Document:

Exhibit 10.1

 

DIGIMARC CORPORATION

 

INDEMNIFICATION
AGREEMENT

 

THIS AGREEMENT is entered into, effective as of                                     ,
2005, by and between Digimarc Corporation, a Delaware corporation (the
“Company”), and                                
(“Indemnitee”).

 

WHEREAS, it is essential to the Company to retain and
attract as directors and officers the most capable persons available;

 

WHEREAS, Indemnitee is a director and/or officer of
the Company; and

 

WHEREAS, in recognition of Indemnitee’s need for
substantial protection against personal liability in order to enhance
Indemnitee’s continued and effective service to the Company, and in order to
induce Indemnitee to provide services to the Company as a director and/or
officer, the Company wishes to provide in this Agreement for the
indemnification of and the advancing of expenses to Indemnitee to the fullest
extent (whether partial or complete) permitted by Delaware law and as set forth
in this Agreement, and, to the extent insurance is maintained, for the coverage
of Indemnitee under the Company’s directors’ and officers’ liability insurance
policies.

 

NOW, THEREFORE, in consideration of the above premises
and of Indemnitee’s continuing to serve the Company directly or, at its
request, with another enterprise, and intending to be legally bound hereby, the
parties agree as follows:

 

1.              Certain Definitions.

 

(a)           Board:  the Board of
Directors of the Company.

 

(b)           Change In Control: 
shall be deemed to have occurred if (i) any “person” (as such term
is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended (the “Act”)), other than a trustee or other fiduciary holding
securities under an employee benefit plan of the Company or a corporation owned
directly or indirectly by the stockholders of the Company in substantially the
same proportions as their ownership of stock of the Company (collectively
“excluded persons”), is or becomes the “Beneficial Owner” (as defined in Rule
13d-3 under the Act), directly or indirectly, of securities of the Company
representing 30% or more of the total voting power represented by the Company’s
then outstanding Voting Securities, or (ii) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the Board and any new director whose election by the Board or nomination for
election by the Company’s stockholders was approved by a vote of at least
two-thirds (2/3) of the directors then still in office who either were
directors at the beginning of the period or whose election or nomination for
election was previously so approved, cease for any reason to constitute a
majority of the Board, or (iii) the stockholders of the Company approve

 

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a merger or consolidation
of the Company with any other corporation, other than a merger or consolidation
that would result in the Voting Securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into Voting Securities of the surviving
entity) at least 50% of the total voting power represented by the Voting
Securities of the Company or such surviving entity outstanding immediately
after such merger or consolidation, or (iv) the stockholders of the
Company approve a plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company (in one transaction or a series of
transactions) of all or substantially all of the Company’s assets.

 

(c)           Expenses:  any expense,
liability, or loss, including attorneys’ fees, judgments, fines, ERISA excise
taxes and penalties, amounts paid or to be paid in settlement, any interest,
assessments, or other charges imposed thereon, and any federal, state, local,
or foreign taxes imposes as a result of the actual or deemed receipt of any
payments under this Agreement, paid or incurred in connection with
investigating, defending, being a witness in, or participating in (including on
appeal), or preparing for any of the foregoing in, any Proceeding relating to
any Indemnifiable Event.

 

(d)           Indemnifiable  Event:  any event or occurrence that takes place
either prior to or after the effective date of this Agreement, related to the
fact that Indemnitee is or was a director or an officer of the Company, or
while a director or officer is or was serving at the request of the Company as
a director, officer, employee, trustee, agent, or fiduciary of another foreign
or domestic corporation, partnership, joint venture, employee benefit plan, trust,
or other enterprise, or was a director, officer, employee, or agent of a
foreign or domestic corporation that was a predecessor corporation of the
Company or of another enterprise at the request of such predecessor
corporation, or related to anything done or not done by Indemnitee in any such
capacity.

 

(e)           Independent Counsel: 
the person or body appointed in connection with Section 3.

 

(f)            Potential Change In Control: 
shall be deemed to have occurred if (i) the Company enters into an
agreement or arrangement, the consummation of which would result in the
occurrence of a Change in Control, (ii) any person (including the Company)
publicly announces an intention to take or to consider taking actions that, if
consummated, would constitute a Change in Control, (iii) any person (other
than an Excluded Person) who is or becomes the Beneficial Owner, directly or
indirectly, of securities of the Company representing 10% or more of the
combined voting power of the Company’s then outstanding Voting Securities, increases
his beneficial ownership of such securities by 5% or more over the percentage
so owned by such person on the date hereof, or (iv) the Board adopts a
resolution to the effect that, for purposes of this Agreement, a Potential
Change in Control has occurred.

 

(g)           Proceeding: 
(i) any threatened, pending, or complete action, suit, or
proceeding, whether civil, criminal, administrative, investigative, or other,
or (ii) any inquiry, hearing, or

 

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investigation,
whether conducted by the Company or any other party, that Indemnitee in good
faith believes might lead to the institution of any such action, or proceeding.

 

(h)           Reviewing Party:  the
person or body appointed in accordance with Section 3.

 

(i)            Voting Securities: any securities of the Company that vote
generally in the election of directors.

 

2.              Agreement To Indemnify.

 

(a)           General
Agreement. In the event Indemnitee was, is, or become a party to or witness
or other participant in, or is threatened to be made a party to or witness or
other participant in, a Proceeding by reason of (or arising in part out of) an
Indemnifiable Event, the Company shall indemnify Indemnitee from and against
any and all Expenses to the fullest extent permitted by law, as the same exists
or may hereafter be amended or interpreted (but in the case of any such
amendment or interpretation, only to the extent that such amendment or
interpretation permits the Company to provide broader indemnification rights
than were permitted prior thereto).

