

  
	
  9.

  	
  MERGER, LIQUIDATION,
  OTHER CORPORATION TRANSACTIONS

  	
   

  
	
   

  	
   

  	
   

  
	
  10.

  	
  TRANSFERABILITY

  	
   

  
	
   

  	
   

  	
   

  
	
  11.

  	
  AMENDMENT OR
  TERMINATION OF THE PLAN

  	
   

  
	
   

  	
   

  	
   

  
	
  12.

  	
  ADMINISTRATION

  	
   

  
	
   

  	
   

  	
   

  
	
  13.

  	
  COMMITTEE RULES FOR
  FOREIGN JURISDICTIONS

  	
   

  
	
   

  	
   

  	
   

  
	
  14.

  	
  SECURITIES LAWS
  REQUIREMENTS

  	
   

  
	
   

  	
   

  	
   

  
	
  15.

  	
  GOVERNMENTAL REGULATIONS

  	
   

  
	
   

  	
   

  	
   

  
	
  16.

  	
  NO ENLARGEMENT OF
  EMPLOYEE RIGHTS

  	
   

  
	
   

  	
   

  	
   

  
	
  17.

  	
  GOVERNING LAW

  	
   

  
	
   

  	
   

  	
   

  
	
  18.

  	
  EFFECTIVE DATE AND
  SUBSEQUENT PLAN HISTORY

  	
   

  

 

1

 

1996 EMPLOYEE STOCK PURCHASE PLAN

OF OVERLAND STORAGE, INC.

 

(as Amended and Restated Effective August 22,
2005)

 

1.                                      PURPOSE.

 

The purpose of
this Plan is to provide an opportunity for Employees of Overland Storage, Inc.
(the “Corporation”) and its Designated Subsidiaries, to purchase Common Stock
of the Corporation and thereby to have an additional incentive to contribute to
the prosperity of the Corporation.  It is
the intention of the Corporation that the Plan qualify as an “Employee Stock
Purchase Plan” under Section 423 of the Internal Revenue Code of 1986, as
amended, although the Corporation makes no undertaking nor representation to
maintain such qualification.

 

2.                                      DEFINITIONS.

 

(a)                                  “Board”
shall mean the Board of Directors of the Corporation.

 

(b)                                 “Base Compensation” means, with respect to each
Participant for each pay period, such Participant’s Compensation, excluding (i) Bonus
Compensation; (ii) any amounts contributed by the Corporation or a
Designated Subsidiary to any pension plan, deferred compensation plan, or other
similar plan; (iii) any automobile allowance (or reimbursement for such
expenses); and (iv) any amounts paid as a starting bonus or finder’s fee.

 

(c)                                  “Bonus Compensation” means, with respect to each
Participant for each period with respect to which a cash bonus is payable to
such Employee, the amount of the cash bonus payable to such Participant for
such period.  Except as determined by the
Committee, Bonus Compensation does not include: (i) any amounts
contributed by the Corporation or a Designated Subsidiary to any pension plan,
deferred compensation plan, or other similar plan; (ii) any automobile
allowance (or reimbursement for such expenses); or (iii) any amounts paid as
a starting bonus or finder’s fee.

 

(d)                                 “Code” shall mean the Internal Revenue Code of 1986,
as amended.

 

(e)                                  “Committee”
shall mean the committee appointed by the Board in accordance with Section 12
of the Plan.

 

(f)                                    “Common
Stock” shall mean the Common Stock of the Corporation, or any stock
into which such Common Stock may be converted.

 

(g)                                 “Compensation”
shall mean an Employee’s wages or salary and other amounts payable to an
Employee on account of personal services rendered by the Employee to the Corporation
or a Designated Subsidiary and which are reportable as wages or other
compensation on the Employee’s Form W-2, plus pre-tax contributions of the
Employee under a cash or deferred arrangement (401(k) plan) or cafeteria plan
maintained by the Corporation or a

 

1

 

Designated Subsidiary, but excluding, however, (1) non-cash fringe
benefits, (2) special payments as determined by the Committee (e.g.,
moving expenses, unused vacation, severance pay), (3) income from the
exercise of stock options or other stock purchases and (4) any other items
of Compensation as determined by the Committee.

