Document:

exv10w3

 

Exhibit 10.3

ARCSIGHT, INC.

STOCK OPTION GRANT AND AGREEMENT

          I. NOTICE OF GRANT

          ArcSight, Inc., a Delaware corporation (the “Company”), hereby grants an Option to purchase
Shares to the Participant named below. The terms and conditions of the Option are set forth in this
cover sheet and in the attachment (together, the “Agreement”) and in the Plan. To the extent the
terms and conditions set forth on this cover sheet or the attachment differ in any way from the
terms set forth in the Plan, the terms of the Plan shall govern. Unless otherwise defined in this
Agreement, the terms defined in the ArcSight, Inc. 2000 Stock Incentive Plan shall have the same
defined meanings in this Agreement.

          Participant:

          Date of Grant:

          Total Number of Shares Granted:

          Exercise Price per Share:

          Exercise Date:                                         Immediately Exercisable

          Vesting Schedule:

          Vesting Commencement Date:

          Type of Option:

          Expiration Date:

          By signing this cover sheet, you agree to all of the terms and conditions described in the
attached Agreement and in the Plan, a copy of which is also enclosed.

	 	 	 	 	 	 	 
	PARTICIPANT

	 	 	 	ARCSIGHT, INC.
	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	Signature

	 	 	 	By	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	Print Name

	 	 	 	Title	 	 

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          II.
AGREEMENT

          1. Grant of Option. The Board hereby grants to Participant an Option to purchase the
number of Shares set forth in the Notice of Grant, at the Exercise Price set forth in the Notice of
Grant, and subject to the terms and conditions of the Plan, which is incorporated herein by
reference.

          2. Exercise Prior To Vesting. You may elect at any time prior to termination of your
Option to exercise all or part of your Option; provided, however, that a partial
exercise of your Option shall be deemed to cover first Vested Shares and then the earliest vesting
installment of Unvested Shares.

          3. Vesting of Shares. Shares acquired pursuant to the exercise of an Option under the
Plan shall vest (and thus become “Vested Shares”) in accordance with the Vesting Schedule set forth
in the Notice of Grant; provided that Participant’s Service continues.

          4. Exercise of Option.

               (a) The Option shall be exercisable by delivery of an exercise notice in the form attached as
Exhibit A (the “Exercise Notice”) which shall state the election to exercise the Option,
the number of Shares with respect to which the Option is being exercised, and such other
representations and agreements as may be required by the Company. The Exercise Notice shall be
accompanied by payment of the aggregate Exercise Price as to all Shares with respect to which the
Option is being exercised. The Option shall be deemed to be exercised upon receipt by the Company
of such fully executed Exercise Notice accompanied by the aggregate Exercise Price.

               (b) No Shares shall be issued pursuant to the exercise of an Option unless such issuance and
such exercise comply with applicable laws. Upon the Company’s determination that an Option has
been validly exercised, the Company shall issue or cause to be issued as promptly as practicable
certificates in the Participant’s name for such Shares, and delivered to either the Participant,
or, if applicable, the Secretary of the Company as escrowholder. However, the Company shall not be
liable to the Participant for damages relating to any delays in issuing the certificates or in the
certificates themselves. For income tax purposes the Shares shall be considered transferred to the
Participant on the date on which the Option is exercised with respect to such Shares.

          5. Method of Payment. Payment of the aggregate Exercise Price shall be by any of the
following, or a combination thereof, at the election of the Participant, and with the approval of
the Board:

               (a) cash or check;

               (b) a promissory note with such recourse, interest, security, and redemption provisions as the
Board in its discretion determines as appropriate;

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

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

          6. Section 83(b) Election. If the Participant exercises an Option to purchase
Unvested Shares, the Participant understands that he or she should consult with his or her tax
advisor regarding the advisability of filing with the Internal Revenue Service an election under
Code §83(b), which must be filed no later than thirty (30) days after the date on which the
Participant exercises the Option.

          7. Share Repurchase Rights.

               (a) Unvested Shares. Shares that are acquired pursuant to the exercise of an Option
under the Plan and that have not vested as described in Section 3 (“Unvested Shares”) may be
repurchased by the Company at the lesser of: (1) the original exercise price, or (2) the Shares’
Fair Market Value on the date of repurchase if the Participant’s Service is terminated for any
reason or no reason, with or without Cause, or if the Participant or other holder of Shares
attempts to sell, exchange, transfer, pledge, or otherwise dispose of the Shares. The Company may
assign any Unvested Share repurchase right it may have, whether or not then exercisable, to
person(s) as may be selected by the Company. The Company may exercise its Unvested Share
repurchase right by written notice to Participant within sixty (60) days after the Participant’s
termination date (or exercise of the Option, if later). If the Company fails to give notice within
such sixty (60) day period, the repurchase option shall terminate unless the parties have extended
the time for its exercise. The repurchase right must be exercised for all Unvested Shares, unless
the parties agree otherwise. Cash payment must be made by the Company by the thirtieth (30th) day
after the date of the written notice to Participant of the exercise of the repurchase right.

               (b) Vested Shares. Vested Shares may be repurchased by the Company at the Shares’
Fair Market Value if the Participant’s Service is terminated for any reason or no reason, with or
without Cause. The Company may exercise its Vested Share repurchase right in the same manner and at
the same time as its Unvested Share repurchase right; provided that, this Vested Share repurchase
right (i) must be exercised for all Vested Shares, if at all, and (ii) is exercisable without
regard to whether the Unvested Share repurchase right is exercised. The Company may assign any
Vested Share repurchase right it may have, whether or not then exercisable, to person(s) as may be
selected by the Company.

               (c) Termination of Share Repurchase Rights. The Share repurchase rights with respect
to Vested Shares shall terminate upon the first sale of common stock of the Company to the general
public pursuant to a registration statement filed with and declared effective by the Securities and
Exchange Commission under the Securities Act of 1933, as amended.

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          8. Termination of Service.

               (a) In the event that the Participant’s Service is terminated by the Company for Cause, any
unexercised portion of the Option (whether vested or unvested) shall be deemed canceled and
forfeited in its entirety on the Participant’s termination date.

               (b) In the event that the Participant’s Service is terminated by the Participant voluntarily
or by the Company without Cause, the unexercised portion of the Option, if any, as of the
termination date shall remain exercisable for a period of thirty (30) days following the
termination date, and shall thereafter be deemed canceled and forfeited.

               (c) In the event that the Participant’s Service is terminated by reason of death, Disability
or retirement on or after age 65, unless otherwise provided by the Board at the time of such
termination, the unexercised portion of the Option shall remain exercisable for the lesser of a
period of one year following the termination date or until the expiration date, and shall
thereafter be deemed canceled and forfeited.

          9. Company’s Right of First Refusal. Before any Shares (vested or unvested) held by
the Participant may be sold or otherwise transferred (including transfer by gift or operation of
law), the Company shall have a right of first refusal to purchase the Shares on the terms and
conditions set forth in this Section 9.

               (a) Notice of Proposed Transfer. The Participant shall deliver to the Company a
written notice stating: (i) the Participant’s bona fide intention to sell or otherwise transfer
such Shares; (ii) the name of each proposed purchaser or other
transferee (“Proposed Transferee”);
(iii) the number of Shares to be transferred to each Proposed Transferee; (iv) the bona fide cash
price or other consideration for which the Participant proposes to transfer the Shares, or, in the
event of a transfer by gift or operation of law, the Fair Market
Value of Shares (the “Offered
Price”); and (v) an offer of the Shares at the Offered Price to the Company.

               (b) Exercise of Right of First Refusal. Within thirty (30) days after receipt of the
written notice from the Participant, the Company may elect in writing to purchase all (but not less
than all) of the Shares proposed to be transferred, at the Offered Price. The Company shall pay the
Offered Price in cash (by check), by cancellation of all or a portion of any outstanding
indebtedness of the Participant to the Company or by any combination elected by the Company, within
thirty (30) days after receipt of the written notice from the Participant.

               (c) Participant’s Right to Transfer. If the Company does not purchase all of the
Shares, then the Participant may sell or otherwise transfer such Shares to the Proposed Transferee
at the Offered Price or at a higher price, provided that such sale or other transfer is consummated
within 120 days after the delivery of the written notice of subsection (a) above, that any such
sale or other transfer is effected in accordance with any applicable securities laws and that the
Proposed Transferee agrees in writing that the provisions of this Section shall continue to apply
to the Shares in the hands of such Proposed Transferee. If the Shares are not transferred to the
Proposed Transferee within such period, the Company and/or its assignees shall again be offered the
right of first refusal before any Shares held by the Participant may be sold or otherwise
transferred.

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               (d) Exception for Certain Family Transfers. Anything to the contrary contained in
this Section notwithstanding, the transfer of any or all of the Shares during the Participant’s
lifetime or on his or her death by will or intestacy to the Participant’s immediate family or a
trust for the benefit of the Participant’s immediate family shall be exempt from the provisions of
this Section. “Immediate Family” as used herein shall mean spouse, lineal descendant or antecedent,
father, mother, brother or sister. In such case, the transferee or other recipient shall receive
and hold the Shares so transferred subject to the provisions of this Section, and there shall be no
further transfer of such Shares except in accordance with the terms of this Section.

               (e) Termination of Right of First Refusal. The right of first refusal shall terminate
as to any Shares upon the first sale of common stock of the Company to the general public pursuant
to a registration statement filed with and declared effective by the Securities and Exchange
Commission under the Securities Act of 1933, as amended.

          10. Participant’s Representations. In the event the Shares have not been registered
under the Securities Act of 1933, as amended, at the time the Option is exercised, the Participant
shall, if required by the Company, concurrently with the exercise of any Option, deliver to the
Company his or her Investment Representation Statement in the form attached hereto as Exhibit
B.

          11. Lock-Up Period. Participant hereby agrees that, if so requested by the Company or
any representative of the underwriters (the “Managing Underwriter”) in connection with any
registration of the offering of any securities of the Company under the Securities Act, Participant
shall not sell or otherwise transfer any Shares or other securities of the Company during the
180-day period (or such other period as may be requested in writing by the Managing Underwriter and
agreed to in writing by the Company) (the “Market Standoff Period”) following the effective date of
a registration statement of the Company filed under the Securities Act. Such restriction shall
apply only to the first registration statement of the Company to become effective under the
Securities Act that includes securities to be sold on behalf of the Company to the public in an
underwritten public offering under the Securities Act. The Company may impose stop-transfer
instructions with respect to securities subject to the foregoing restrictions until the end of such
Market Standoff Period.

          12. Restrictions on Exercise. An Option may not be exercised if the issuance of such
Shares upon such exercise or the method of payment of consideration for such shares would
constitute a violation of any applicable law.

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

          14. Cancellation and Rescission Provision. A Participant shall neither render
services for any organization or business that is or becomes competitive with the Company, nor
engage directly or indirectly in any organization or business which is or becomes otherwise

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prejudicial to or in conflict with the interests of the Company, as determined by the Board.
If a Participant fails to comply with the previous sentence prior to or during a six-month period
after any exercise of an Option, the exercise shall be cancelled and rescinded. The Board shall
notify the Participant in writing of any such cancellation and rescission within two years after
such exercise. Within ten days after receiving such notice from the Board, the Participant shall
pay to the Company the amount of any gain realized or payment received as a result of the cancelled
and rescinded exercise of the Option.

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

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

          17. No Guarantee of Continued Service. PARTICIPANT ACKNOWLEDGES AND AGREES THAT THE
VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY CONTINUING TO PROVIDE
SERVICE AT THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION
OR ACQUIRING SHARES HEREUNDER). PARTICIPANT FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT,
THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE
AN EXPRESS OR IMPLIED PROMISE OF CONTINUED SERVICE FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT
ALL, AND SHALL NOT INTERFERE IN ANY WAY WITH PARTICIPANTS RIGHT OR THE COMPANY’S RIGHT TO TERMINATE
PARTICIPANT’S SERVICE AT ANY TIME, WITH OR WITHOUT CAUSE.