 

(b)           Initiation
Of Proceeding. Notwithstanding anything in this Agreement to the contrary,
Indemnitee shall not be entitled to indemnification pursuant to this Agreement
in connection with any Proceeding initiated by Indemnitee against the Company
or any director or officer of the Company unless (i) the Company has
joined in or the Board has consented to the initiation of such Proceeding,
(ii) the Proceeding is one to enforce indemnification rights under
Section 5, or (iii) the Proceeding is instituted after a Change in
Control and Independent Counsel has approved its initiation.

 

(c)           Expense
Advances. If so requested by Indemnitee, the Company shall advance (within
ten business days of such request) any and all Expenses to Indemnitee (an “Expense Advance”); provided that such request shall be
accompanied by reasonable evidence of the expenses incurred by Indemnitee and
that, if and to the extent that the Reviewing Party determines that Indemnitee
would not be permitted to be so indemnified under applicable law, the Company
shall be entitled to be reimbursed by Indemnitee (who hereby agrees to
reimburse the Company) for all such amounts theretofore paid. If Indemnitee has
commenced legal proceedings in a court of competent jurisdiction to secure a
determination that Indemnitee should be indemnified under applicable law, as
provided in Section 4, any determination made by the Reviewing Party that
Indemnitee would not be permitted to be indemnified under applicable law shall
not be binding and Indemnitee shall not be required to reimburse the Company
for any Expense Advance until a final judicial determination is made with
respect thereto (as to which all rights of appeal therefrom have been exhausted
or have lapsed).

 

(d)           Mandatory
Indemnification. Notwithstanding any other provision of this Agreement
(other than Section 2(f) below), to the extent that Indemnitee has been
successful on the merits in defense of any Proceeding relating in whole or in
part to an Indemnifiable Event

 

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or in defense of
any issue or matter therein, Indemnitee shall be indemnified against all
Expenses incurred in connection therewith.

 

(e)           Partial
Indemnification. If Indemnitee is entitled under any provision of this
Agreement to indemnification by the Company for some or a portion of Expenses,
but not, however, for the total amount thereof, the Company shall nevertheless
indemnify Indemnitee for the portion thereof to which Indemnitee is entitled.

 

(f)            Prohibited
Indemnification. No indemnification pursuant to this Agreement shall be
paid by the Company on account of any Proceeding in which judgment is rendered
against Indemnitee for an accounting of profits made from the purchase or sale
by Indemnitee of securities of the Company pursuant to the provisions of
Section 16(b) of the Act or similar provisions of any federal, state or
local laws.

 

3.              Reviewing Party.

 

Prior to any Change in Control, the Reviewing Party
shall be any appropriate person or body consisting of a member or members of
the Board or any other person or body appointed by the Board who is not a party
to the particular Proceeding with respect to which Indemnitee is seeking
indemnification; after a Change in Control, the Reviewing Party shall be the
Independent Counsel referred to below. With respect to all matters arising
after a Change in Control (other than a Change in Control approved by a
majority of the directors on the Board who were directors immediately prior to
such Change in Control) concerning the rights of Indemnitee to indemnity
payments and Expense Advances under this Agreement or any other agreement or
under applicable law or the Company’s Certificate of Incorporation or bylaws
now or hereafter in effect relating to indemnification for Indemnifiable
Events, the Company shall seek legal advice only from Independent Counsel
selected by Indemnitee and approved by the Company and who has not otherwise
performed services for the Company or the Indemnitee (other than in connection
with indemnification matters) within the last five years. The Independent
Counsel shall not include any person who, under the applicable standards of
professional conduct then prevailing would have a conflict of interest in
representing either the Company or Indemnitee in an action to determine
Indemnitee’s rights under this Agreement. Such counsel, among other things,
shall render its written opinion to the Company and Indemnitee as to whether
and to what extent the Indemnitee should be permitted to be indemnified under
applicable law. The Company agrees to pay the reasonable fees of the
Independent Counsel and to indemnify fully such counsel against any and all
expenses (including attorney’s fees), claims, liabilities, loss, and damages
arising out of or relating to this Agreement or the engagement of Independent
Counsel pursuant hereto.

 

4.              Indemnification Process And Appeal.

 

(a)           Suit
To Enforce Rights. Regardless of any action by the Reviewing Party, if
Indemnitee has not received full indemnification within 60 days after making a
request in accordance with Section 2(c), Indemnitee shall have the right
to enforce its indemnification rights under this Agreement by commencing
litigation, in any appropriate court having subject matter jurisdiction thereof
and in which venue is

 

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proper, seeking an
initial determination by the court or challenging any determination by the
Reviewing Party or any aspect thereof, provided, however, that such 60-day
period shall be extended for reasonable time, not to exceed another 60 days, if
the reviewing party in good faith requires additional time for the obtaining or
evaluating of documentation and information relating thereto. The Company
hereby consents to service of process and to appear in any such proceeding. Any
determination by the Reviewing Party not challenged by the Indemnitee shall be
binding on the Company and Indemnitee. The remedy provided for in this
Section 4 shall be in addition to any other remedies available to
Indemnitee in law or equity.

 

(b)           Defense
To Indemnification, Burden Of Proof, And Presumptions. It shall be a
defense to any action brought by Indemnitee against the Company to enforce this
Agreement (other than an action brought to enforce a claim for Expenses
incurred in defending a Proceeding in advance of its final disposition where
the required undertaking has been tendered to the Company) that it is not
permissible under applicable law for the Company to indemnify Indemnitee for
the amount claimed. In connection with any such action or any determination by
the Reviewing Party or otherwise as to whether Indemnitee is entitled to be
indemnified hereunder, the burden of proving such a defense or determination
shall be on the Company. Neither the failure of the Reviewing Party or the
Company (including its Board, independent legal counsel, or its stockholders)
to have made a determination prior to the commencement of such action by
Indemnitee that indemnification of the claimant is proper under the
circumstances because Indemnitee has met the standard of conduct set forth in
applicable law, nor an actual determination by the Reviewing Party or Company
(including its Board, independent legal counsel, or its stockholders) that the
Indemnitee had not met such applicable standard of conduct, shall be a defense
to the action or create a presumption that the Indemnitee has not met the
applicable standard of conduct. For purposes of this Agreement, the termination
of any claim, action, suit, or proceeding, by judgment, order, settlement
(whether with or without court approval), conviction, or upon a plea of nolo
contendere, or its equivalent shall not create a presumption that Indemnitee
did not meet any particular standard of conduct or have any particular belief
or that a court has determined that indemnification is not permitted by
applicable law.