 

(h)                                 “Corporation”
shall mean Overland Storage, Inc., a California corporation.

 

(i)                                     “Designated
Subsidiary” shall mean a Subsidiary which has been designated by the
Board as eligible to participate in the Plan.

 

(j)                                     “Employee”
shall mean an individual classified as an employee (within the meaning of Code Section 3401(c) and
the regulations thereunder) by the Corporation or a Designated Subsidiary on
the Corporation payroll records during the relevant participation period.

 

(k)                                  “Entry
Date” shall mean the first day of each Option Period.

 

(l)                                     “Exercise
Date” shall mean the last business day of each Exercise Period.

 

(m)                               “Exercise
Period” shall mean a three-month, six-month or other period as
determined by the Board.  The first
Exercise Period during an Option Period shall commence on the first day of such
Option Period.  Subsequent Exercise
Periods, if any, shall run consecutively after the termination of the preceding
Exercise Period.  The last Exercise
Period in an Option Period shall terminate on the last day of such Option
Period.

 

(n)                                 “Fair
Market Value” shall mean the value of one (1) share of Common
Stock on the relevant date, determined as follows:

 

(1)                                  If the shares are traded on an exchange,
the reported “closing price” on the last trading date immediately preceding the
relevant date;

 

(2)                                  If the shares are traded over-the-counter
on the Nasdaq Stock Market, the Nasdaq Official Closing Price reported for the
last trading date immediately preceding the relevant date;

 

(3)                                  If neither (1) nor (2) applies,
the fair market value as determined by the Committee in good faith.  Such determination shall be conclusive and
binding on all persons.

 

(o)                                 “Maximum Percentage” means the maximum percentage of (i) Base
Compensation, or (ii) Base Compensation and Bonus Compensation, which a
Participant may elect to have withheld from Compensation pursuant to Section 4.  The Maximum Percentage will be fifteen
percent (15%) unless a lower percentage amount is designated by the Committee
with respect to an Option Period.

 

2

 

(p)                                 “Option
Period” shall mean a period of up to twenty-seven (27) months as
determined by the Committee.  The Board
may determine that the Option Period and the Exercise Period are the same.

 

(q)                                 “Participant”
shall mean a participant in the Plan as described in Section 4 of the
Plan.

 

(r)                                    “Plan”
shall mean this employee stock purchase plan.

 

(s)                                  “Shareholder”
shall mean a record holder of shares entitled to vote shares of Common Stock
under the Corporation’s by-laws.

 

(t)                                    “Subsidiary”
shall mean any corporation (other than the Corporation) in an unbroken chain of
corporations beginning with the Corporation, as described in Code Section 424(f).

 

3.                                      ELIGIBILITY.

 

Any Employee
regularly employed on a full-time basis by the Corporation or by any Designated
Subsidiary on an Entry Date shall be eligible to participate in the Plan with
respect to the Option Period commencing on such Entry Date, provided that the
Committee may establish administrative rules requiring that employment
commence some minimum period (e.g., one pay period) prior to an Entry Date to
be eligible to participate with respect to that Entry Date and provided further
that (1) the Board may extend eligibility to part-time Employees pursuant
to criteria and procedures established by the Committee and (2) the Board
may impose an eligibility period on participation of up to two years with
respect to participation on any prospective Entry Date.  The Board may also determine that a
designated group of highly compensated Employees (e.g., Employees subject to Section 16(b) of
the Securities Exchange Act of 1934) are ineligible to participate in the
Plan.  An Employee shall be considered
employed on a full-time basis unless his or her customary employment is less
than 20 hours per week or five months per year. 
No Employee may participate in the Plan if immediately after an option
is granted the Employee owns or is considered to own (within the meaning of
Code Section 424(d)), shares of stock, including stock which the Employee
may purchase by conversion of convertible securities or under outstanding
options granted by the Corporation, possessing five percent (5%) or more of the
total combined voting power or value of all classes of stock of the Corporation
or of any of its Subsidiaries.  All
Employees who participate in the Plan shall have the same rights and privileges
under the Plan except for differences which may be mandated by local law and
which are consistent with Code Section 423(b)(5).  The Board may impose restrictions on
eligibility and participation of Employees who are officers and directors to
facilitate compliance with federal or state securities laws or foreign laws.