     Participant acknowledges receipt of a copy of the Plan and represents that he or she is
familiar with the terms and provisions thereof, and hereby accepts the Option subject to all of the
terms and provisions thereof. Participant has reviewed the Plan and this Agreement in their
entirety, has had an opportunity to obtain the advice of counsel prior to executing this Agreement
and fully understands all provisions of the Agreement. Participant hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the Administrator upon any
questions arising under the Plan or this Agreement. Participant further agrees to notify the
Company upon any change in the residence address.

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EXHIBIT A

ARCSIGHT, INC.

2000 STOCK INCENTIVE PLAN

EXERCISE NOTICE

Attention: ArcSight, Inc.

     1. Exercise. Effective as of today, ___, 2001, I hereby elect to exercise
my Option to purchase ___Shares of the common stock of ArcSight, Inc. under and pursuant to
the 2000 Stock Incentive Plan and the Agreement dated
           ,
2001 (the “Agreement”).

     2. Delivery of Payment. I hereby deliver to the Company the full Exercise Price of
the Shares, as set forth in the Agreement.

     3. Representations of Participant. I acknowledge that I have received, read and
understand the Plan and the Agreement and agree to abide by and be bound by their terms and
conditions.

     4. Transfer of Unvested Shares upon Repurchase; Escrow. I hereby appoint the
Secretary of the Company as my attorney-in-fact to sell, assign and transfer unto the Company such
Unvested Shares, if any, repurchased by the Company pursuant to the repurchase right and shall,
upon execution of this Agreement, deliver and deposit with the Secretary of the Company the share
certificates representing the Unvested Shares. The Unvested Shares shall be held by the Secretary
in escrow until the Company exercises its repurchase right, until all of the Shares acquired upon
exercise of the Option are vested, or until such time this Agreement no longer is in effect. Upon
vesting of the Unvested Shares pursuant to the vesting schedule set forth in Section 3 of the
Option Agreement, the escrow agent shall promptly deliver to me the certificate or certificates
representing such Shares in the escrow agent’s possession belonging to me.

     5. Rights as Shareholder. Until the issuance of Shares (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer agent of tile
Company), I have no right to vote or receive dividends or any other rights as a shareholder with
respect to the Vested Shares, notwithstanding the exercise of the Option. The Vested Shares shall
be issued to me as soon as practicable after the Option is exercised. No adjustment shall be made
for a dividend or other right for which the record date is prior to the date of issuance.

     6. Tax Consultation. I understand that I may suffer adverse tax consequences as a
result of my purchase or disposition of the Shares. I represent that I have consulted with any tax
consultants I deem advisable in connection with the purchase or disposition of the Shares and that
I am not relying on the Company for any tax advice.

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     7. Restrictive Legends and Stop-Transfer Orders.

               (a) Legends. I understand and agree that the Company shall cause the legends set forth below
or legends substantially equivalent thereto, to be placed upon any certificate(s) evidencing
ownership of the Shares together with any other legends that may be required by the Company or by
state or federal securities laws:

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE “ACT”) AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER THE ACT OR, IN THE OPINION OF COMPANY COUNSEL
SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR
TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.

THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER AND A RIGHT OF FIRST REFUSAL HELD BY THE
ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN THE OPTION AGREEMENT
BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY
OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH
TRANSFER RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE BINDING ON
TRANSFEREES OF THESE SHARES.

               (b) Stop-Transfer Notices. I agree that, in order to ensure compliance with the
restrictions referred to herein, the Company may issue appropriate “stop transfer” instructions to
its transfer agent, if any, and that, if the Company transfers its own securities, it may make
appropriate notations to the same effect in its own records.

               (c) Refusal to Transfer. The Company shall not be required (i) to transfer on its
books any Shares that have been sold or otherwise transferred in violation of any of the provisions
of this Exercise Notice or (ii) to treat as owner of such Shares or to accord the right to vote or
pay dividends to any purchaser or other transferee to whom such Shares shall have been so
transferred.

     8. Successors and Assigns. The Company may assign any of its rights under this
Exercise Notice to single or multiple assignees, and this Exercise Notice shall inure to the
benefit of the successors and assigns of the Company. Subject to the
restrictions on transfer
herein set forth, this Exercise Notice shall be binding upon me and my heirs, executors,
administrators, successors and assigns.

     9. Interpretation. Any dispute regarding the interpretation of this Exercise Notice
shall be submitted by me or by the Company forthwith to the Administrator which shall review

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such dispute at its next regular meeting. The resolution of such a dispute by the
Administrator shall be final and binding on all parties.

     10. Governing Law: Severability. This Exercise Notice is governed by the internal
substantive laws, but not the choice of law rules, of California.

     11. Entire Agreement. The Plan and Agreement are incorporated herein by reference.
This Exercise Notice, the Plan, the Agreement and the Investment Representation Statement
constitute the entire agreement of the parties with respect to the subject matter hereof and
supersede in their entirety all prior undertakings and agreements of the Company and me with
respect to the subject matter hereof, and may not be modified adversely to my interest except by
means of a writing signed by the Company and me.

	 	 	 	 	 	 	 
	Submitted by:

	 	 	 	Accepted by:
	 	 
	 
	 	 	 	 	 	 
	PARTICIPANT

	 	 	 	ARCSIGHT, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	Signature

	 	 	 	By	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	Print Name

	 	 	 	Title	 	 
	 
	 	 	 	 	 	 
	Address:

	 	 	 	Address:	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Date Received	 	 

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EXHIBIT
B

INVESTMENT REPRESENTATION STATEMENT

	 	 	 
	PARTICIPANT:
	 	 
	 	 	 
	COMPANY:

	 	ARCSIGHT, INC.
	 	 	 
	SECURITY:

	 	COMMON STOCK
	 	 	 
	AMOUNT:
	 	 
	 	 	 
	DATE:
	 	 

     In connection with the purchase of the above-listed Securities, the undersigned Participant
represents to the Company the following:

     (a) Participant is aware of the Company’s business affairs and financial condition and has
acquired sufficient information about the Company to reach an informed and knowledgeable decision
to acquire the Securities. Participant is acquiring these Securities for investment for
Participant’s own account only and not with a view to, or for resale in connection with, any
“distribution” thereof within the meaning of the Securities Act of 1933, as amended (the
“Securities Act”).

     (b) Participant acknowledges and understands that the Securities constitute “restricted
securities” under the Securities Act and have not been registered under the Securities Act in
reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the
bona fide nature of Participant’s investment intent as expressed herein. In this connection,
Participant understands that, in the view of the Securities and Exchange Commission, the statutory
basis for such exemption may be unavailable if Participant’s representation was predicated solely
upon a present intention to hold these Securities for the minimum capital gains period specified
under tax statutes, for a deferred sale, for or until an increase or decrease in the market price
of the Securities, or for a period of one year or any other fixed period in the future. Participant
further understands that the Securities must be held indefinitely unless they are subsequently
registered under the Securities Act or an exemption from such registration is available.
Participant further acknowledges and understands that the Company is under no obligation to
register the Securities. Participant understands that the certificate evidencing the Securities
will be imprinted with a legend which prohibits the transfer of the Securities unless they are
registered or such registration is not required in the opinion of counsel satisfactory to the
Company, and any other legend required under applicable state securities laws.

     (c) Participant is familiar with the provisions of Rule 701 and Rule 144, each promulgated
under the Securities Act, which, in substance, permit limited public resale of “restricted
securities” acquired, directly or indirectly from the issuer thereof, in a non—public offering
subject to the satisfaction of certain conditions. Rule 701 provides that if the issuer qualifies
under Rule 701 at the time of the grant of the Option to the Participant, the exercise will be
exempt from registration under the Securities Act. In the event the Company becomes subject to the
reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, ninety (90)
days thereafter (or such longer period as any market stand-off agreement may

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require) the Securities exempt under Rule 701 may be resold, subject to the satisfaction of
certain of the conditions specified by Rule 144, including: (1) the resale being made through a
broker in an unsolicited “broker’s transaction” or in transactions directly with a market maker (as
said term is defined under the Securities Exchange Act of 1934); and, in the case of an affiliate,
(2) the availability of certain public information about the Company; (3) the amount of Securities
being sold during any three month period not exceeding the limitations specified in Rule 144(e);
and (4) the timely filing of a Form 144, if applicable.

     In the event that the Company does not qualify under Rule 701 at the time of grant of the
Option, then the Securities may be resold in certain limited circumstances subject to the
provisions of Rule 144, which requires the resale to occur not less than one year after the later
of the date the Securities were sold by the Company or the date the Securities were sold by an
affiliate of the Company, within the meaning of Rule 144; and, in the case of acquisition of the
Securities by an affiliate, or by a non-affiliate who subsequently holds the Securities less than
two years, the satisfaction of the conditions set forth in sections (1), (2), (3) and (4) of the
paragraph immediately above.

     (d) Participant further understands that in the event all of the applicable requirements of
Rule 701 or 144 are not satisfied, registration under the Securities Act, compliance with
Regulation A, or some other registration exemption will be required; and that, notwithstanding the
fact that Rules 144 and 701 are not exclusive, the Staff of the Securities and Exchange Commission
has expressed its opinion that persons proposing to sell private placement securities other than in
a registered offering and otherwise than pursuant to Rules 144 or 701 will have a substantial
burden of proof in establishing that an exemption from registration is available for such offers or
sales, and that such persons and their respective brokers who participate in such transactions do
so at their own risk. Participant understands that no assurances can be given that any such other
registration exemption will be available in such event.

	 	 	 	 	 
	 

	 	Signature of Participant:	 	 
	 
	 	 	 	 
	 

	 	 

Date:                                         , 2001
	 	 

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WAHOO TECHNOLOGIES, INC.

STOCK OPTION GRANT AND AGREEMENT

     I. NOTICE OF GRANT

     Wahoo Technologies, Inc., a Delaware corporation (the “Company”), hereby grants an Option to purchase
Shares to the Participant named below. The terms and conditions of the Option are set forth in
this cover sheet and in the attachment (together, the “Agreement”) and in the Plan. To the extent
the terms and conditions set forth on this cover sheet or the attachment differ in any way from the
terms set forth in the Plan, the terms of the Plan shall govern. Unless otherwise defined in this
Agreement, the terms defined in the Wahoo Technologies, Inc. 2000 Stock Incentive Plan shall have the same
defined meanings in this Agreement.

          Participant:

          Date of Grant:

          Total Number of Shares Granted:

          Exercise Price per Share:

          Exercise Date:                                         Immediately Exercisable

          Vesting Schedule:

          Vesting Commencement Date:

          Type of Option:

          Expiration Date:

     By signing this cover sheet, you agree to all of the terms and conditions described in the
attached Agreement and in the Plan, a copy of which is also enclosed.

	 	 	 	 	 	 	 
	PARTICIPANT

	 	 	 	WAHOO TECHNOLOGIES, INC.
	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	Signature

	 	 	 	By	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	Print Name

	 	 	 	Title	 	 

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     II. AGREEMENT

          1. Grant of Option. The Board hereby grants to Participant an Option to purchase the
number of Shares set forth in the Notice of Grant, at the Exercise Price set forth in the Notice of
Grant, and subject to the terms and conditions of the Plan, which is incorporated herein by
reference.

          2. Exercise Prior To Vesting. You may elect at any time prior to termination of your
Option to exercise all or part of your Option; provided, however, that a partial exercise of your
Option shall be deemed to cover first Vested Shares and then the earliest vesting installment of
Unvested Shares.

          3. Vesting of Shares. Shares acquired pursuant to the exercise of an Option under the
Plan shall vest (and thus become “Vested Shares”) in accordance with the Vesting Schedule set forth
in the Notice of Grant; provided that Participant’s Service continues. Upon the occurrence of a
Change of Control prior to the first anniversary of the Vesting Commencement Date, the Vesting
Schedule set forth in the Notice of Grant shall not apply and, instead, Shares acquired pursuant to
the exercise of an Option under the Plan shall vest at the rate of 1/48 of the total Shares per
month from the Vesting Commencement Date.

          4. Exercise of Option.

               (a) The Option shall be exercisable by delivery of an exercise notice in the form attached as
Exhibit A (the “Exercise Notice”) which shall state the election to exercise the Option, the number
of Shares with respect to which the Option is being exercised, and such other representations and
agreements as may be required by the Company. The Exercise Notice shall be accompanied by payment
of the aggregate Exercise Price as to all Shares with respect to which the Option is being
exercised. The Option shall be deemed to be exercised upon receipt by the Company of such fully
executed Exercise Notice accompanied by the aggregate Exercise Price.