 

5.              Indemnification For Expenses Incurred In Enforcing
Rights.

 

The Company shall indemnify Indemnitee against any and
all Expenses and, if requested by Indemnitee, shall (within ten business days
of such request), advance such Expenses to Indemnitee, that are incurred by
Indemnitee in connection with any claim asserted against or covered action
brought by Indemnitee for (i) indemnification of Expenses or Expense
Advances by the Company under this Agreement or any other agreement or under
applicable law or the Company’s Certificate of Incorporation or bylaws now or
hereafter in effect relating to indemnification for Indemnifiable Events, and
or (ii) recovery under directors’ and officers’ liability insurance
policies maintained by the Company, regardless of whether Indemnitee ultimately
is determined to be entitled to such indemnification, Expense Advances, or
insurance recovery, as the case may be.

 

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6.              Notification And Defense Of Proceeding.

 

(a)           Notice.
Promptly after receipt by Indemnitee of notice of the commencement of any
Proceeding, Indemnitee shall, if a claim in respect thereof is to be made
against the Company under this Agreement, notify the Company of the
commencement thereof, but the omission so to notify the Company will not
relieve the Company from any liability that it may have to Indemnitee, except
as provided in Section 6(c).

 

(b)           Defense.
With respect to any Proceeding as to which Indemnitee notifies the Company of
the commencement thereof, the Company shall be entitled to participate in the
Proceeding at its own expense and except as otherwise provided below, to the
extent the Company so wishes, it may assume the defense thereof with counsel
reasonably satisfactory to Indemnitee. After notice from the Company to
Indemnitee of its election to assume the defense of any Proceeding, the Company
shall not be liable to Indemnitee under this Agreement or otherwise for any
Expenses subsequently incurred by Indemnitee in connection with the defense of
such Proceeding other than reasonable costs of investigation or as otherwise
provided below. Indemnitee shall have the right to employ his or her own legal
counsel in such Proceeding, but all Expenses related thereto incurred after
notice from the Company of its assumption of the defense shall be at
Indemnitee’s expense unless: 
(i) the employment of legal counsel by Indemnitee has been
authorized by the Company, (ii) Indemnitee has reasonably determined that
there may be a conflict of interest between Indemnitee and the Company in the
defense of the Proceeding, (iii) after a Change in Control, the employment
of counsel by Indemnitee has been approved by the Independent Counsel, or (iv) the
Company shall not in fact have employed counsel to assume the defense of such
Proceeding, in each of which case all Expenses of the Proceeding shall be borne
by the Company. The Company shall not be entitled to assume the defense of any
Proceeding brought by or on behalf of the Company or as to which Indemnitee
shall have made the determination provided for in (ii) above.

 

(c)           Settlement
Of Claims. The Company shall not be liable to indemnify Indemnitee under
this Agreement or otherwise for any amounts paid in settlement of any
Proceeding effected without the Company’s written consent, provided, however,
that if a Change in Control has occurred, the Company shall be liable for
indemnification of Indemnitee for amounts paid in settlement if the Independent
Counsel has approved the settlement. The Company shall not settle any
Proceeding in any manner that would impose any penalty or limitation on
Indemnitee without Indemnitee’s written consent. The Company shall not be
liable to indemnify the Indemnitee under this Agreement with regard to any
judicial award if the Company was not given a reasonable and timely
opportunity, at its expense, to participate in the defense of such action; the
Company’s liability hereunder shall not be excused if participation in the Proceeding
by the Company was barred by this Agreement.

 

7.              Non-Exclusivity.

 

The rights of Indemnitee hereunder shall be in
addition to any other rights Indemnitee may have under the Company’s
Certificate of

 

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Incorporation,
bylaws, applicable law, or otherwise. To the extent that a change in applicable
law (whether by statute or judicial decision) permits greater indemnification
by agreement than would be afforded currently under the Company’s Certificate
of Incorporation, bylaws, applicable law, or this Agreement, it is the intent
of the parties that Indemnitee enjoy by this Agreement the greater benefits so
afforded by such change.

 

8.              Liability Insurance.

 

To the extent the Company maintains an insurance policy
or policies providing directors’ and officers’ liability insurance, Indemnitee
shall be covered by such policy or policies, in accordance with its or their
terms, to the maximum extent of the coverage available for any Company director
or officer.

 

9.              Amendment Of This Agreement.

 

No supplement, modification, or amendment of this
Agreement shall be binding unless executed in writing by both of the parties
hereto. No waiver of any of the provisions of this Agreement shall operate as a
waiver of any other provisions hereof (whether or not similar), nor shall such
waiver constitute a continuing waiver. Except as specifically provided herein,
no failure to exercise or any delay in exercising any right or remedy hereunder
shall constitute a waiver thereof.

 

10.       Subrogation.

 

In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all papers required and shall do
everything that may be necessary to secure such rights, including the execution
of such documents necessary to enable the Company effectively to bring suit to
enforce such rights.

 

11.       No Duplication Of Payments.

 

The Company shall not be liable under this Agreement
to make any payment in connection with any claim made against Indemnitee to the
extent Indemnitee has otherwise received payment (under any insurance policy,
bylaw, or otherwise) of the amounts otherwise indemnifiable hereunder.