 

4.                                      PARTICIPATION.

 

4.1                                 An Employee who is eligible to participate in the Plan in
accordance with Section 3 may become a Participant by filing, on a date
prescribed by the Committee prior to an

 

3

 

applicable Entry Date, a completed payroll deduction
authorization and Plan enrollment form provided by the Corporation.  An eligible Employee may authorize payroll
deductions at the rate of any whole percentage (i.e., 1%, 2%, 3%, etc.), up to
the Maximum Percentage, of either (i) the Employee’s Base Compensation, or
(ii) the Employee’s Base Compensation and Bonus Compensation, as elected
by the Employee in the payroll deduction authorization and Plan enrollment
form. If an Employee has elected to participate in the Plan but has not made an
election whether payroll deductions should be calculated and withheld from the
Employee’s Base Compensation, or from the Employee’s Base Compensation and
Bonus Compensation, then payroll deductions shall be calculated and withheld
from such Employee’s Base Compensation only. 
All payroll deductions may be held by the Corporation and commingled
with its other corporate funds.  No
interest shall be paid or credited to the Participant with respect to such
payroll deductions except where required by local law as determined by the
Committee.  A separate bookkeeping
account for each Participant shall be maintained by the Corporation under the
Plan and the amount of each Participant’s payroll deductions shall be credited
to such account.  A Participant may not
make any additional payments into such account.

 

4.2                                 Under procedures established by the Committee, a
Participant may suspend or discontinue participation in the Plan at any time
during an Exercise Period by completing and filing a new payroll deduction
authorization and Plan enrollment form with the Corporation.  A Participant may increase or decrease his or
her rate of payroll deductions, or change his or her election of the portion of
Compensation (i.e., Base Compensation, or Base Compensation and Bonus
Compensation) from which payroll deductions will be calculated and withheld, by
filing a new payroll deduction authorization and Plan enrollment form at any
time. Changes in rate shall be effective as soon as reasonably practicable
after the Corporation has received such form. 
Changes in the portion of Compensation from which payroll deductions
will be calculated and withheld will be effective for the next commencing
Exercise Period, subject to continuing eligibility of the Participant pursuant
to Section 3.  The Committee may
establish rules limiting the frequency with which Participants may
increase or decrease the rate of payroll deduction, or change the election of
the portion of Compensation from which payroll deductions will be calculated
and withheld, and may impose a waiting period on Participants wishing to
increase the rate of payroll deductions after a decrease. If a new payroll
deduction authorization and Plan enrollment form is not filed with the
Corporation, the rate of payroll deductions and the portion of Compensation
from which payroll deductions will be calculated and withheld shall continue as
originally elected (i) throughout the Option Period and (ii) subject
to continued eligibility as determined under Section 3, for succeeding
Option Periods; unless in either case the Committee determines to change the
Maximum Percentage.

 

If a
Participant suspends participation during an Exercise Period, his or her
accumulated payroll deductions will remain in the Plan for purchase of shares
as specified in Section 6 on the following Exercise Date, but the
Participant will not again participate until he or she completes a new payroll
deduction authorization and Plan enrollment form.  The Committee may establish rules limiting
the frequency with which Participants may suspend and resume payroll deductions
under the Plan and may impose a waiting period on Participants wishing to
resume suspended payroll deductions.  If
a Participant discontinues participation in the Plan, the amount credited to

 

4

 

the Participant’s individual account shall be paid to the Participant
without interest (except where required by local law).  In the event any Participant terminates
employment with the Corporation or any Subsidiary for any reason (including
death) prior to the expiration of an Option Period, the Participant’s
participation in the Plan shall terminate and all amounts credited to the Participant’s
account shall be paid to the Participant or the Participant’s estate without
interest (except where required by local law). 
Whether a termination of employment has occurred shall be determined by
the Committee.  The Committee may also establish
rules regarding when leaves of absence or change of employment status
(e.g., from full-time to part-time) will be considered to be a termination of
employment, and the Committee may establish termination of employment
procedures for this Plan which are independent of similar rules established
under other benefit plans of the Corporation and its Subsidiaries.