               (b) No Shares shall be issued pursuant to the exercise of an Option unless such issuance and
such exercise comply with applicable laws. Upon the Company’s determination that an Option has been
validly exercised, the Company shall issue or cause to be issued as promptly as practicable
certificates in the Participant’s name for such Shares, and delivered to either the Participant,
or, if applicable, the Secretary of the Company as escrowholder. However, the Company shall not be
liable to the Participant for damages relating to any delays in issuing the certificates or in the
certificates themselves. For income tax purposes the Shares shall be considered transferred to the
Participant on the date on which the Option is exercised with respect to such Shares.

          5. Method of Payment. Payment of the aggregate Exercise Price shall be by any of the
following, or a combination thereof, at the election of the Participant, and with the approval of
the Board:

               (a) cash or check;

2

 

               (b) a promissory note with such recourse, interest, security, and redemption provisions as the
Board in its discretion determines as appropriate;

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

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

          6. Section 83(b) Election. If the Participant exercises an Option to purchase
Unvested Shares, the Participant understands that he or she should consult with his or her tax
advisor regarding the advisability of filing with the Internal Revenue Service an election under
Code §83(b), which must be filed no later than thirty (30) days after the date on which the
Participant exercises the Option.

          7. Share Repurchase Rights.

               (a) Unvested Shares. Shares that are acquired pursuant to the exercise of an Option
under the Plan and that have not vested as described in Section 3 (“Unvested Shares”) may be
repurchased by the Company at the lesser of: (1) the original exercise price, or (2) the Shares’
Fair Market Value on the date of repurchase if the Participant’s Service is terminated for any
reason or no reason, with or without Cause, or if the Participant or other holder of Shares
attempts to sell, exchange, transfer, pledge, or otherwise dispose of the Shares. The Company may
assign any Unvested Share repurchase right it may have, whether or not then exercisable, to
person(s) as may be selected by the Company. The Company may exercise its Unvested Share repurchase
right by written notice to Participant within sixty (60) days after the Participant’s termination
date (or exercise of the Option, if later). If the Company fails to give notice within such sixty
(60) day period, the repurchase option shall terminate unless the parties have extended the time
for its exercise. The repurchase right must be exercised for all Unvested Shares, unless the
parties agree otherwise. Cash payment must be made by the Company by the thirtieth (30th) day after
the date of the written notice to Participant of the exercise of the repurchase right.

               (b) Vested Shares. Vested Shares may be repurchased by the Company at the Shares’
Fair Market Value if the Participant’s Service is terminated for any reason or no reason, with or
without Cause. The Company may exercise its Vested Share repurchase right in the same manner and at
the same time as its Unvested Share repurchase right; provided that, this Vested Share repurchase
right (i) must be exercised for all Vested Shares, if at all, and (ii) is exercisable without
regard to whether the Unvested Share repurchase right is exercised. The Company may assign any
Vested Share repurchase right it may have, whether or not then exercisable, to person(s) as may be
selected by the Company.

               (c) Termination of Share Repurchase Rights. The Share repurchase rights with respect
to Vested Shares shall terminate upon an IPO.

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          8. Termination of Service.

               (a) In the event that the Participant’s Service is terminated by the Company for Cause, any
unexercised portion of the Option (whether vested or unvested) shall be deemed canceled and
forfeited in its entirety on the Participant’s termination date.

               (b) In the event that the Participant’s Service is terminated by the Participant voluntarily
or by the Company without Cause, the unexercised portion of the Option, if any, as of the
termination date shall remain exercisable for a period of thirty (30) days following the
termination date, and shall thereafter be deemed canceled and forfeited.

               (c) In the event that the Participant’s Service is terminated by reason of death, Disability
or retirement on or after age 65, unless otherwise provided by the Board at the time of such
termination, the unexercised portion of the Option shall remain exercisable for the lesser of a
period of one year following the termination date or until the expiration date, and shall
thereafter be deemed canceled and forfeited.

          9. Company’s Right of First Refusal. Before any Shares (vested or unvested) held by
the Participant may be sold or otherwise transferred (including transfer by gift or operation of
law), the Company shall have a right of first refusal to purchase the Shares on the terms and
conditions set forth in this Section 9.

               (a) Notice of Proposed Transfer. The Participant shall deliver to the Company a
written notice stating: (i) the Participant’s bona fide intention to sell or otherwise transfer
such Shares; (ii) the name of each proposed purchaser or other
transferee (“Proposed Transferee”);
(iii) the number of Shares to be transferred to each Proposed Transferee; (iv) the bona fide cash
price or other consideration for which the Participant proposes to transfer the Shares, or, in the
event of a transfer by gift or operation of law, the Fair Market
Value of Shares (the “Offered
Price”); and (v) an offer of the Shares at the Offered Price to the Company.

               (b) Exercise of Right of First Refusal. Within thirty (30) days after receipt of the
written notice from the Participant, the Company may elect in writing to purchase all (but not less
than all) of the Shares proposed to be transferred, at the Offered Price. The Company shall pay the
Offered Price in cash (by check), by cancellation of all or a portion of any outstanding
indebtedness of the Participant to the Company or by any combination elected by the Company, within
thirty (30) days after receipt of the written notice from the Participant.

               (c) Participant’s Right to Transfer. If the Company does not purchase all of the
Shares, then the Participant may sell or otherwise transfer such Shares to the Proposed Transferee
at the Offered Price or at a higher price, provided that such sale or other transfer is consummated
within 120 days after the delivery of the written notice of subsection (a) above, that any such
sale or other transfer is effected in accordance with any applicable securities laws and that the
Proposed Transferee agrees in writing that the provisions of this Section shall continue to apply
to the Shares in the hands of such Proposed Transferee. If the Shares are not transferred to the
Proposed Transferee within such period, the Company and/or its assignees shall again be offered the
right of first refusal before any Shares held by the Participant may be sold or otherwise
transferred.

4

 

               (d) Exception for Certain Family Transfers. Anything to the contrary contained in
this Section notwithstanding, the transfer of any or all of the Shares during the Participant’s
lifetime or on his or her death by will or intestacy to the Participant’s immediate family or a
trust for the benefit of the Participant’s immediate family shall be exempt from the provisions of
this Section. “Immediate Family” as used herein shall mean spouse, lineal descendant or antecedent,
father, mother, brother or sister. In such case, the transferee or other recipient shall receive
and hold the Shares so transferred subject to the provisions of this Section, and there shall be no
further transfer of such Shares except in accordance with the terms of this Section.

               (e) Termination of Right of First Refusal. The right of first refusal shall terminate
as to any Shares upon an IPO.

          10. Participant’s Representations. In the event the Shares have not been registered
under the Securities Act of 1933, as amended, at the time the Option is exercised, the Participant
shall, if required by the Company, concurrently with the exercise of any Option, deliver to the
Company his or her Investment Representation Statement in the form
attached hereto as Exhibit B.

          11. Lock-Up Period. Participant hereby agrees that, if so requested by the Company or
any representative of the underwriters (the “Managing Underwriter”) in connection with any
registration of the offering of any securities of the Company under the Securities Act, Participant
shall not sell or otherwise transfer any Shares or other securities of the Company during the
180-day period (or such other period as may be requested in writing by the Managing Underwriter and
agreed to in writing by the Company) (the “Market Standoff Period”) following the effective date of
a registration statement of the Company filed under the Securities Act. Such restriction shall
apply only to the first registration statement of the Company to become effective under the
Securities Act that includes securities to be sold on behalf of the Company to the public in an
underwritten public offering under the Securities Act. The Company may impose stop-transfer
instructions with respect to securities subject to the foregoing restrictions until the end of such
Market Standoff Period.

          12. Restrictions on Exercise. An Option may not be exercised if the issuance of such
Shares upon such exercise or the method of payment of consideration for such shares would
constitute a violation of any applicable law.

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

          14. Cancellation and Rescission Provision. A Participant shall neither render
services for any organization or business that is or becomes competitive with the Company, nor
engage directly or indirectly in any organization or business which is or becomes otherwise
prejudicial to or in conflict with the interests of the Company, as determined by the Board. If a
Participant fails to comply with the previous sentence prior to or during a six-month period after

5

 

any exercise of an Option, the exercise shall be cancelled and rescinded. The Board shall
notify the Participant in writing of any such cancellation and rescission within two years after
such exercise. Within ten days after receiving such notice from the Board, the Participant shall
pay to the Company the amount of any gain realized or payment received as a result of the cancelled
and rescinded exercise of the Option.

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

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

          17. No Guarantee of Continued Service. PARTICIPANT ACKNOWLEDGES AND AGREES THAT THE
VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY CONTINUING TO PROVIDE
SERVICE AT THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION
OR ACQUIRING SHARES HEREUNDER). PARTICIPANT FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT,
THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE
AN EXPRESS OR IMPLIED PROMISE OF CONTINUED SERVICE FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT
ALL, AND SHALL NOT INTERFERE IN ANY WAY WITH PARTICIPANT’S RIGHT OR THE COMPANY’S RIGHT TO
TERMINATE PARTICIPANT’S SERVICE AT ANY TIME, WITH OR WITHOUT CAUSE.

               Participant acknowledges receipt of a copy of the Plan and represents that he or she is
familiar with the terms and provisions thereof, and hereby accepts the Option subject to all of the
terms and provisions thereof. Participant has reviewed the Plan and this Agreement in their
entirety, has had an opportunity to obtain the advice of counsel prior to executing this Agreement
and fully understands all provisions of the Agreement. Participant hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the Administrator upon any
questions arising under the Plan or this Agreement. Participant further agrees too notify the
Company upon any change in the residence address.

6

 

EXHIBIT A

WAHOO TECHNOLOGIES, INC.

2000 STOCK INCENTIVE PLAN

EXERCISE NOTICE

Attention: Wahoo Technologies, Inc.

     1. Exercise. Effective as of today,___, 20___, I hereby elect to exercise
my Option to purchase ___Shares of the common stock of Wahoo Technologies, Inc. under and pursuant to
the 2000 Stock Incentive Plan and the Agreement dated ___(the “Agreement”).

     2. Delivery of Payment. I hereby deliver to the Company the full Exercise Price of
the Shares, as set forth in the Agreement.

     3. Representations of Participant. I acknowledge that I have received, read and
understand the Plan and the Agreement and agree to abide by and be bound by their terms and
conditions.

     4. Transfer of Unvested Shares upon Repurchase; Escrow. I hereby appoint the
Secretary of the Company as my attorney-in-fact to sell, assign and transfer unto the Company such
Unvested Shares, if any, repurchased by the Company pursuant to the repurchase right and shall,
upon execution of this Agreement, deliver and deposit with the Secretary of the Company the share
certificates representing the Unvested Shares. The Unvested Shares shall be held by the Secretary
in escrow until the Company exercises its repurchase right, until all of the Shares acquired upon
exercise of the Option are vested, or until such time this Agreement no longer is in effect. Upon
vesting of the Unvested Shares pursuant to the vesting schedule set forth in Section 3 of the
Option Agreement, the escrow agent shall promptly deliver to me the certificate or certificates
representing such Shares in the escrow agent’s possession belonging to me.

     5. Rights as Shareholder. Until the issuance of Shares (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer agent of the
Company), I have no right to vote or receive dividends or any other rights as a shareholder with
respect to the Vested Shares, notwithstanding the exercise of the Option. The Vested Shares shall
be issued to me as soon as practicable after the Option is exercised. No adjustment shall be made
for a dividend or other right for which the record date is prior to the date of issuance.

     6. Tax Consultation. I understand that I may suffer adverse tax consequences as a
result of my purchase or disposition of the Shares. I represent that I have consulted with any tax
consultants I deem advisable in connection with the purchase or disposition of the Shares and that
I am not relying on the Company for any tax advice.

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     7. Restrictive Legends and Stop-Transfer Orders.

               (a) Legends. I understand and agree that the Company shall cause the legends set
forth below or legends substantially equivalent thereto, to be placed upon any certificate(s)
evidencing ownership of the Shares together with any other legends that may be required by the
Company or by state or federal securities laws:

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE “ACT”) AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER THE ACT OR, IN THE OPINION OF COMPANY COUNSEL
SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR
TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.

THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER AND A RIGHT OF FIRST REFUSAL HELD BY THE
ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN THE OPTION AGREEMENT
BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY
OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH
TRANSFER RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE BINDING ON
TRANSFEREES OF THESE SHARES.

               (b) Stop-Transfer Notices. I agree that, in order to ensure compliance with the
restrictions referred to herein, the Company may issue appropriate “stop transfer” instructions to
its transfer agent, if any, and that, if the Company transfers its own securities, it may make
appropriate notations to the same effect in its own records.

               (c) Refusal to Transfer. The Company shall not be required (i) to transfer on its
books any Shares that have been sold or otherwise transferred in violation of any of the provisions
of this Exercise Notice or (ii) to treat as owner of such Shares or to accord the right to vote or
pay dividends to any purchaser or other transferee to whom such Shares shall have been so
transferred.

     8. Successors and Assigns. The Company may assign any of its rights under this
Exercise Notice to single or multiple assignees, and this Exercise Notice shall inure to the
benefit of the successors and assigns of the Company. Subject to the restrictions on transfer
herein set forth, this Exercise Notice shall be binding upon me and my heirs, executors,
administrators, successors and assigns.

     9. Interpretation. Any dispute regarding the interpretation of this Exercise Notice
shall be submitted by me or by the Company forthwith to the Administrator which shall review

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such dispute at its next regular meeting. The resolution of such a dispute by the
Administrator shall be final and binding on all parties.

     10. Governing Law; Severability. This Exercise Notice is governed by the internal
substantive laws, but not the choice of law rules, of California.

     11. Entire Agreement. The Plan and Agreement are incorporated herein by reference.
This Exercise Notice, the Plan, the Agreement and the Investment Representation Statement
constitute the entire agreement of the parties with respect to the subject matter hereof and
supersede in their entirety all prior undertakings and agreements of the Company and me with
respect to the subject matter hereof, and may not be modified adversely to my interest except by
means of a writing signed by the Company and me.

	 	 	 	 	 	 	 
	Submitted by:

	 	 	 	Accepted by:
	 	 
	 
	 	 	 	 	 	 
	PARTICIPANT

	 	 	 	WAHOO TECHNOLOGIES, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	Signature

	 	 	 	By	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	Print Name

	 	 	 	Title	 	 
	 
	 	 	 	 	 	 
	Address:

	 	 	 	Address:	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Date Received	 	 

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EXHIBIT B

INVESTMENT REPRESENTATION STATEMENT

	 	 	 
	PARTICIPANT:
	 	 
	 
	 	 
	COMPANY:

	 	WAHOO TECHNOLOGIES, INC.
	 
	 	 
	SECURITY:

	 	COMMON STOCK
	 
	 	 
	AMOUNT:

	 	 
	 
	 	 
	DATE:
	 	 

     In connection with the purchase of the above-listed Securities, the undersigned Participant
represents to the Company the following:

     (a) Participant is aware of the Company’s business affairs and financial condition and has
acquired sufficient information about the Company to reach an informed and knowledgeable decision
to acquire the Securities. Participant is acquiring these Securities for investment for
Participant’s own account only and not with a view to, or for resale in connection with, any
“distribution” thereof within the meaning of the Securities Act of 1933, as amended (the
“Securities Act”).

     (b) Participant acknowledges and understands that the Securities constitute “restricted
securities” under the Securities Act and have not been registered under the Securities Act in
reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the
bona fide nature of Participant’s investment intent as expressed herein. In this connection,
Participant understands that, in the view of the Securities and Exchange Commission, the statutory
basis for such exemption may be unavailable if Participant’s representation was predicated solely
upon a present intention to hold these Securities for the minimum capital gains period specified
under tax statutes, for a deferred sale, for or until an increase or decrease in the market price
of the Securities, or for a period of one year or any other fixed period in the future. Participant
further understands that the Securities must be held indefinitely unless they are subsequently
registered under the Securities Act or an exemption from such registration is available.
Participant further acknowledges and understands that the Company is under no obligation to
register the Securities. Participant understands that the certificate evidencing the Securities
will be imprinted with a legend which prohibits the transfer of the Securities unless they are
registered or such registration is not required in the opinion of counsel satisfactory to the
Company, and any other legend required under applicable state securities laws.

     (c) Participant is familiar with the provisions of Rule 701 and Rule 144, each promulgated
under the Securities Act, which, in substance, permit limited public resale of “restricted
securities” acquired, directly or indirectly from the issuer thereof, in a non public offering
subject to the satisfaction of certain conditions. Rule 701 provides that if the issuer qualifies
under Rule 701 at the time of the grant of the Option to the Participant, the exercise will be
exempt from registration under the Securities Act. In the event the Company becomes subject

1

 

to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
ninety (90) days thereafter (or such longer period as any market stand-off agreement may require)
the Securities exempt under Rule 701 may be resold, subject to the satisfaction of certain of the
conditions specified by Rule 144, including: (1) the resale being made through a broker in an
unsolicited “broker’s transaction” or in transactions directly with a market maker (as said term is
defined under the Securities Exchange Act of 1934); and, in the case of an affiliate, (2) the
availability of certain public information about the Company; (3) the amount of Securities being
sold during any three month period not exceeding the limitations specified in Rule 144(e); and (4)
the timely filing of a Form 144, if applicable.

     In the event that the Company does not qualify under Rule 701 at the time of grant of the
Option, then the Securities may be resold in certain limited circumstances subject to the
provisions of Rule 144, which requires the resale to occur not less than one year after the later
of the date the Securities were sold by the Company or the date the Securities were sold by an
affiliate of the Company, within the meaning of Rule 144; and, in the case of acquisition of the
Securities by an affiliate, or by a non-affiliate who subsequently holds the Securities less than
two years, the satisfaction of the conditions set forth in sections (1), (2), (3) and (4) of the
paragraph immediately above.

     (d) Participant further understands that in the event all of the applicable requirements of
Rule 701 or 144 are not satisfied, registration under the Securities Act, compliance with
Regulation A, or some other registration exemption will be required; and that, notwithstanding the
fact that Rules 144 and 701 are not exclusive, the Staff of the Securities and Exchange Commission
has expressed its opinion that persons proposing to sell private placement securities other than in
a registered offering and otherwise than pursuant to Rules 144 or 701 will have a substantial
burden of proof in establishing that an exemption from registration is available for such offers or
sales, and that such persons and their respective brokers who participate in such transactions do
so at their own risk. Participant understands that no assurances can be given that any such other
registration exemption will be available in such event.

	 	 	 	 	 
	 

	 	Signature of Participant.	 	 
	 
	 	 	 	 
	 

	 	 

	 	 
	 

	 	Date:                                         , 20___	 	 

2

 

ARCSIGHT, INC.

STOCK OPTION GRANT AND AGREEMENT

     I. NOTICE OF GRANT

     ArcSight,
Inc., a Delaware corporation (the “Company”), hereby grants an Option to Purchase
Shares to the Participant named below. The terms and conditions of the Option are set forth in this
cover sheet and in the attachment (together, the “Agreement”) and in the Plan. To the extent the
terms and conditions set forth on this cover sheet or the attachment differ in any way from the
terms set forth in the Plan, the terms of the Plan shall govern. Unless otherwise defined in this
Agreement, the terms defined in the ArcSight, Inc. 2000 Stock Incentive Plan shall have the same
defined meanings in this Agreement.

     Participant:

     Date of Grant:

     Total Number of Shares Granted:

     Exercise Price per Share:

     Exercise Date:                                         Immediately Exercisable

     Vesting Schedule:

     Vesting Commencement Date:

     Type of Option:

     Expiration Date:

     By signing this cover sheet, you agree to all of the terms and conditions described in the
attached Agreement and in the Plan, a copy of which is also enclosed.

	 	 	 	 	 
	PARTICIPANT

	 	ARCSIGHT, INC.
	 	 
	 
	 	 	 	 
	 

	 	 	 	 
	Signature

	 	By	 	 
	 
	 	 	 	 
	 

	 	 	 	 
	Print Name

	 	Title	 	 

1

 

     II. AGREEMENT

          1. Grant of Option. The Board hereby grants to Participant an Option to purchase the
number of Shares set forth in the Notice of Grant, at the Exercise Price set forth in the Notice of
Grant, and subject to the terms and conditions of the Plan, which is incorporated herein by
reference.

          2. Exercise Prior To Vesting. You may elect at any time prior to termination of your
Option to exercise all or part of your Option; provided, however, that a partial exercise of your
Option shall be deemed to cover first Vested Shares and then the earliest vesting installment of
Unvested Shares.

          3. Vesting of Shares. Shares acquired pursuant to the exercise of an Option under the
Plan shall vest (and thus become “Vested Shares”) in accordance with the Vesting Schedule set forth
in the Notice of Grant; provided that Participant’s Service continues. Upon the occurrence of a
Change of Control, Participant’s Vesting Commencement Date shall be adjusted so that the adjusted
Vesting Commencement Date is one year prior to the original Vesting Commencement Date.

          4. Exercise of Option.

               (a) The Option shall be exercisable by delivery of an exercise notice in the form attached as
Exhibit A (the “Exercise Notice”) which shall state the election to exercise the Option, the number
of Shares with respect to which the Option is being exercised, and such other representations and
agreements as may be required by the Company. The Exercise Notice shall be accompanied by payment
of the aggregate Exercise Price as to all Shares with respect to which the Option is being
exercised. The Option shall be deemed to be exercised upon receipt by the Company of such fully
executed Exercise Notice accompanied by the aggregate Exercise Price.

               (b) No Shares shall be issued pursuant to the exercise of an Option unless such issuance and
such exercise comply with applicable laws. Upon the Company’s determination that an Option has been
validly exercised, the Company shall issue or cause to be issued as promptly as practicable
certificates in the Participant’s name for such Shares, and delivered to either the Participant,
or, if applicable, the Secretary of the Company as escrowholder. However, the Company shall not be
liable to the Participant for damages relating to any delays in issuing the certificates or in the
certificates themselves. For income tax purposes the Shares shall be considered transferred to the
Participant on the date on which the Option is exercised with respect to such Shares.

          5. Method of Payment. Payment of the aggregate Exercise Price shall be by any of the
following, or a combination thereof, at the election of the Participant, and with the approval of
the Board:

               (a) cash or check;

               (b) a promissory note with such recourse, interest, security, and redemption provisions as the
Board in its discretion determines as appropriate;

1

 

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

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

          6. Section 83(b) Election. If the Participant exercises an Option to purchase Unvested
Shares, the Participant understands that he or she should consult with his or her tax advisor
regarding the advisability of filing with the Internal Revenue Service an election under Code
§83(b), which must be filed no later than thirty (30) days after the date on which the Participant
exercises the Option.

          7. Share Repurchase Rights.

               (a) Unvested Shares. Shares that are acquired pursuant to the exercise of an Option
under the Plan and that have not vested as described in
Section 3 (“Unvested Shares”) may be
repurchased by the Company at the lesser of: (1) the original exercise price, or (2) the Shares’
Fair Market Value on the date of repurchase if the Participant’s Service is terminated for any
reason or no reason, with or without Cause, or if the Participant or other holder of Shares
attempts to sell, exchange, transfer, pledge, or otherwise dispose of the Shares. The Company may
assign any Unvested Share repurchase right it may have, whether or not then exercisable, to
person(s) as may be selected by the Company. The Company may exercise its Unvested Share repurchase
right by written notice to Participant within sixty (60) days after the Participant’s termination
date (or exercise of the Option, if later). If the Company fails to give notice within such sixty
(60) day period, the repurchase option shall terminate unless the parties have extended the time
for its exercise. The repurchase right must be exercised for all Unvested Shares, unless the
parties agree otherwise. Cash payment must be made by the Company by the thirtieth (30th) day after
the date of the written notice to Participant of the exercise of the repurchase right.