 

12.       Binding Effect.

 

This Agreement shall be binding upon and inure to the
benefit of and be enforceable by the parties hereto and their respective
successors (including any direct or indirect successor by purchase, merger,
consolidation, or otherwise to all or substantially all of the business and/or
assets of the Company), assigns, spouses, heirs, and personal and legal
representatives. The indemnification provided under this Agreement shall
continue as to Indemnitee for any action taken or not taken while serving in an
indemnified capacity pertaining to an Indemnifiable Event even though he or she
may have ceased to serve in such capacity at the time of any Proceeding.

 

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13.       Severability.

 

If any provision (or portion thereof) of this
Agreement shall be held by a court of competent jurisdiction to be invalid,
void, or otherwise unenforceable, the remaining provisions shall remain
enforceable to the fullest extent permitted by law. Furthermore, to the fullest
extent possible, the provisions of this Agreement (including, without
limitation, each portion of this Agreement containing any provision held to be
invalid, void, or otherwise unenforceable, that is not itself invalid, void, or
unenforceable) shall be construed so as to give effect to the intent manifested
by the provision held invalid, void, or unenforceable.

 

14.       Governing Law.

 

This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed in such State without giving effect to the
principles of conflicts of laws.

 

15.       Notices.

 

All notices, demands, and other communications
required or permitted hereunder shall be made in writing and shall be deemed to
have been duly given if delivered by hand, against receipt, or mailed, postage
prepaid, certified or registered mail, return receipt requested, and addressed
to the Company at:

 

Digimarc Corporation

9405 S.W. Gemini Drive

Beaverton, OR 97008

 

Notice of change of address shall be effective only
when given in accordance with this Section. All notices complying with this
Section shall be deemed to have been received on the date of delivery or on the
third business day after mailing.

 

16.       Counterparts.

 

This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.

 

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IN WITNESS WHEREOF, the parties hereto have duly
executed and delivered this Indemnification Agreement as of the day specified
above.

 

	
   

  	
  DIGIMARC
  CORPORATION

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  INDEMNITEE

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Print Name:

  	
   

  	
   

  
							

 

9Exhibit 10.2

 

DIGIMARC CORPORATION

1995 STOCK INCENTIVE PLAN, AS
AMENDED

 

1.             Purposes and Scope of
the Plan.

 

1.1  Purposes of Plan. The purposes of this Stock
Incentive Plan are to attract and retain the best available personnel for
positions of substantial responsibility, to provide additional incentive to the
Employees and Consultants of the Company and to promote the success of the
Company’s business.

 

1.2  Scope of Plan. Options granted hereunder may
be either “incentive stock options,” as defined in Section 422 of the
Internal Revenue Code of 1986, as amended, or “nonqualified stock options,” at
the discretion of the Board and as reflected in the terms of the written option
agreement. In addition, shares of the Company’s Common Stock may be Sold hereunder
independent of any Option grant.

 

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

 

2.1  “Board” shall mean the Committee, if one has
been appointed, or the Board of Directors of the Company, if no Committee is
appointed.

 

2.2  “Code” 
shall mean the Internal Revenue Code of 1986, as amended.

 

2.3  “Common Stock”  shall mean the Common Stock of the Company.

 

2.4  “Company” 
shall mean Digimarc Corporation, an Oregon corporation.

 

2.5  “Committee” shall mean the Committee
appointed by the Board of Directors in accordance with Section of the
Plan, if one is appointed.

 

2.6  “Consultant” shall mean any person who is
engaged by the Company or any Subsidiary to render consulting services and is
compensated for such consulting services and any director of the Company
whether compensated for such services or not.

 

2.7  “Continuous Status as an Employee or
Consultant” shall mean the absence of any interruption or termination of
service as an Employee or Consultant. Continuous Status as an Employee or
Consultant shall not be considered interrupted in the case of sick leave,
military leave, or any other leave of absence approved by the Board; provided
that such leave is for a period of not more than ninety days or reemployment
upon the expiration of such leave is guaranteed by contract or statute.

 

2.8  “Employee” shall mean any person, including
officers and directors, employed by the Company or any Parent or Subsidiary of
the Company. The payment of a director’s fee by the Company shall not be
sufficient to constitute “employment” by the Company.

 

2.9  “Exchange Act”  shall mean the Securities Exchange Act of
1934, as amended.

 

 

2.10 “Incentive
Stock Option” shall mean an Option intended to qualify as an incentive stock
option within the meaning of Section 422 of the Code.

 

2.11 “Nonqualified
Stock Option” shall mean an Option not intended to qualify as an incentive
stock option within the meaning of Section 422 of the Code.

 

2.12 “Option”
shall mean a stock option granted pursuant to the Plan.

 

2.13 “Optioned
Stock” shall mean the Common Stock subject to an Option.

 

2.14 “Optionee”
shall mean an Employee or Consultant who receives an Option.

 

2.15 “Parent”
shall mean a “parent corporation,” whether now or hereafter existing, as
defined in Section 424 of the Code.

 

2.16 “Plan”
shall mean this Stock Incentive Plan.

 

2.17 “Sale” or
“Sold” shall include, with respect to the sale of Shares under the Plan, the
sale of Shares for consideration in the form of cash or notes, as well as a
grant of Shares without consideration, except past or future services.

 

2.18 “Share”
shall mean a share of the Common Stock, as adjusted in accordance with Section
of the Plan.

 

2.19 “Subsidiary”
shall mean a “subsidiary corporation,” whether now or hereafter existing, as
defined in Section 424 of the Code.

 

3.             Stock Subject to the
Plan.

 

3.1  Size of Plan Pool. Subject to the provisions
of Section of the Plan, the maximum aggregate number of Shares which may
be optioned and/or Sold under the Plan is 5,600,000 shares of Common Stock. The
Shares may be authorized, but unissued, or reacquired Common Stock.

 

3.2  Return of Unexercised Option Shares. If an
Option should expire or become unexercisable for any reason without having been
exercised in full, the unpurchased Shares which were subject thereto shall,
unless the Plan shall have been terminated, become available for future Option
grants and/or Sales under the Plan.