 

In the event
of a Participant’s death, any accumulated payroll deductions will be paid,
without interest, to the estate of the Participant.

 

5.                                      OFFERING.

 

5.1                                 The maximum number of shares of Common Stock which may be
issued pursuant to the Plan shall be 600,000 shares.  The Board may designate any amount of
available shares for offering for any Option Period determined pursuant to Section 5.2.

 

5.2                                 Each Option Period, Entry Date and Exercise Period shall be
determined by the Board.  The Board shall
have the power to change the duration of future Option Periods or future
Exercise Periods, and to determine whether or not to have overlapping Option
Periods, with respect to any prospective offering, without shareholder
approval, and without regard to the expectations of any Participants.

 

5.3                                 With respect to each Option Period, each eligible Employee
who has elected to participate as provided in Section 4.1 shall be granted
an option to purchase that number of shares of Common Stock which may be
purchased with the payroll deductions accumulated on behalf of such Employee
(assuming payroll deductions at a rate of 15% of Compensation) during each
Exercise Period within such Option Period at the purchase price specified in Section 5.4
below; provided, however, (1) in no event shall the Employee be entitled
to accrue rights to purchase shares under the Plan (and all other employee
stock purchase plans, as defined in Code Section 423, of the Corporation
and its subsidiaries) at a rate which exceeds $25,000 of the Fair Market Value
of such stock (determined at the time the option is granted) for any calendar
year in which such option is outstanding at any time, and (2) the maximum
shares subject to any option shall in no event exceed 1,500.

 

5.4                                 The option price under each option shall be determined by
the Board or Committee as either:

 

5

 

(a)                                  a percentage, not less than 85%,
established by the Board or Committee (the “Designated Percentage”) of the Fair
Market Value on the Exercise Date on which the Common Stock is purchased; or

 

(b)                                 the lower of (i) the Designated
Percentage of the Fair Market Value of the Common Stock on the Entry Date on
which an option is granted, or (ii) the Designated Percentage of the Fair
Market Value on the Exercise Date on which the Common Stock is purchased.

 

The Board or
Committee may change the Designated Percentage with respect to any future Option
Period, but not below 85%.

 

5.5                                 If the total number of shares of Common Stock for which
options granted under the Plan are exercisable exceeds the maximum number of
shares offered on any Entry Date, the number of shares which may be purchased
under options granted on the Entry Date shall be reduced on a pro rata basis in
as nearly a uniform manner as shall be practicable and equitable.  In this event, payroll deductions shall also
be reduced or refunded accordingly.  If
an Employee’s payroll deductions during any Exercise Period exceeds the
purchase price for the maximum number of shares permitted to be purchased under
Section 5.3, the excess shall be refunded to the Participant without
interest (except where otherwise required by local law).

 

5.6                                 If the option price is determined in accordance with Section 5.4(b),
then in the event that the Fair Market Value of the Corporation’s Common Stock
is lower on the first day of an Exercise Period within an Option Period
(subsequent “Reassessment Date”) than it was on the Entry Date for such Option
Period, all Employees participating in the Plan on the Reassessment Date shall
be deemed to have relinquished the unexercised portion of the option granted on
the Entry Date and to have enrolled in and received a new option commencing on
such Reassessment Date, unless the Board has determined not to permit
overlapping Option Periods or to restrict such transfers to lower price Option
Periods.

 

6.                                      PURCHASE
OF STOCK.

 

Upon the
expiration of each Exercise Period, a Participant’s option shall be exercised
automatically for the purchase of that number of full shares of Common Stock
which the accumulated payroll deductions credited to the Participant’s account
at that time shall purchase at the applicable price specified in Section 5.4.