               (b) Vested Shares. Vested Shares may be repurchased by the Company at the Shares’ Fair
Market Value if the Participant’s Service is terminated for any reason or no reason, with or
without Cause. The Company may exercise its Vested Share repurchase right in the same manner and at
the same time as its Unvested Share repurchase right; provided that, this Vested Share repurchase
right (i) must be exercised for all Vested Shares, if at all, and (ii) is exercisable without
regard to whether the Unvested Share repurchase right is exercised. The Company may assign any
Vested Share repurchase right it may have, whether or not then exercisable, to person(s) as may be
selected by the Company.

               (c) Termination of Share Repurchase Rights. The Share repurchase rights with respect
to Vested Shares shall terminate upon an IPO.

          8.
Termination of Service.

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               (a) In the event that the Participant’s Service is terminated by the Company for Cause, any
unexercised portion of the Option (whether vested or unvested) shall be seemed canceled and
forfeited in its entirety on the Participant’s termination date.

               (b) In the event that the Participant’s Service is terminated by the Participant voluntarily
or by the Company without Cause, the unexercised portion of the
Option, if any, as of the
termination date shall remain exercisable for a period of thirty
(30) days following the
termination date, and shall thereafter be deemed canceled and forfeited.

               (c) In the event that the Participant’s Service is terminated by reason of death, Disability
or retirement on or after age 65, unless otherwise provided by the
Board at the time of such
termination, the unexercised portion of the Option shall remain exercisable for the lesser of a
period of one year following the termination date or until the expiration date, and shall
thereafter be deemed canceled and forfeited.

          9.
Company’s Right of First Refusal. Before any Shares
(vested or unvested) held by
the Participant may be sold or otherwise transferred (including transfer by gift or operation of
law), the Company shall have a right of first refusal to purchase the Shares on the terms and
conditions set forth in this Section 9.

               (a) Notice
of Proposed Transfer. The Participant shall deliver to the Company a
written notice stating: (i) the Participant’s bona fide intention to sell or otherwise transfer
such Shares; (ii) the name of each proposed purchaser or other
transferee (“Proposed transferee”);
(iii) the number of Shares to be transferred to each Proposed Transferee; (iv) the bona fide cash
price or other consideration for which the Participant proposes to transfer the Shares, or, in the
event of a transfer by gift or operation of law, the Fair Market
Value of Shares (the “Offered
Price”); and (v) an offer of the Shares at the Offered Price to the Company.

               (b) Exercise of Right of First Refusal. Within thirty (30) days after receipt of the
written notice from the Participant, the Company may elect in writing
to purchase all (but not less
than all) of the Shares proposed to be transferred, at the Offered
Price. The Company shall pay the
Offered Price in cash (by check), by cancellation of all or a portion of any outstanding
indebtedness of the Participant to the Company or by any combination elected by the Company, within
thirty (30) days after receipt of the written notice from the Participant.

               (c) Participant’s
Right to Transfer. If the Company does not purchase all of the
Shares, then the Participant may sell or otherwise transfer such Shares to the Proposed Transferee
at the Offered Price or at a higher price, provided that such sale or
other transfer is consummated
within 120 days after the delivery of the written notice of subsection (a) above, that any such
sale or other transfer is effected in accordance with any applicable securities laws and that the
Proposed Transferee agrees in writing that the provisions of this Section shall continue to apply
to the Shares in the hands of such Proposed Transferee. If the Shares are not transferred to the
Proposed Transferee within such period, the Company and/or its assignees shall again be offered the
right of first refusal before any Shares held by the Participant may be sold or otherwise
transferred.

3

 

               (d) Exception for Certain Family Transfers. Anything to the contrary contained in this
Section notwithstanding, the transfer of any or all of the Shares during the Participant’s lifetime
or on his or her death by will or intestacy to the Participant’s immediate family or a trust for
the benefit of the Participant’s immediate family shall be exempt from the provisions of this
Section. “Immediate Family” as used herein shall mean spouse, lineal descendant or antecedent,
father, mother, brother or sister. In such case, the transferee or other recipient shall receive
and hold the Shares so transferred subject to the provisions of this Section, and there shall be no
further transfer of such Shares except in accordance with the terms of this Section.

               (e) Termination of Right of First Refusal. The right of first refusal shall terminate
as to any Shares upon an IPO.

          10. Participant’s Representations. In the event the Shares have not been registered
under the Securities Act of 1933, as amended, at the time the Option is exercised, the Participant
shall, if required by the Company, concurrently with the exercise of any Option, deliver to the
Company his or her Investment Representation Statement in the form
attached hereto as Exhibit B.

          11. Lock-Up Period. Participant hereby agrees that, if so requested by the Company or
any representative of the underwriters (the “Managing Underwriter”) in connection with any
registration of the offering of any securities of the Company under the Securities Act, Participant
shall not sell or otherwise transfer any Shares or other securities of the Company during the
180-day period (or such other period as may be requested in writing by the Managing Underwriter and
agreed to in writing by the Company) (the “Market Standoff Period”) following the effective date of
a registration statement of the Company filed under the Securities Act. Such restriction shall
apply only to the first registration statement of the Company to become effective under the
Securities Act that includes securities to be sold on behalf of the Company to the public in an
underwritten public offering under the Securities Act. The Company may impose stop-transfer
instructions with respect to securities subject to the foregoing restrictions until the end of such
Market Standoff Period.

          12. Restrictions on Exercise. An Option may not be exercised if the issuance of such
Shares upon such exercise or the method of payment of consideration for such shares would
constitute a violation of any applicable law.

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

          14. Cancellation and Rescission Provision. A Participant shall neither render services
for any organization or business that is or becomes competitive with the Company, nor engage
directly or indirectly in any organization or business which is or becomes otherwise prejudicial to
or in conflict with the interests of the Company, as determined by the Board. If a Participant
fails to comply with the previous sentence prior to or during a six-month period after

4

 

any exercise of an Option, the exercise shall be cancelled and rescinded. The Board shall
notify the Participant in writing of any such cancellation and rescission within two years after
such exercise. Within ten days after receiving such notice from the Board, the Participant shall
pay to the Company the amount of any gain realized or payment received as a result of the cancelled
and rescinded exercise of the Option.

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

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

          17. No Guarantee of Continued Service. PARTICIPANT ACKNOWLEDGES AND AGREES THAT THE
VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY CONTINUING TO PROVIDE
SERVICE AT THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION
OR ACQUIRING SHARES HEREUNDER). PARTICIPANT FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT,
THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE
AN EXPRESS OR IMPLIED PROMISE OF CONTINUED SERVICE FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT
ALL, AND SHALL NOT INTERFERE IN ANY WAY WITH PARTICIPANTS RIGHT OR THE COMPANY’S RIGHT TO TERMINATE
PARTICIPANTS SERVICE AT ANY TIME, WITH OR WITHOUT CAUSE.

               Participant acknowledges receipt of a copy of the Plan and represents that he or she is
familiar with the terms and provisions thereof, and hereby accepts the Option subject to all of the
terms and provisions thereof. Participant has reviewed the Plan and this Agreement in their
entirety, has had an opportunity to obtain the advice of counsel prior to executing this Agreement
and fully understands all provisions of the Agreement. Participant hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the Administrator upon any
questions arising under the Plan or this Agreement. Participant further agrees to notify the
Company upon any change in the residence address.

5

 

EXHIBIT
A

ARCSIGHT, INC.

2000 STOCK INCENTIVE PLAN

EXERCISE NOTICE

     Attention: ArcSight, Inc.

          1. Exercise. Effective as of today,                     , 2001, I hereby elect to exercise my Option to
purchase                     Shares of the common stock of ArcSight, Inc. under and pursuant to the 2000 Stock
Incentive Plan and the Agreement dated
                    
(the “Agreement”).

          2. Delivery of Payment. I hereby deliver to the Company the full Exercise Price of the
Shares, as set forth in the Agreement.

          3. Representations of Participant. I acknowledge that I have received, read and
understand the Plan and the Agreement and agree to abide by and be bound by their terms and
conditions.

          4. Transfer of Unvested Shares upon Repurchase: Escrow. I hereby appoint the Secretary
of the Company as my attorney-in-fact to sell, assign and transfer unto the Company such Unvested
Shares, if any, repurchased by the Company pursuant to the repurchase right and shall, upon
execution of this Agreement, deliver and deposit with the Secretary of the Company the share
certificates representing the Unvested Shares. The Unvested Shares shall be held by the Secretary
in escrow until the Company exercises its repurchase right, until all of the Shares acquired upon
exercise of the Option are vested, or until such time this Agreement no longer is in effect. Upon
vesting of the Unvested Shares pursuant to the vesting schedule set forth in Section 3 of the
Option Agreement, the escrow agent shall promptly deliver to me the certificate or certificates
representing such Shares in the escrow agent’s possession belonging to me.

          5. Rights as Shareholder. Until the issuance of Shares (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer agent of the
Company), I have no right to vote or receive dividends or any other rights as a shareholder with
respect to the Vested Shares, notwithstanding the exercise of the Option. The Vested Shares shall
be issued to me as soon as practicable after the Option is exercised. No adjustment shall be made
for a dividend or other right for which the record date is prior to the date of issuance.

          6. Tax Consultation. I understand that I may suffer adverse tax consequences as a
result of my purchase or disposition of the Shares. I represent that I have consulted with any

1

 

tax consultants I deem advisable in connection with the purchase or disposition of the Shares
and that I am not relying on the Company for any tax advice.

          7. Restrictive Legends and Stop-Transfer Orders.

               (a) Legends. I understand and agree that the Company shall cause the legends set forth
below or legends substantially equivalent thereto, to be placed upon any certificate(s)
evidencing ownership of the Shares together with any other legends that may be required by the
Company or by state or federal securities laws:

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE “ACT”) AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER THE ACT OR, IN THE OPINION OF COMPANY COUNSEL
SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR
TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.

THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER AND A RIGHT OF FIRST REFUSAL HELD BY THE
ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN THE OPTION AGREEMENT
BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY
OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH
TRANSFER RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE BINDING ON
TRANSFEREES OF THESE SHARES.

               (b) Stop-Transfer Notices. I agree that, in order to ensure compliance with the
restrictions referred to herein, the Company may issue appropriate “stop transfer” instructions to
its transfer agent, if any, and that, if the Company transfers its own securities, it may make
appropriate notations to the same effect in its own records.

               (c) Refusal to Transfer. The Company shall not be required (i) to transfer on its
books any Shares that have been sold or otherwise transferred in violation of any of the provisions
of this Exercise Notice or (ii) to treat as owner of such Shares or to accord the right to vote or
pay dividends to any purchaser or other transferee to whom such Shares shall have been so
transferred.

          8. Successors and Assigns. The Company may assign any of its rights under this
Exercise Notice to single or multiple assignees, and this Exercise Notice shall inure to the
benefit of the successors and assigns of the Company. Subject to the
restrictions on transfer
herein set forth, this Exercise Notice shall be binding upon me and my heirs, executors,
administrators, successors and assigns.

2

 

          9. Interpretation. Any dispute regarding the interpretation of this Exercise Notice
shall be submitted by me or by the Company forthwith to the Administrator which shall review such
dispute at its next regular meeting. The resolution of such a dispute by the Administrator shall be
final and binding on all parties.

          10. Governing Law; Severability. This Exercise Notice is governed by the internal
substantive laws, but not the choice of law rules, of California.

          11. Entire Agreement. The Plan and Agreement are incorporated herein by reference.
This Exercise Notice, the Plan, the Agreement and the Investment Representation Statement
constitute the entire agreement of the parties with respect to the subject matter hereof and
supersede in their entirety all prior undertakings and agreements of the Company and me with
respect to the subject matter hereof, and may not be modified adversely to my interest except by
means of a writing signed by the Company and me.

	 	 	 	 	 	 	 
	Submitted by:

	 	 	 	Accepted by:
	 	 
	 
	 	 	 	 	 	 
	PARTICIPANT

	 	 	 	ARCSIGHT, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	Signature

	 	 	 	By	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	Print Name

	 	 	 	Title	 	 
	 
	 	 	 	 	 	 
	Address:

	 	 	 	Address:	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Date Received	 	 

3

 

EXHIBIT
B

INVESTMENT REPRESENTATION STATEMENT

     PARTICIPANT:

     COMPANY:                                ARCSIGHT, INC.