 

3.3  Return of Unvested or Restricted Shares. If
Shares Sold under the Plan or purchased upon the exercise of an Option are
repurchased by the Company pursuant to restrictions applicable to such Shares,
the number of Shares repurchased shall, unless the Plan shall have been
terminated, become available for future Option grants and/or Sales under the
Plan.

 

3.4  Reservation of Shares. The Company, during
the term of this Plan, will at all times reserve and keep available such number
of Shares as shall be sufficient to satisfy the requirements of the Plan.
Inability of the Company to obtain authority from any regulatory body having
jurisdiction, which authority is deemed by the Company’s counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in

 

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respect of the failure to issue
or sell such Shares as to which such requisite authority shall not have been
obtained.

 

4.             Administration of the
Plan.

 

4.1  Procedure. The Plan shall be administered by
the Board of Directors of the Company.

 

4.1.1  Committee. Subject to
subparagraph, the Board of Directors may    
appoint a Committee consisting of not less than two (2) members of the
Board of Directors to administer the Plan on behalf of the Board of Directors,
subject to such terms and conditions as the Board of Directors may prescribe.
Once appointed, the Committee shall continue to serve until otherwise directed
by the Board of Directors. From time to time the Board of Directors may
increase the size of the Committee and appoint additional members thereof,
remove members (with or without cause) and appoint new members in substitution
therefor, fill vacancies however caused, or remove all members of the Committee
and thereafter directly administer the Plan.

 

4.1.2  Conflicts. Members of the
Board who are either eligible for Options and/or Sales or have been granted
Options or Sold Shares may vote on any matters affecting the administration of
the Plan or the grant of any Options or Sale of any Shares pursuant to the
Plan, except that no such member shall act upon the granting of an Option or
Sale of Shares to himself, but any such member may be counted in determining
the existence of a quorum at any meeting of the Board during which action is
taken with respect to the granting of Options or Sale of Shares to him.

 

4.1.3  Grants Following
Registration, to Officers or Directors, Only by Disinterested Persons.
Notwithstanding the foregoing subparagraph, if and in any event the Company
registers any class of any equity security pursuant to Section 12 of the
Securities Exchange Act of 1934, from the effective date of such registration
until six (6) months after the termination of such registration, any
grants of Options to officers or directors shall only be made by the Board if
each member of the Board is a disinterested person, or if every member of the
Board is not a disinterested person, by a committee of two or more directors,
each of whom is a disinterested person. A “disinterested person” is a director
who has not, during the one year period prior to service as an administrator of
the Plan, or during such service, been granted or awarded equity securities
pursuant to the Plan or any other plan of the Company or any of its affiliates,
with these qualifications:

 

(a)  Formula Plans don’t disqualify. Participation in a formula plan
meeting the conditions in paragraph (c)(2)(ii) of SEC Rule 16b-3 shall
not disqualify a director from being a disinterested person.

 

(b)  Ongoing Acquisition Plans Don’t Disqualify. Participation in
an ongoing securities acquisition plan meeting the conditions in paragraph (d)(2) (i) of
SEC Rule 16b-3 shall not disqualify a director from being a disinterested
person.

 

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(c)  Annual Retainers in Stock Don’t Disqualify. An election to receive
an annual retainer fee in either cash or an equivalent amount of securities, or
partly in cash and partly in securities, shall not disqualify a director from
being a disinterested person.

 

(d)  Disqualification applies Only To Plan In Which Director Participates.
Participation in a plan shall not disqualify a director from being a
disinterested person for the purpose of administering another plan that does
not permit participation by directors.

 

4.2  Powers of the Board. Subject to the
provisions of the Plan, the Board shall have the authority, in its discretion,
to do any or all of these things:

 

4.2.1  Grant Options. To grant
Incentive Stock Options in accordance with Section 422 of the Code, or
Nonqualified Stock Options.

 

4.2.2  Authorize Sales.  To authorize Sales of Shares of Common Stock
hereunder.

 

4.2.3  Determine Fair Market
Value. To determine, upon review of relevant information and in accordance with
Section of the Plan, the fair market value of the Common Stock.

 

4.2.4  Determine Exercise or Purchase
Price. To determine the exercise/purchase price per Share of Options to be
granted or Shares to be Sold, which exercise/purchase price shall be determined
in accordance with Section of the Plan.

 

4.2.5  Decide Who Gets Options.
To determine the Employees or Consultants to whom, and the time or times at
which, Options shall be granted and the number of Shares to be represented by
each Option.

 

4.2.6  Decide Who Gets Stock. To
determine the Employees or Consultants to whom, and the time or times at which,
Shares shall be Sold and the number of Shares to be Sold.

 

4.2.7  Interpret Plan.  To interpret the Plan.

 

4.2.8  Make Rules About
Plan. To prescribe, amend and rescind rules and regulations relating to the
Plan.

 

4.2.9  Set and Amend Option
Terms. To determine the terms and provisions of each Option granted (which need
not be identical) and, with the consent of the holder thereof, modify or amend
each Option.

 

4.2.10 Set and Amend Sale Terms. To determine the terms and provisions
of each Sale of Shares (which need not be identical) and, with the consent of
the purchaser thereof, modify or amend each Sale.

 

4

 

4.2.11 Change Exercise Dates of Options. To accelerate or defer (with
the consent of the Optionee) the exercise date of any Option.

 

4.2.12 Change Vesting Restrictions. To accelerate or defer (with the
consent of the Optionee or purchaser of Shares) the vesting restrictions
applicable to Shares Sold under the Plan or pursuant to Options granted under the
Plan.

 

4.2.13 Authorize Signers. To authorize any person to execute on behalf
of the Company any instrument required to effectuate the grant of an Option or
Sale of Shares previously granted or authorized by the Board.

 

4.2.14 Establish Shareholder Agreement Restrictions. To determine the
restrictions on transfer, vesting restrictions, repurchase rights, or other
restrictions applicable to Shares issued under the Plan.