 

7.                                      PAYMENT
AND DELIVERY.

 

Upon the
exercise of an option, the Corporation shall deliver to the Participant the
Common Stock purchased and the balance of any amount of payroll deductions
credited to the Participant’s account not used for the purchase.  The Board may permit or require that shares
be deposited directly with a broker designated by the Participant (or a broker
selected by the Committee) or to a designated agent of the Company, and the
Committee may utilize electronic or automated methods of share transfer.  The Board may require that shares be retained
with

 

6

 

such broker or agent for a designated period of time (and may restrict
dispositions during that period) and/or may establish other procedures to
permit tracking of disqualifying dispositions of such shares or to restrict
transfer of such shares.  To the extent
the unused cash balance represents a fractional share, the unused cash balance
credited to the Participant’s account shall be carried over to the next
Exercise Period, if the Participant is also a Participant in the Plan at that
time or refunded to the Participant, as determined by the Committee.  The Corporation shall retain the amount of
payroll deductions used to purchase Common Stock as full payment for the Common
Stock and the Common Stock shall then be fully paid and non-assessable.  No Participant shall have any voting,
dividend, or other stockholder rights with respect to shares subject to any
option granted under the Plan until the option has been exercised and shares
issued.

 

8.                                      RECAPITALIZATION.

 

If after the
grant of an option, but prior to the purchase of Common Stock under the option,
there is any increase or decrease in the number of outstanding shares of Common
Stock because of a stock split, stock dividend, combination or recapitalization
of shares subject to options, the number of shares to be purchased pursuant to
an option, the share limit of Section 5.3 and the maximum number of shares
specified in Section 5.1 shall be proportionately increased or decreased,
the terms relating to the purchase price with respect to the option shall be
appropriately adjusted by the Board, and the Board shall take any further
actions which, in the exercise of its discretion, may be necessary or
appropriate under the circumstances.

 

The Board, if
it so determines in the exercise of its sole discretion, also may adjust the
number of shares specified in Section 5.1, as well as the price per share
of Common Stock covered by each outstanding option and the maximum number of
shares subject to any individual option, in the event the Corporation effects
one or more reorganizations, recapitalizations, spin-offs, split-ups, rights
offerings or reductions of shares of its outstanding Common Stock.

 

The Board’s
determinations under this Section 8 shall be conclusive and binding on all
parties.

 

9.                                      MERGER,
LIQUIDATION, OTHER CORPORATION TRANSACTIONS.

 

In the event
of the proposed liquidation or dissolution of the Corporation, the Option
Period will terminate immediately prior to the consummation of such proposed
transaction, unless otherwise provided by the Board in its sole discretion, and
all outstanding options shall automatically terminate and the amounts of all
payroll deductions will be refunded without interest to the Participants.

 

In the event
of a proposed sale of all or substantially all of the assets of the
Corporation, or the merger or consolidation of the Corporation with or into
another corporation, then in the sole discretion of the Board, (1) each
option shall be assumed or an equivalent option shall be substituted by the
successor corporation or parent or subsidiary of such successor corporation,

 

7

 

(2) a date established by the Board on or before the date of
consummation of such merger, consolidation or sale shall be treated as an
Exercise Date, and all outstanding options shall be deemed exercisable on such
date or (3) all outstanding options shall terminate and the accumulated payroll
deductions shall be returned to the Participants.

 

10.                               TRANSFERABILITY.

 

Options
granted to Participants may not be voluntarily or involuntarily assigned,
transferred, pledged, or otherwise disposed of in any way, and any attempted
assignment, transfer, pledge, or other disposition shall be null and void and
without effect.  If a Participant in any
manner attempts to transfer, assign or otherwise encumber his or her rights or
interest under the Plan, other than as permitted by the Code, such act shall be
treated as an election by the participant to discontinue participation in the
Plan pursuant to Section 4.2.

 

11.                               AMENDMENT
OR TERMINATION OF THE PLAN.

 

11.1                           The Plan shall continue until, January 31, 2007 unless
previously terminated in accordance with Section 11.2.

 

11.2                           The Board may, in its sole discretion, insofar as permitted
by law, terminate or suspend the Plan, or revise or amend it in any respect
whatsoever, except that, without approval of the shareholders, no such revision
or amendment shall:

 

(a)                                  materially
increase the number of shares subject to the Plan, other than an adjustment
under Section 8 of the Plan;

 

(b)                                 materially
modify the requirements as to eligibility for participation in the Plan, except
as otherwise specified in this Plan;

 

(c)                                  materially
increase the benefits accruing to Participants;

 

(d)                                 reduce
the purchase price specified in Section 5.4, except as specified in Section 8;

 

(e)                                  extend
the term of the Plan beyond the date specified in Section 11.1; or

 

(f)                                    amend
this Section 11.2 to defeat its purpose.