     SECURITY:                                COMMON STOCK

     AMOUNT:

     DATE:

     In connection with the purchase of the above-listed Securities, the undersigned Participant
represents to the Company the following:

               (a) Participant is aware of the Company’s business affairs and financial condition and has
acquired sufficient information about the Company to reach an informed and knowledgeable decision
to acquire the Securities. Participant is acquiring these Securities for investment for
Participant’s own account only and not with a view to, or for resale in connection with, any
“distribution” thereof within the meaning of the Securities Act of 1933, as amended (the
“Securities Act”).

               (b) Participant acknowledges and understands that the Securities constitute “restricted
securities” under the Securities Act and have not been registered under the Securities Act in
reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the
bona fide nature of Participant’s investment intent as expressed herein. In this connection,
Participant understands that, in the view of the Securities and Exchange Commission, the statutory
basis for such exemption may be unavailable if Participant’s representation was predicated solely
upon a present intention to hold these Securities for the minimum capital gains period specified
under tax statutes, for a deferred sale, for or until an increase or decrease in the market price
of the Securities, or for a period of one year or any other fixed period in the future. Participant
further understands that the Securities must be held indefinitely unless they are subsequently
registered under the Securities Act or an exemption from such registration is available.
Participant further acknowledges and understands that the Company is under no obligation to
register the Securities. Participant understands that the certificate evidencing the Securities
will be imprinted with a legend which prohibits the transfer of the Securities unless they are
registered or such registration is not required in the opinion of counsel satisfactory to the
Company, and any other legend required under applicable state securities laws.

               (c) Participant is familiar with the provisions of Rule 701 and Rule 144, each promulgated
under the Securities Act, which, in substance, permit limited public resale

1

 

of “restricted securities” acquired, directly or indirectly from the issuer thereof, in a
non-public offering subject to the satisfaction of certain conditions. Rule 701 provides that if
the issuer qualifies under Rule 701 at the time of the grant of the Option to the Participant, the
exercise will be exempt from registration under the Securities Act. In the event the Company
becomes subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act
of 1934, ninety (90) days thereafter (or such longer period as any market stand-off agreement may
require) the Securities exempt under Rule 701 may be resold, subject to the satisfaction of certain
of the conditions specified by Rule 144, including: (1) the resale being made through a broker in
an unsolicited “broker’s transaction” or in transactions directly with a market maker (as said term
is defined under the Securities Exchange Act of 1934); and, in the case of an affiliate, (2) the
availability of certain public information about the Company; (3) the amount of Securities being
sold during any three month period not exceeding the limitations specified in Rule 144(e); and (4)
the timely filing of a Form 144, if applicable.

     In the event that the Company does not qualify under Rule 701 at the time of grant of the
Option, then the Securities may be resold in certain limited circumstances subject to the
provisions of Rule 144, which requires the resale to occur not less than one year after the later
of the date the Securities were sold by the Company or the date the Securities were sold by an
affiliate of the Company, within the meaning of Rule 144; and, in the case of acquisition of the
Securities by an affiliate, or by a non-affiliate who subsequently holds the Securities less than
two years, the satisfaction of the conditions set forth in sections (1), (2), (3) and (4) of the
paragraph immediately above.

               (d) Participant further understands that in the event all of the applicable requirements of
Rule 701 or 144 are not satisfied, registration under the Securities Act, compliance with
Regulation A, or some other registration exemption will be required; and that, notwithstanding the
fact that Rules 144 and 701 are not exclusive, the Staff of the Securities and Exchange Commission
has expressed its opinion that persons proposing to sell private placement securities other than in
a registered offering and otherwise than pursuant to Rules 144 or 701 will have a substantial
burden of proof in establishing that an exemption from registration is available for such offers or
sales, and that such persons and their respective brokers who participate in such transactions do
so at their own risk. Participant understands that no assurances can be given that any such other
registration exemption will be available in such event.

	 	 	 	 	 
	 

	 	Signature of Participant:	 	 
	 
	 	 	 	 
	 

	 	 

	 	 
	 

	 	Date:                                         , 20___	 	 

2exv10w4

 

Exhibit 10.4

ArcSight, Inc.

2002 Stock Plan

(Adopted on March 29, 2002)

 (as Amended and Restated through January 24, 2007)

 

 

TABLE OF
CONTENTS

	 	 	 	 	 
	 	 	Page No.
	SECTION 1. ESTABLISHMENT AND PURPOSE
	 	 	1	 
	 
	 	 	 	 
	SECTION 2. ADMINISTRATION
	 	 	1	 
	 
	 	 	 	 
	(a) Committees of the Board of Directors
	 	 	1	 
	(b) Authority of the Board of Directors
	 	 	1	 
	 
	 	 	 	 
	SECTION 3. ELIGIBILITY
	 	 	1	 
	 
	 	 	 	 
	(a) General Rule
	 	 	1	 
	(b) Ten-Percent Stockholders
	 	 	1	 
	 
	 	 	 	 
	SECTION 4. STOCK SUBJECT TO PLAN
	 	 	2	 
	 
	 	 	 	 
	(a) Basic Limitation
	 	 	2	 
	(b) Additional Shares
	 	 	2	 
	 
	 	 	 	 
	SECTION 5. TERMS AND CONDITIONS OF AWARDS OR SALES
	 	 	2	 
	 
	 	 	 	 
	(a) Stock Purchase Agreement
	 	 	2	 
	(b) Duration of Offers and Nontransferability of Rights
	 	 	2	 
	(c) Purchase Price
	 	 	3	 
	(d) Withholding Taxes
	 	 	3	 
	(e) Restrictions on Transfer of Shares and Minimum Vesting
	 	 	3	 
	 
	 	 	 	 
	SECTION 6. TERMS AND CONDITIONS OF OPTIONS
	 	 	3	 
	 
	 	 	 	 
	(a) Stock Option Agreement
	 	 	3	 
	(b) Number of Shares
	 	 	3	 
	(c) Exercise Price
	 	 	4	 
	(d) Exercisability
	 	 	4	 
	(e) Basic Term
	 	 	4	 
	(f) Termination of Service (Except by Death)
	 	 	4	 
	(g) Leaves of Absence
	 	 	5	 
	(h) Death of Optionee
	 	 	5	 
	(i) Restrictions on Transfer of Shares and Minimum Vesting
	 	 	5	 
	(j) Transferability of Options
	 	 	6	 
	(k) Withholding Taxes
	 	 	6	 
	(l) No Rights as a Stockholder
	 	 	6	 
	(m) Modification, Extension and Assumption of Options
	 	 	6	 
	 
	 	 	 	 
	SECTION 7. PAYMENT FOR SHARES
	 	 	6	 
	 
	 	 	 	 
	(a) General Rule
	 	 	6	 

i

 

	 	 	 	 	 
	 	 	Page No.
	(b) Surrender of Stock
	 	 	6	 
	(c) Services Rendered
	 	 	7	 
	(d) Promissory Note
	 	 	7	 
	(e) Exercise/Sale
	 	 	7	 
	(f) Exercise/Pledge
	 	 	7	 
	 
	 	 	 	 
	SECTION 8. ADJUSTMENT OF SHARES
	 	 	7	 
	 
	 	 	 	 
	(a) General
	 	 	7	 
	(b) Change in Control
	 	 	7	 
	(c) Reservation of Rights
	 	 	8	 
	 
	 	 	 	 
	SECTION 9. SECURITIES LAW REQUIREMENTS
	 	 	8	 
	 
	 	 	 	 
	(a) General
	 	 	8	 
	(b) Financial Reports
	 	 	8	 
	 
	 	 	 	 
	SECTION 10. NO RETENTION RIGHTS
	 	 	9	 
	 
	 	 	 	 
	SECTION 11. DURATION AND AMENDMENTS
	 	 	9	 
	 
	 	 	 	 
	(a) Term of the Plan
	 	 	9	 
	(b) Right to Amend or Terminate the Plan
	 	 	9	 
	(c) Effect of Amendment or Termination
	 	 	9	 
	 
	 	 	 	 
	SECTION 12. DEFINITIONS
	 	 	9	 

ii

 

ArcSight, Inc. 2002 Stock Plan

(Adopted on March 29, 2002)

 (as Amended and Restated through January 24, 2007)

SECTION 1. ESTABLISHMENT AND PURPOSE.

          The purpose of the Plan is to offer selected persons an opportunity to acquire a proprietary
interest in the success of the Company, or to increase such interest, by purchasing Shares of the
Company’s Stock. The Plan provides both for the direct award or sale of Shares and for the grant
of Options to purchase Shares. Options granted under the Plan may include Nonstatutory Options as
well as ISOs intended to qualify under Section 422 of the Code.

          Capitalized terms are defined in Section 12.

SECTION 2. ADMINISTRATION.

          (a) Committees of the Board of Directors. The Plan may be administered by one or more
Committees. Each Committee shall consist of one or more members of the Board of Directors who have
been appointed by the Board of Directors. Each Committee shall have such authority and be
responsible for such functions as the Board of Directors has assigned to it. If no Committee has
been appointed, the entire Board of Directors shall administer the Plan. Any reference to the
Board of Directors in the Plan shall be construed as a reference to the Committee (if any) to whom
the Board of Directors has assigned a particular function.

          (b) Authority of the Board of Directors. Subject to the provisions of the Plan, the Board of
Directors shall have full authority and discretion to take any actions it deems necessary or
advisable for the administration of the Plan. All decisions, interpretations and other actions of
the Board of Directors shall be final and binding on all Purchasers, all Optionees and all persons
deriving their rights from a Purchaser or Optionee.

SECTION 3. ELIGIBILITY.

          (a) General Rule. Only Employees, Outside Directors and Consultants shall be eligible for the
grant of Nonstatutory Options or the direct award or sale of Shares. Only Employees shall be
eligible for the grant of ISOs.

          (b) Ten-Percent Stockholders. A person who owns more than 10% of the total combined voting
power of all classes of outstanding stock of the Company, its Parent or any of its Subsidiaries
shall not be eligible for designation as an Optionee or Purchaser unless (i) the Exercise Price is
at least 110% of the Fair
Market Value of a Share on the date of grant, (ii) the Purchase Price (if any) is at least
100% of the Fair Market Value of a Share and (iii) in the case of an ISO, such ISO by its terms is
not exercisable after the expiration of five years from the date of grant. For purposes of this
Subsection (b), in determining stock ownership, the attribution rules of Section 424(d) of the Code
shall be applied.

 

 

SECTION 4. STOCK SUBJECT TO PLAN.

          (a) Basic Limitation. No additional grants shall be made under the Predecessor Plan on or
after January 1, 2002. Not more than 40,390,9371 Shares may be issued under this Plan
(subject to Subsection (b) below and Section 8). The number of Shares that are subject to Options
or other rights outstanding at any time under the Plan shall not exceed the number of Shares that
then remain available for issuance under the Plan. The Company, during the term of the Plan, shall
at all times reserve and keep available sufficient Shares to satisfy the requirements of the Plan.
Shares offered under the Plan may be authorized but unissued Shares or treasury Shares.

          (b) Additional Shares. In the event that Shares previously issued under this Plan (after
January 1, 2002) or the Predecessor Plan are reacquired by the Company pursuant to a forfeiture
provision, right of repurchase or right of first refusal, such Shares shall be added to the number
of Shares then available for issuance under this Plan. However, the aggregate number of Shares
issued upon the exercise of ISOs (including Shares reacquired by the Company) shall in no event
exceed 300% of the number specified in Subsection (a) above. In the event that an outstanding
Option or other right under this Plan for any reason expires or is canceled, the Shares allocable
to the unexercised portion of such Option or other right shall not reduce the number of Shares
available for issuance under the Plan. In the event that any outstanding option granted under the
Predecessor Plan for any reason expires or is canceled (after January 1, 2002), the Shares
allocable to the unexercised portion of such option shall become available for all purposes under
this Plan.

SECTION 5. TERMS AND CONDITIONS OF AWARDS OR SALES.

     (a) Stock Purchase Agreement. Each award or sale of Shares under the Plan (other than upon
exercise of an Option) shall be evidenced by a Stock Purchase Agreement between the Purchaser and
the Company. Such award or sale shall be subject to all applicable terms and conditions of the
Plan and may be
subject to any other terms and conditions which are not inconsistent with the Plan and which
the Board of Directors deems appropriate for inclusion in a Stock Purchase Agreement. The
provisions of the various Stock Purchase Agreements entered into under the Plan need not be
identical.