 

4.2.15 Cancel and Reissue Options (subject to Price Restrictions). To
effect, at any time and from time to time, with the consent of the affected
Optionees, the cancellation of any or all outstanding Options under the Plan
and to grant in substitution therefor new Options under the Plan covering the
same or different numbers of Shares, but having an Option price per Share
consistent with the provisions of Section of this Plan as of the date of
the new Option grant.

 

4.2.16 Make Case by Case Exceptions at Termination of Employment. To
establish, on a case-by-case basis, different terms and conditions pertaining
to exercise or vesting rights upon termination of employment, whether at the
time of an Option grant or Sale of Shares, or thereafter.

 

4.2.17 Do Other Things Needed or Advisable. To make all other
determinations deemed necessary or advisable for the administration of the
Plan.

 

4.3  Effect of Board’s Decision. All decisions,
determinations and interpretations of the Board shall be final and binding on
all Optionees and any other holders of any Options granted under the Plan or
Shares Sold under the Plan.

 

5.             Eligibility.

 

5.1  Persons Eligible. Options may be granted
and/or Shares Sold only to Employees and Consultants. Incentive Stock Options
may be granted only to Employees. An Employee or Consultant who has been
granted an Option or Sold Shares may, if he is otherwise eligible, be granted
an additional Option or Options or Sold additional Shares.

 

5.2  ISO Limitation. No Incentive Stock Option may
be granted to an Employee which, when aggregated with all other Incentive Stock
Options granted to such Employee by the Company or any Parent or Subsidiary,
would result in Shares having an aggregate fair market value (determined for
each Share as of the date of grant of the Option covering such Share) in excess
of $100,000 becoming first available for purchase upon exercise of one or more
Incentive Stock Options during any calendar year.

 

5

 

5.3  Section Limitations. Section of the
Plan shall apply only to an Incentive Stock Option evidenced by an “Incentive
Stock Option Agreement” which sets forth the intention of the Company and the
Optionee that such Option shall qualify as an Incentive Stock Option. Section of
the Plan shall not apply to any Option evidenced by a “Nonqualified Stock
Option Agreement” which sets forth the intention of the Company and the
Optionee that such Option shall be a Nonqualified Stock Option.

 

5.4  No Right to Continued Employment. The Plan
shall not confer upon any Optionee any right with respect to continuation of employment
or consulting relationship with the Company, nor shall it interfere in any way
with his right or the Company’s right to terminate his employment or consulting
relationship at any time.

 

6.             Term of Plan. The
Plan shall become effective upon the earlier to occur of its adoption by the
Board of Directors or its approval by the stockholders of the Company as
described in Section of the Plan. It shall continue in effect for a term
of ten (10) years, unless sooner terminated under Section of the
Plan.

 

7.             Term of Options.

 

7.1  Term of ISOs to 10% or Less Holders. The term
of each Incentive Stock Option shall be ten (10) years from the date of
grant thereof or such shorter term as may be provided in the Stock Option
Agreement.

 

7.2  Term of Nonqualified Options to 10% or Less
Holders. The term of each Nonqualified Stock Option shall be ten (10) years
and one (1) day from the date of grant thereof or such other term as may
be provided in the Stock Option Agreement.

 

7.3  Terms for Holders of More than 10%. In the
case of an Option granted to an Optionee who, at the time the Option is
granted, owns stock representing more than ten percent (10%) of the voting
power of all classes of stock of the Company or any Parent or Subsidiary, (a) if
the Option is an Incentive Stock Option, the term of the Option shall be five (5) years
from the date of grant thereof or such shorter time as may be provided in the
Stock Option Agreement, or (b) if the Option is a Nonqualified Stock
Option, the term of the Option shall be five (5) years and one (1) day
from the date of grant thereof or such other term as may be provided in the
Stock Option Agreement.

 

8.             Exercise/Purchase
Price and Consideration.

 

8.1  Exercise/Purchase Price. The per-Share
exercise/purchase price for the Shares to be issued pursuant to exercise of an
Option or a Sale (other than a Sale which is a grant for which no purchase
price is payable) shall be such price as is determined by the Board, but shall
be subject to the requirements of this Section.

 

8.2  ISO Price.

 

8.2.1  ISO Price to Holders of
more than 10%. In the case of an Incentive Stock Option granted to an Employee
who, at the time of the grant of such Incentive Stock Option, owns stock
representing more than ten percent (10%) of the voting power of all classes of
stock of the Company or any Parent or Subsidiary, the per

 

6

 

Share exercise
price shall be no less than one hundred ten percent (110%) of the fair market
value per Share on the date of the grant.

 

8.2.2  ISO Price to Holders of
10% or Less. In the case of an Incentive Stock Option granted to any other
Employee, the per Share exercise price shall be no less than one hundred
percent (100%) of the fair market value per Share on the date of grant.

 

8.3  Nonqualified Option and Sale Price.

 

8.3.1  Nonqualified Price to
Holders of More than 10%. In the case of a Nonqualified Stock Option or Sale
granted or Sold to a person who, at the time of the grant of such Option or
authorization of such Sale, owns stock representing more than ten percent (10%)
of the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise/purchase price shall be no less than one
hundred ten percent (110%) of the fair market value per Share on the date of
the grant or authorization of Sale, unless otherwise expressly determined by
the Board of Directors.

 

8.3.2  Nonqualified Price to
Holders of 10% or Less. In the case of a Nonqualified Stock Option or Sale
granted or Sold to any other person, the per Share exercise/purchase price
shall be no less than eighty-five percent (85%) of the fair market value per
Share on the date of grant or authorization of Sale, unless otherwise expressly
determined by the Board of Directors.

 

8.3.3  Requirement for Below
Market Options and Sales. Any determination to sell stock at less than fair
market value on the date of the grant or authorization of Sale shall be
accompanied by an express finding by the Board of Directors specifying that the
sale is in the best interest of the Company, and specifying both the fair
market value and the grant or sale price of the stock.