 

12.                               ADMINISTRATION.

 

The Board
shall appoint a Committee consisting of at least two members who will serve for
such period of time as the Board may specify and who may be removed by the
Board at any time.  The Committee will have
the authority and responsibility for the day-to-day administration of the Plan,
the authority and responsibility specifically provided in this Plan and any
additional duties, responsibility and authority delegated to the Committee by
the Board, which may include

 

8

 

any of the functions assigned to the Board in this Plan.  The Committee shall have full power and
authority to promulgate any rules and regulations which it deems necessary
for the proper administration of the Plan, to interpret the provisions and
supervise the administration of the Plan, and to take all action in connection
with administration of the Plan as it deems necessary or advisable, consistent
with the delegation from the Board. 
Decisions of the Board and the Committee shall be final and binding upon
all participants.  Any decision reduced
to writing and signed by a majority of the members of the Committee shall be
fully effective as if it had been made at a meeting of the Committee duly
held.  The Corporation shall pay all
expenses incurred in the administration of the Plan.  No Board or Committee member shall be liable
for any action or determination made in good faith with respect to the Plan or
any option granted thereunder.

 

13.                               COMMITTEE
RULES FOR FOREIGN JURISDICTIONS.

 

The Committee
may adopt rules or procedures relating to the operation and administration
of the Plan in non-United States jurisdictions to accommodate the specific
requirements of local laws and procedures. 
Without limiting the generality of the foregoing, the Committee is
specifically authorized to adopt rules and procedures regarding handling
of payroll deductions, payment of interest, conversion of local currency,
withholding procedures and handling of stock certificates which vary with local
requirements.

 

14.                               SECURITIES
LAWS REQUIREMENTS.

 

The
Corporation shall not be under any obligation to issue Common Stock upon the
exercise of any option unless and until the Corporation has determined that: (i) it
and the Participant have taken all actions required to register the Common
Stock under the Securities Act of 1933, or to perfect an exemption from the
registration requirements thereof; (ii) any applicable listing requirement
of any stock exchange on which the Common Stock is listed has been satisfied;
and (iii) all other applicable provisions of state, federal and applicable
foreign law have been satisfied.

 

15.                               GOVERNMENTAL
REGULATIONS.

 

This Plan and
the Corporation’s obligation to sell and deliver shares of its stock under the
Plan shall be subject to the approval of any governmental authority required in
connection with the Plan or the authorization, issuance, sale, or delivery of
stock hereunder.

 

16.                               NO
ENLARGEMENT OF EMPLOYEE RIGHTS.

 

Nothing
contained in this Plan shall be deemed to give any Employee the right to be
retained in the employ of the Corporation or any Designated Subsidiary or to
interfere with the right of the Corporation or Designated Subsidiary to
discharge any Employee at any time.

 

17.                               GOVERNING
LAW.

 

This Plan
shall be governed by California law.

 

9

 

18.                               EFFECTIVE
DATE AND SUBSEQUENT PLAN HISTORY.

 

This Plan became
effective on the first date in 1997 in which the Common Stock traded on the
Nasdaq System or Nasdaq National Market System. 
The Board approved an increase in shares of Common Stock that may be
issued under the Plan from 250,000 to 500,000 on September 25, 1998, which
increase was approved by shareholders on November 12, 1998.  The Board approved certain amendments to the
Plan on August 20, 2003, which amendments did not require the approval of
the shareholders of the Corporation.  The
Board approved an increase in shares of Common Stock that may be issued under
the Plan from 500,000 to 600,000 on September 6, 2003, which increase is
reflected in Section 5.1, but is subject to approval of the shareholders
of the Corporation within 12 months of its adoption by the Board of
Directors.  The Board approved certain
amendments to the Plan on August 11, 2005, effective August 22, 2005,
which amendments did not require the approval of the shareholders of the
Corporation.

 

10

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