     (b) Duration of Offers and Nontransferability of Rights. Any right to acquire Shares under
the Plan (other than an Option) shall automatically expire if not exercised by the Purchaser
within
30 days after the grant of such right was communicated to the Purchaser by

 

			
	1	 	Reflects a decrease of 2,640,575-shares
approved by the Board of Directors on September 26, 2002, an increase of
375,763-shares rolled over from the Predecessor Plan, an increase of
5,500,000-shares approved by the Board of Directors on March 25, 2004, an
increase of 1,300,000-shares approved by the Board of Directors on February 3,
2005, an increase of 5,300,000-shares approved by the Board of Directors on May
26, 2005, an increase of 4,032,363-shares approved by the Board of Directors on
September 15, 2005 and an increase of 10,367,441-shares approved by the Board
of Directors on January 24, 2007. Such number excludes the additional Shares
that have and will become available for grant under this Plan upon forfeiture,
repurchase, expiration, cancellation or other reacquisition of Shares, or
Shares subject to options or other rights, issued under the Predecessor Plan as
set forth in Section 4(b).

2

 

the Company. Such right
shall not be transferable and shall be exercisable only by the Purchaser to whom such right was
granted.

          (c) Purchase Price. The Purchase Price of Shares to be offered under the Plan shall not be
less than 85% of the Fair Market Value of such Shares, and a higher percentage may be required by
Section 3(b). Subject to the preceding sentence, the Board of Directors shall determine the
Purchase Price at its sole discretion. The Purchase Price shall be payable in a form described in
Section 7.

          (d) Withholding Taxes. As a condition to the purchase of Shares, the Purchaser shall make
such arrangements as the Board of Directors may require for the satisfaction of any federal, state,
local or foreign withholding tax obligations that may arise in connection with such purchase.

          (e) Restrictions on Transfer of Shares and Minimum Vesting. Any Shares awarded or sold under
the Plan shall be subject to such special forfeiture conditions, rights of repurchase, rights of
first refusal and other transfer restrictions as the Board of Directors may determine. Such
restrictions shall be set forth in the applicable Stock Purchase Agreement and shall apply in
addition to any restrictions that may apply to holders of Shares generally. In the case of a
Purchaser who is not an officer of the Company, an Outside Director or a Consultant:

          (i) Any right to repurchase the Purchaser’s Shares at the original Purchase
Price (if any) upon termination of the Purchaser’s Service shall lapse at least as
rapidly as 20% per year over the five-year period commencing on the date of the
award or sale of the Shares;

          (ii) Any such right may be exercised only for cash or for cancellation of
indebtedness incurred in purchasing the Shares; and

          (iii) Any such right may be exercised only within 90 days after the termination
of the Purchaser’s Service.

SECTION 6. TERMS AND CONDITIONS OF OPTIONS.

          (a) Stock Option Agreement. Each grant of an Option under the Plan shall be evidenced by a
Stock Option Agreement
between the Optionee and the Company. The Option shall be subject to all applicable terms and
conditions of the Plan and may be subject to any other terms and conditions which are not
inconsistent with the Plan and which the Board of Directors deems appropriate for inclusion in a
Stock Option Agreement. The provisions of the various Stock Option Agreements entered into under
the Plan need not be identical.

          (b) Number of Shares. Each Stock Option Agreement shall specify the number of Shares that are
subject to the Option and shall provide for the adjustment of such number in accordance with
Section 8. The Stock Option Agreement shall also specify whether the Option is an ISO or a
Nonstatutory Option.

3

 

          (c) Exercise Price. Each Stock Option Agreement shall specify the Exercise Price. The
Exercise Price of an ISO shall not be less than 100% of the Fair Market Value of a Share on the
date of grant, and a higher percentage may be required by Section 3(b). The Exercise Price of a
Nonstatutory Option shall not be less than 85% of the Fair Market Value of a Share on the date of
grant, and a higher percentage may be required by Section 3(b). Subject to the preceding two
sentences, the Exercise Price under any Option shall be determined by the Board of Directors at its
sole discretion. The Exercise Price shall be payable in a form described in Section 7.

          (d) Exercisability. Each Stock Option Agreement shall specify the date when all or any
installment of the Option is to become exercisable. No Option shall be exercisable unless the
Optionee has delivered an executed copy of the Stock Option Agreement to the Company. In the case
of an Optionee who is not an officer of the Company, an Outside Director or a Consultant, an Option
shall become exercisable at least as rapidly as 20% per year over the five-year period commencing
on the date of grant. Subject to the preceding sentence, the Board of Directors shall determine
the exercisability provisions of the Stock Option Agreement at its sole discretion.

          (e) Basic Term. The Stock Option Agreement shall specify the term of the Option. The term
shall not exceed 10 years from the date of grant, and a shorter term may be required by Section
3(b). Subject to the preceding sentence, the Board of Directors at its sole discretion shall
determine when an Option is to expire.

          (f) Termination of Service (Except by Death). If an Optionee’s Service terminates for any
reason other than the Optionee’s death, then the Optionee’s Options shall expire on the earliest of
the following occasions:

          (i) The expiration date determined pursuant to Subsection (f) above;

          (ii) The date 30 days after the termination of the Optionee’s Service for any
reason other than Cause, retirement at or after age 65, or Disability, or such later
date as the Board of Directors may determine;

          (iii) The date of the termination of the Optionee’s Service for Cause, or such
later date as the Board of Directors may determine;

          (iv) The date 12 months after the Optionee’s retirement at or after age 65, or
such other date as the Board of Directors may determine; or

          (v) The date 12 months after the termination of the Optionee’s Service by
reason of Disability, or such other date as the Board of Directors may determine
(but not less than six months after the termination of the Optionee’s Service by
reason of Disability).

The Optionee may exercise all or part of the Optionee’s Options at any time before the expiration
of such Options under the preceding sentence, but only to the extent that such Options had become
exercisable before the Optionee’s Service terminated (or became exercisable as a result

4

 

 of the
termination) and the underlying Shares had vested before the Optionee’s Service terminated (or
vested as a result of the termination). The balance of such Options shall lapse when the
Optionee’s Service terminates. In the event that the Optionee dies after the termination of the
Optionee’s Service but before the expiration of the Optionee’s Options, all or part of such Options
may be exercised (prior to expiration) by the executors or administrators of the Optionee’s estate
or by any person who has acquired such Options directly from the Optionee by beneficiary
designation, bequest or inheritance, but only to the extent that such Options had become
exercisable before the Optionee’s Service terminated (or became exercisable as a result of the
termination) and the underlying Shares had vested before the Optionee’s Service terminated (or
vested as a result of the termination).

          (g) Leaves of Absence. For purposes of Subsection (g) above, Service shall be deemed to
continue while the Optionee is on a bona fide leave of absence, if such leave was approved by the
Company in writing and if continued crediting of Service for this purpose is expressly required by
the terms of such leave or by applicable law (as determined by the Company).

          (h) Death of Optionee. If an Optionee dies while the Optionee is in Service, then the
Optionee’s Options shall expire on the earlier of the following dates:

          (i) The expiration date determined pursuant to Subsection (f) above; or

          (ii) The date 12 months after the Optionee’s death, or such later date as the
Board of Directors may determine.

All or part of the Optionee’s Options may be exercised at any time before the expiration of such
Options under the preceding sentence by the executors or administrators of the Optionee’s estate or
by any person who has acquired such Options directly from the Optionee by beneficiary designation,
bequest or inheritance, but only to the extent that such Options had become exercisable before the
Optionee’s death (or became exercisable as a result of the death) and the underlying Shares had
vested before the Optionee’s death (or vested as a result of the Optionee’s death). The balance of
such Options shall lapse when the Optionee dies.

          (i) Restrictions on Transfer of Shares and Minimum Vesting. Any Shares issued upon exercise
of an Option shall be subject to such special forfeiture conditions, rights of repurchase, rights
of first refusal and other transfer restrictions as the Board of Directors may determine. Such
restrictions shall be set forth in the applicable Stock Option Agreement and shall apply in
addition to any restrictions that may apply to holders of Shares generally. In the case of an
Optionee who is not an officer of the Company, an Outside Director or a Consultant:

          (i) Any right to repurchase the Optionee’s Shares at the original Exercise
Price upon termination of the Optionee’s Service shall lapse at least as rapidly as
20% per year over the five-year period commencing on the date of the option grant;

          (ii) Any such right may be exercised only for cash or for cancellation of
indebtedness incurred in purchasing the Shares; and

5

 

          (iii) Any such right may be exercised only within 90 days after the later of
(A) the termination of the Optionee’s Service or (B) the date of the option
exercise.

          (j) Transferability of Options. An Option shall be transferable by the Optionee only by (i) a
beneficiary designation, (ii) a will or (iii) the laws of descent and distribution, except as
provided in the next sentence. If the applicable Stock Option Agreement so provides, an NSO shall
also be transferable by the Optionee by (i) a gift to a member of the Optionee’s Immediate Family
or (ii) a gift to an inter vivos or testamentary trust in which members of the Optionee’s Immediate
Family have a beneficial interest of more than 50% and which provides that such NSO is to be
transferred to the beneficiaries upon the Optionee’s death. An ISO may be exercised during the
lifetime of the Optionee only by the Optionee or by the Optionee’s guardian or legal
representative.

          (k) Withholding Taxes. As a condition to the exercise of an Option, the Optionee shall make
such arrangements as the Board of Directors may require for the satisfaction of any federal, state,
local or foreign withholding tax obligations that may arise in connection with such exercise. The
Optionee shall also make such arrangements as the Board of Directors may require for the
satisfaction of any federal, state, local or foreign withholding tax obligations that may arise in
connection with the disposition of Shares acquired by exercising an Option.

          (l) No Rights as a Stockholder. An Optionee, or a transferee of an Optionee, shall have no
rights as a stockholder with respect to any Shares covered by the Optionee’s Option until such
person becomes entitled to receive such Shares by filing a notice of exercise and paying the
Exercise Price pursuant to the terms of such Option.

          (m) Modification, Extension and Assumption of Options. Within the limitations of the Plan,
the Board of Directors may modify, extend or assume outstanding Options or may accept
the cancellation of outstanding Options (whether granted by the Company or another issuer) in
return for the grant of new Options for the same or a different number of Shares and at the same or
a different Exercise Price. The foregoing notwithstanding, no modification of an Option shall,
without the consent of the Optionee, impair the Optionee’s rights or increase the Optionee’s
obligations under such Option.

SECTION 7. PAYMENT FOR SHARES.

          (a) General Rule. The entire Purchase Price or Exercise Price of Shares issued under the Plan
shall be payable in cash or cash equivalents at the time when such Shares are purchased, except as
otherwise provided in this Section 7.

          (b) Surrender of Stock. To the extent that a Stock Option Agreement so provides, all or any
part of the Exercise Price may be paid by surrendering, or attesting to the ownership of, Shares
that are already owned by the Optionee. Such Shares shall be surrendered to the Company in good
form for transfer and shall be valued at their Fair Market Value on the date when the Option is
exercised. The Optionee shall not surrender, or attest to the ownership of, Shares in payment of
the Exercise Price if such action would cause the Company to recognize

6

 

compensation expense (or
additional compensation expense) with respect to the Option for financial reporting purposes.

          (c) Services Rendered. At the discretion of the Board of Directors, Shares may be awarded
under the Plan in consideration of services rendered to the Company, a Parent or a Subsidiary prior
to the award.

          (d) Promissory Note. To the extent that a Stock Option Agreement or Stock Purchase Agreement
so provides, all or a portion of the Exercise Price or Purchase Price (as the case may be) of
Shares issued under the Plan may be paid with a full-recourse promissory note. However, the par
value of the Shares, if newly issued, shall be paid in cash or cash equivalents. The Shares shall
be pledged as security for payment of the principal amount of the promissory note and interest
thereon. The interest rate payable under the terms of the promissory note shall not be less than
the minimum rate (if any) required to avoid the imputation of additional interest under the Code.
Subject to the foregoing, the Board of Directors (at its sole discretion) shall specify the term,
interest rate, amortization requirements (if any) and other provisions of such note.