 

8.4  Sales After Registration. In the case of an
Option granted or Sale authorized on or after the effective date of
registration of any class of equity security of the Company pursuant to Section 12
of the Exchange Act and prior to six (6) months after the termination of
such registration, the per Share exercise/purchase price shall be no less than
one hundred percent (100%) of the fair market value per Share on the date of
grant or authorization of Sale.

 

8.5  Fair Market Value. The fair market value per
Share shall be determined by the Board in its discretion; provided, however,
that where there is a public market for the Common Stock, the fair market value
per Share shall be the closing price of the Common Stock for the date of grant
or authorization of Sale, as reported in The Wall Street Journal (or, if
not so reported, as otherwise reported by the National Association of
Securities Dealers Automated Quotation (NASDAQ) System) or, in the event the
Common Stock is listed on a stock exchange, the fair market value per Share
shall be the closing price on such exchange on the date of grant of the Option
or authorization of Sale, as reported in The Wall Street Journal.

 

8.6  Consideration. The consideration to be paid
for the Shares to be issued upon exercise of an Option or pursuant to a Sale,
including the method of payment, shall be determined by the Board and may
consist in whole or part of:

 

7

 

8.6.1  Cash, Check, Note.  Cash, Check, or Promissory Note.

 

8.6.2  Transferred or Withheld
Shares. Transfer to the Company of Shares having a Fair Market Value at the
time of such exercise equal to the Option exercise price, or delivery of
instructions to the Company to withhold from the Shares that would otherwise be
issued on the exercise that number of Shares having a Fair Market Value at the
time of such exercise equal to the Option exercise price. If the Fair Market
Value of the number of whole Shares transferred or the number of whole Shares
surrendered is less than the total exercise price of the Option, the shortfall
must be made up in cash or by check.

 

9.             Time of Granting
Options. The date of grant of an Option shall, for all purposes, be the date on
which the Board makes the determination granting such Option. Notice of the
determination shall be given to each Employee or Consultant to whom an Option
is so granted within a reasonable time after the date of such grant.

 

10.           Option Agreement.
Options shall be evidenced by written option agreements in such form as the
Board shall approve.

 

11.           Nontransferability of
Options. An Option may not be sold, pledged, assigned, hypothecated,
transferred or disposed of in any manner other than by will, or by the laws of
descent and distribution, and may be exercised during the lifetime of the
Optionee only by the Optionee or, if incapacitated, by his or her legal
guardian or legal representative.

 

12.           Exercise of Option.

 

12.1 When
Exercisable. Any Option granted hereunder shall be exercisable at such times
and under such conditions as determined by the Board, including performance
criteria with respect to the Company and/or the Optionee, and as shall be
permissible under the terms of the Plan.

 

12.2 No
Fractional Shares. An Option may not be exercised for a fraction of a Share.

 

12.3 How
Exercised. An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Board, consist of any
consideration and method of payment allowable under Section of the Plan.

 

12.3.1  Deposits for Withholding
Taxes. Each Optionee who exercises an Option shall, upon notification of the
amount due (if any) and prior to or concurrent with delivery of the certificate
representing the Shares, pay to the Company amounts necessary to satisfy
applicable federal, state and local tax withholding requirements.

 

12.3.2  Shareholder Agreements.
An Optionee must also provide a duly  
executed copy of any stock transfer agreement then in effect and determined to
be applicable by the Board.

 

8

 

12.4 No
Shareholder Rights or Adjustments Until Issuance. Until the issuance (as
evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company) of the stock certificate evidencing
such Shares, no right to vote or receive dividends or any other rights as a
stockholder shall exist with respect to the Optioned Stock, notwithstanding the
exercise of the Option. No adjustment will be made for a dividend or other
right for which the record date is prior to the date the stock certificate is
issued, except as provided in Section of the Plan.

 

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

 

12.6
Termination of Status as an Employee or Consultant. If an Employee or Consultant
ceases to serve as an Employee or Consultant (as the case may be), he may, but
only within three (3) months (or such other period of time not exceeding
the limitations of Section above as is determined by the Board at the time
of grant of an Option or thereafter) after the date he ceases to be an Employee
or Consultant (as the case may be) of the Company, exercise his Option to the
extent that he was entitled to exercise it at the date of such termination. To
the extent that he was not entitled to exercise the Option at the date of such
termination, or if he does not exercise such Option (which he was entitled to
exercise) within the time specified herein, the Option shall terminate.

 

12.7 Disability
of Optionee. Notwithstanding the provisions of Section above, in the event
an Employee or Consultant is unable to continue his employment or consulting
relationship (as the case may be) with the Company as a result of his total and
permanent disability (as defined in Section 22(e)(3) of the Code), he
may, but only within twelve (12) months (or such other period of time not
exceeding the limitations of Section above as is determined by the Board
at the time of grant of an Option or thereafter) from the date of termination,
exercise his Option to the extent he was entitled to exercise it at the date of
such termination. To the extent that he was not entitled to exercise the Option
at the date of termination, or if he does not exercise such Option (which he
was entitled to exercise) within the time specified herein, the Option shall
terminate.

 

12.8 Death of
Optionee. In the event of the death of an Optionee during the term of the
Option who is at the time of his death an Employee or Consultant of the Company
and who shall have been in Continuous Status as an Employee or Consultant since
the date of grant of the Option, the Option may be exercised, at any time
within twelve (12) months (or such other period of time not exceeding the
limitations of Section above as is determined by the Board at the time of
grant of an Option or thereafter) following the date of death, by the Optionee’s
estate or by a person who acquired the right to exercise the Option by bequest
or inheritance, but only to the extent of the right to exercise as of the date
of death.

 

13.           Adjustments
Upon Changes in Capitalization or Merger.

 

13.1 Stock
Splits and the Like. Subject to any required action by the stockholders of the
Company, the number of shares of Common Stock covered by each outstanding
Option and the number of shares of Common Stock which have been authorized for
issuance under the Plan

 

9

 

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

 

13.2
Termination on Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Option will terminate immediately
prior to the consummation of such proposed action, unless otherwise provided by
the Board. The Board may, in the exercise of its sole discretion in such
instances, declare that any Option shall terminate as of a date fixed by the
Board and give each Optionee the right to exercise his Option as to all or any
part of the Optioned Stock, including Shares as to which the Option would not
otherwise be exercisable.

 

13.3
Substitution or Exercise on Sale or Merger. In the event of a proposed sale of
all or substantially all of the assets of the Company, or the merger of the
Company with or into another corporation, the Option shall be assumed or an equivalent
option shall be substituted by such successor corporation or a parent or
subsidiary of such successor corporation, unless the Board determines, in the exercise
of its sole discretion and in lieu of such assumption or substitution, that the
Optionee shall have the right to exercise the Option as to all of the Optioned
Stock, including Shares as to which the Option would not otherwise be exercisable.
If the Board makes an Option fully exercisable in lieu of assumption or
substitution in the event of a merger or sale of assets, the Board shall notify
the Optionee that the Option shall be fully exercisable for a period of thirty
(30) days from the date of such notice or such shorter period as the Board may
specify in the notice, and the Option will terminate upon the expiration of
such period.

 

14.           Amendment
and Termination of the Plan.

 

14.1 Amendment
and Termination. The Board may amend or terminate the Plan from time to time in
such respects as the Board may deem advisable; provided, however, that if
required to qualify the Plan under Rule 16b-3 promulgated under Section 16
of the Securities Exchange Act of 1934, as amended (“Rule 16b-3”), no amendment
shall be made more than once every six months that would change the amount,
price or timing of the option grants, other than to comport with changes in the
Code, or the rules and regulations promulgated thereunder; and provided, further,
that, if required to qualify the Plan under Rule 16b-3, no amendment shall
be made without the approval of the stockholders of the Company in the manner
described in Section of the Plan and within the times required by Section 422
of the Code (if any), if the amendment would:

 

10

 

14.1.1  Increase Shares. Increase
the number of Shares subject to the Plan, other than in connection with an
adjustment under Section 13 of the Plan;

 

14.1.2  Change Class of
Employee or Consultant Eligible. Make a change in the designation of the class
of Employees or Consultants eligible to be granted Options; or

 

14.1.3  Increase Benefits After
Registration. If the Company has a class of equity security registered under Section 12
of the Exchange Act at the time of such revision or amendment, cause any
material increase in the benefits accruing to participants under the Plan.

 

14.2
Stockholder Approval. If any amendment requiring stockholder approval under Section of
the Plan is made subsequent to the first registration of any class of equity
security by the Company under Section 12 of the Exchange Act, such
stockholder approval shall be solicited as described in Section of the Plan.

 

14.3 Effect of
Amendment or Termination. Any such amendment or termination of the Plan shall
not affect Options already granted, and such Options shall remain in full force
and effect as if this Plan had not been amended or terminated, unless mutually
agreed otherwise between the Optionee and the Board, which agreement must be in
writing and signed by the Optionee and the Company.

 

15.  Conditions Upon Issuance of Shares.

 

15.1 General
Compliance Requirement. Shares shall not be issued pursuant to the exercise of
an Option or a Sale unless the exercise of such Option or consummation of the
Sale and the issuance and delivery of such Shares pursuant thereto shall comply
with all relevant provisions of law, including, without limitation, the
Securities Act of 1933, as amended, applicable state securities laws, the
Exchange Act, the rules and regulations promulgated thereunder, and the
requirements of any stock exchange (including NASDAQ) upon which the Shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.

 

15.2
Investment Intent Warranty. As a condition to the exercise of an Option or a
Sale, the Company may require the person exercising such Option or to whom
Shares are being Sold to represent and warrant at the time of any such exercise
or Sale that the Shares are being purchased only for investment and without any
present intention to sell or distribute such Shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned relevant provisions of law.

 

16.
Stockholder Approval. Continuance of the Plan shall be subject to approval by
the stockholders of the Company within twelve months before or after the date
the Plan is adopted. If such stockholder approval is obtained at a duly held
stockholders’ meeting, it may be obtained by the affirmative vote of the holders
of a majority of the outstanding shares of the Company, such holders being
present or represented and entitled to vote thereon. If and in the event that
the Company registers any class of any equity security pursuant to Section 12
of the Exchange Act, the approval of such stockholders of the Company shall be
obtained as follows:

 

11

 

16.1
Solicitation. Approval shall be solicited substantially in accordance with Section 14(a) of
the Exchange Act and the rules and regulations promulgated thereunder, or
solicited after the Company has furnished in writing to the holders entitled to
vote substantially the same information concerning the Plan as that which would
be required by the rules and regulations in effect under Section 14(a) of
the Exchange Act at the time such information is furnished.

 

16.2 Time.
Approval shall be obtained at or prior to the first annual meeting of
stockholders held subsequent to the first registration of any class of equity
securities of the Company under Section 12 of the Exchange Act.

 

16.3 If by
Written Consent: Compliance with State Law. If such stockholder approval is
obtained by written consent, it must be obtained by the written consent of
stockholders of the Company in compliance with the requirements of applicable
state law.

 

17.  Six Month Holding Period for Affiliates. If
the Company registers any class of any equity security pursuant to Section 12
of the Exchange Act, then from the effective date of such registration until
six (6) months after the termination of such registration (the Public
Period), these limits will apply to each officer, director and beneficial owner
of ten percent (10%) or more of any class of equity securities of the Company
(Affiliates.) During the Public Period, any Affiliate shall hold Shares Sold
hereunder at least six months from the date of Sale. During the Public Period,
at least six months must elapse from the date of grant of an Option to an
Affiliate to the date the Affiliate disposes of the Shares acquired upon
exercise of the Option, or (if the Option is disposed of other than by
exercise) to the date of disposition of the Option itself.

 

12

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