          (e) Exercise/Sale. To the extent that a Stock Option Agreement so provides, and if Stock is
publicly traded, payment may be made all or in part by the delivery (on a form prescribed by the
Company) of an irrevocable direction to a securities broker approved by the Company to sell Shares
and to deliver all or part of the sales proceeds to the Company in payment of all or part of the
Exercise Price and any withholding taxes.

          (f) Exercise/Pledge. To the extent that a Stock Option Agreement so provides, and if Stock is
publicly traded, payment may be
made all or in part by the delivery (on a form prescribed by the Company) of an irrevocable
direction to pledge Shares to a securities broker or lender approved by the Company, as security
for a loan, and to deliver all or part of the loan proceeds to the Company in payment of all or
part of the Exercise Price and any withholding taxes.

SECTION 8. ADJUSTMENT OF SHARES.

          (a) General. In the event of a subdivision of the outstanding Stock, a declaration of a
dividend payable in Shares, a declaration of an extraordinary dividend payable in a form other than
Shares in an amount that has a material effect on the Fair Market Value of the Stock, a combination
or consolidation of the outstanding Stock into a lesser number of Shares, a recapitalization, a
spin-off, a reclassification or a similar occurrence, the Board of Directors shall make appropriate
adjustments in one or more of (i) the number of Shares available for future grants under Section 4,
(ii) the number of Shares covered by each outstanding Option or (iii) the Exercise Price under each
outstanding Option.

          (b) Change in Control. In the event that the Company is subject to a Change in Control
specified in Section 12, outstanding Options shall be subject to the agreement governing such
Change in Control. Such agreement may provide for:

7

 

          (i) The continuation of such outstanding Options by the Company (if the Company
is the surviving corporation);

          (ii) The assumption of the Plan and such outstanding Options by the surviving
corporation or its parent;

          (iii) The substitution by the surviving corporation or its parent of options
with substantially the same terms for such outstanding Options;

          (iv) The full exercisability of such outstanding Options and full vesting of
the Shares subject to such Options, followed by the cancellation of such Options;

          (v) The settlement of the full value of such outstanding Options (whether or
not then exercisable) in cash or cash equivalents, followed by the cancellation of
such Options; or

          (vi) Any other action permitted by applicable law.

          (c) Reservation of Rights. Except as provided in this Section 8, an Optionee or Purchaser
shall have no rights by reason of (i) any subdivision or consolidation of shares of stock of any
class, (ii) the payment of any dividend or (iii) any other increase or decrease in the number of
shares of stock of any class. Any issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall not affect, and no adjustment by
reason thereof shall be made
with respect to, the number or Exercise Price of Shares subject to an Option. The grant of an
Option pursuant to the Plan shall not affect in any way the right or power of the Company to make
adjustments, reclassifications, reorganizations or changes of its capital or business structure, to
merge or consolidate or to dissolve, liquidate, sell or transfer all or any part of its business or
assets.

SECTION 9. SECURITIES LAW REQUIREMENTS.

          (a) General. Shares shall not be issued under the Plan unless the issuance and delivery of
such Shares comply with (or are exempt from) all applicable requirements of law, including (without
limitation) the Securities Act of 1933, as amended, the rules and regulations promulgated
thereunder, state securities laws and regulations, and the regulations of any stock exchange or
other securities market on which the Company’s securities may then be traded.

          (b) Financial Reports. The Company each year shall furnish to Optionees, Purchasers and
stockholders who have received Stock under the Plan its balance sheet and income statement during
the period such Optionee, Purchaser or stockholder has awards or Options outstanding, unless such
Optionees, Purchasers or stockholders are key Employees whose duties with the Company assure them
access to equivalent information. Such balance sheet and income statement need not be audited.

8

 

SECTION 10. NO RETENTION RIGHTS.

          Nothing in the Plan or in any right or Option granted under the Plan shall confer upon the
Purchaser or Optionee any right to continue in Service for any period of specific duration or
interfere with or otherwise restrict in any way the rights of the Company (or any Parent or
Subsidiary employing or retaining the Purchaser or Optionee) or of the Purchaser or Optionee, which
rights are hereby expressly reserved by each, to terminate his or her Service at any time and for
any reason, with or without cause.

SECTION 11. DURATION AND AMENDMENTS.

          (a) Term of the Plan. The Plan, as set forth herein, shall become effective on the date of
its adoption by the Board of Directors, subject to the approval of the Company’s stockholders. If
the stockholders fail to approve the Plan within 12 months after its adoption by the Board of
Directors, then any grants, exercises or sales that have already occurred under the Plan shall be
rescinded and no additional grants, exercises or sales shall thereafter be made under the Plan.
The Plan shall terminate automatically 10 years after the later of (i) its adoption by the Board of
Directors or (ii) the most recent increase in the number of Shares reserved under Section 4 that
was approved by the Company’s stockholders. The Plan may be terminated on any earlier date
pursuant to Subsection (b) below.

          (b) Right to Amend or Terminate the Plan. The Board of Directors may amend, suspend or
terminate the Plan at any time and for any reason; provided, however, that any amendment of the
Plan shall be subject to the approval of the Company’s stockholders if it (i) increases the number
of Shares available for issuance under the Plan (except as provided in Section 8) or (ii)
materially changes the class of persons who are eligible for the grant of ISOs. Stockholder
approval shall not be required for any other amendment of the Plan. If the stockholders fail to
approve an increase in the number of Shares reserved under Section 4 within 12 months after its
adoption by the Board of Directors, then any grants, exercises or sales that have already occurred
in reliance on such increase shall be rescinded and no additional grants, exercises or sales shall
thereafter be made in reliance on such increase.

          (c) Effect of Amendment or Termination. No Shares shall be issued or sold under the Plan
after the termination thereof, except upon exercise of an Option granted prior to such termination.
The termination of the Plan, or any amendment thereof, shall not affect any Share previously
issued or any Option previously granted under the Plan.

SECTION 12. DEFINITIONS.

          (a) “Board of Directors” shall mean the Board of Directors of the Company, as constituted from
time to time.

          (b) “Cause” shall mean (except as may otherwise be defined in an Optionee’s employment
agreement or Option agreement) that the Board of Directors determines reasonably and in good faith
that the Optionee (i) committed an act of embezzlement, fraud, dishonesty or breach of fiduciary
duty to the Company, (ii) deliberately and repeatedly violated the rules of the Company or the
valid instructions of the Board of Directors or an authorized officer of the

9

 

Company, (iii) made
any unauthorized disclosure of any of the secrets or confidential information of the Company, (iv)
induced any client or customer of the Company to break any contract with the Company or (v) engaged
in any conduct that could reasonably be expected to result in loss, damage or injury to the
Company.

          (c) “Change in Control” shall mean (except as may otherwise be defined in an Optionee’s
employment agreement or Option agreement) the occurrence of any of the following events:

          (i) any reorganization, consolidation, merger or similar transaction or series
of related transactions (each, a “combination transaction”) in which the Company is
a constituent corporation or is a party if, as a result of such combination
transaction, the voting securities of the Company that are outstanding immediately
prior to the consummation of such combination transaction (other than any
such securities that are held by an “Acquiring Stockholder,” as defined below) do
not represent, or are not converted into, securities of the surviving corporation of
such combination transaction (or such surviving corporation’s parent corporation if
the surviving corporation is owned by the parent corporation) that, immediately
after the consummation of such
combination transaction, together possess at least a majority of the total
voting power of all securities of such surviving corporation (or its parent
corporation, if applicable) that are outstanding immediately after the consummation
of such combination transaction, including securities of such surviving corporation
(or its parent corporation, if applicable) that are held by the Acquiring
Stockholder; where an “Acquiring Stockholder” means a stockholder or stockholders
of the Company that (a) merges or combines with the Company in such combination
transaction or (b) owns or controls a majority of another corporation that merges or
combines with the Company in such combination transaction;

          (ii) any acquisition by any Person (including any “person” within the meaning
of Section 13(d) of the Exchange Act) as a result of which, such Person (or any
Group of which such Person is a member) becomes a Beneficial Owner of 50% or more of
the issued and outstanding shares of voting stock of the Company in any single
transaction or a series of related transactions; where “Person” means any natural
person, corporation, limited liability company, general partnership, limited
partnership, trust, proprietorship, joint venture, business organization or
government, political subdivision, agency or instrumentality, and “Group” means two
or more Persons acting as a partnership, limited partnership, syndicate or other
group for the purpose of acquiring, holding, or disposing of the applicable
securities referred to herein; or

          (iii) any sale, transfer or other disposition of all or substantially all of
the Company’s assets.

A transaction shall not constitute a Change in Control if its sole purpose is to change the state
of the Company’s incorporation or to create a holding company that will be owned in substantially

10

 

the same proportions by the persons who held the Company’s securities immediately before such
transaction.

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

          (e) “Committee” shall mean a committee of the Board of Directors, as described in Section
2(a).

          (f) “Company” shall mean ArcSight, Inc., a Delaware corporation.

          (g) “Consultant” shall mean a person who performs bona fide services for the Company, a Parent
or a Subsidiary as a consultant or advisor, excluding Employees and Outside Directors.

          (h) “Disability” shall mean that the Optionee is unable to engage in any substantial gainful
activity by reason of any medically determinable physical or mental impairment.

          (i) “Employee” shall mean any individual who is a common-law employee of the Company, a Parent
or a Subsidiary.

          (j) “Exercise Price” shall mean the amount for which one Share may be purchased upon exercise
of an Option, as specified by the Board of Directors in the applicable Stock Option Agreement.

          (k) “Fair Market Value” shall mean the fair market value of a Share, as determined by the
Board of Directors in good faith. Such determination shall be conclusive and binding on all
persons.

          (l) “Immediate Family” shall mean any child, stepchild, grandchild, parent, stepparent,
grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law,
brother-in-law or sister-in-law and shall include adoptive relationships.

          (m) “ISO” shall mean an employee incentive stock option described in Section 422(b) of the
Code.

          (n) “Nonstatutory Option” or “NSO” shall mean a stock option not described in Sections 422(b)
or 423(b) of the Code.

          (o) “Option” shall mean an ISO or Nonstatutory Option granted under the Plan and entitling the
holder to purchase Shares.

          (p) “Optionee” shall mean a person who holds an Option.

          (q) “Outside Director” shall mean a member of the Board of Directors who is not an Employee.

11

 

          (r) “Parent” shall mean any corporation (other than the Company) in an unbroken chain of
corporations ending with the Company, if each of the corporations other than the Company owns stock
possessing 50% or more of the total combined voting power of all classes of stock in one of the
other corporations in such chain. A corporation that attains the status of a Parent on a date
after the adoption of the Plan shall be considered a Parent commencing as of such date.

          (s) “Plan” shall mean this ArcSight, Inc. 2002 Stock Plan.

          (t) “Predecessor Plan” shall mean the ArcSight, Inc. 2000 Stock Incentive Plan.

          (u) “Purchase Price” shall mean the consideration for which one Share may be acquired under
the Plan (other than upon exercise of an Option), as specified by the Board of Directors.

          (v) “Purchaser” shall mean a person to whom the Board of Directors has offered the right to
acquire Shares under the Plan (other than upon exercise of an Option).

          (w) “Service” shall mean service as an Employee, Outside Director or Consultant.

          (x) “Share” shall mean one share of Stock, as adjusted in accordance with Section 8 (if
applicable).

          (y) “Stock” shall mean the Common Stock of the Company, with a par value of $0.00001 per
Share.

          (z) “Stock Option Agreement” shall mean the agreement between the Company and an Optionee that
contains the terms, conditions and restrictions pertaining to the Optionee’s Option.

          (aa) “Stock Purchase Agreement” shall mean the agreement between the Company and a Purchaser
who acquires Shares under the Plan that contains the terms, conditions and restrictions pertaining
to the acquisition of such Shares.

          (bb) “Subsidiary” shall mean any corporation (other than the Company) in an unbroken chain of
corporations beginning with the Company, if each of the corporations other than the last
corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting
power of all classes of stock in one of the other corporations in such chain. A corporation that
attains the status of a Subsidiary on a date after the adoption of the Plan shall be considered a
Subsidiary commencing as of such date.

12

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