Document:

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                                                                  EXHIBIT 10.3.1

                               NASSDA CORPORATION
                             2001 STOCK OPTION PLAN
                             STOCK OPTION AGREEMENT

     Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Option Agreement.

I.   NOTICE OF STOCK OPTION GRANT
     ----------------------------

[Optionee's Name and Address]

     The undersigned Optionee has been granted an Option to purchase Common
Stock of the Company, subject to the terms and conditions of the Plan and this
Option Agreement, as follows:

     Grant Number                       _________________________

     Date of Grant                      _________________________

     Vesting Commencement Date          _________________________

     Exercise Price per Share           $________________________

     Total Number of Shares Granted     _________________________

     Total Exercise Price               $________________________

     Type of Option:                    ___  Incentive Stock Option

                                        ___  Nonstatutory Stock Option

     Term/Expiration Date:              _________________________

     Vesting Schedule:
     ----------------

     This Option shall be exercisable, in whole or in part, according to the
following vesting schedule:

     25% of the Shares subject to the Option shall vest twelve months after the
Vesting Commencement Date, and 1/48 of the Shares subject to the Option shall
vest each month thereafter, subject to Optionee's continuing to be a Service
Provider on such dates.

<PAGE>

     Termination Period:
     -------------------

     This Option shall be exercisable for 45 days after Optionee ceases to be a
Service Provider. Upon Optionee's death or disability, this Option may be
exercised for such longer period as provided in the Plan. In no event may
Optionee exercise this Option after the Term/Expiration Date as provided above.

II.  AGREEMENT
     ---------

     1.   Grant of Option. The Plan Administrator of the Company hereby grants
          ---------------
to the Optionee named in the Notice of Grant (the "Optionee"), an option (the
"Option") to purchase the number of Shares set forth in the Notice of Grant, at
the exercise price per Share set forth in the Notice of Grant (the "Exercise
Price"), and subject to the terms and conditions of the Plan, which is
incorporated herein by reference. Subject to Section 13(c) of the Plan, in the
event of a conflict between the terms and conditions of the Plan and this Option
Agreement, the terms and conditions of the Plan shall prevail.

          If designated in the Notice of Grant as an Incentive Stock Option
("ISO"), this Option is intended to qualify as an Incentive Stock Option as
defined in Section 422 of the Code. Nevertheless, to the extent that it exceeds
the $100,000 rule of Code Section 422(d), this Option shall be treated as a
Nonstatutory Stock Option ("NSO").

     2.   Exercise of Option.
          ------------------

          (a)  Right to Exercise. This Option shall be exercisable during its
               -----------------
term in accordance with the Vesting Schedule set out in the Notice of Grant and
with the applicable provisions of the Plan and this Option Agreement.

          (b)  Method of Exercise. This 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 Exercised
Shares. This Option shall be deemed to be exercised upon receipt by the Company
of such fully executed Exercise Notice accompanied by the aggregate Exercise
Price.

               No Shares shall be issued pursuant to the exercise of an Option
unless such issuance and such exercise complies with Applicable Laws. Assuming
such compliance, for income tax purposes the Shares shall be considered
transferred to the Optionee on the date on which the Option is exercised with
respect to such Shares.

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

                                       -2-

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     4.   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 Optionee:

          (a)  cash or check;

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

          (c)  surrender of other Shares which, (i) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee 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.

          (d)  with the Administrator's consent, delivery of Optionee's
promissory note (the "Note") in the form attached hereto as Exhibit C, in the
                                                            ---------
amount of the aggregate Exercise Price of the Exercised Shares together with the
execution and delivery by the Optionee of the Security Agreement attached hereto
as Exhibit D. The Note shall bear interest at the "applicable federal rate"
   ---------
prescribed under the Code and its regulations at time of purchase, and shall be
secured by a pledge of the Shares purchased by the Note pursuant to the Security
Agreement.

     5.   Restrictions on Exercise. This Option may not be exercised until such
          ------------------------
time as the Plan has been approved by the stockholders of the Company, or 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.

     6.   Non-Transferability of Option. This 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 Optionee only by Optionee. The terms of
the Plan and this Option Agreement shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.

     7.   Term of Option. This 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 terms of this Option.

     8.   Tax Consequences. Set forth below is a brief summary as of the date of
          ----------------
this Option of some of the federal tax consequences of exercise of this Option
and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE
TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. THE OPTIONEE SHOULD CONSULT A
TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.

          (a)  Exercise of ISO. If this Option qualifies as an ISO, there will
               ---------------
be no regular federal income tax liability upon the exercise of the Option,
although the excess, if any, of the Fair Market Value of the Shares on the date
of exercise over the Exercise Price will be treated as an adjustment to the
alternative minimum tax for federal tax purposes and may subject the Optionee to
the alternative minimum tax in the year of exercise.

          (b)  Exercise of Nonstatutory Stock Option. There may be a regular
               -------------------------------------
federal income tax liability upon the exercise of a Nonstatutory Stock Option.
The Optionee will be treated

                                       -3-

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as having received compensation income (taxable at ordinary income tax rates)
equal to the excess, if any, of the Fair Market Value of the Shares on the date
of exercise over the Exercise Price. If Optionee is an Employee or a former
Employee, the Company will be required to withhold from Optionee's compensation
or collect from Optionee and pay to the applicable taxing authorities an amount
in cash equal to a percentage of this compensation income at the time of
exercise, and may refuse to honor the exercise and refuse to deliver Shares if
such withholding amounts are not delivered at the time of exercise.

          (c)  Disposition of Shares. In the case of an NSO, if Shares are held
               ---------------------
for at least one year, any gain realized on disposition of the Shares will be
treated as long-term capital gain for federal income tax purposes. In the case
of an ISO, if Shares transferred pursuant to the Option are held for at least
one year after exercise and of at least two years after the Date of Grant, any
gain realized on disposition of the Shares will also be treated as long-term
capital gain for federal income tax purposes. If Shares purchased under an ISO
are disposed of within one year after exercise or two years after the Date of
Grant, any gain realized on such disposition will be treated as compensation
income (taxable at ordinary income rates) to the extent of the difference
between the Exercise Price and the lesser of (1) the Fair Market Value of the
Shares on the date of exercise, or (2) the sale price of the Shares. Any
additional gain will be taxed as capital gain, short-term or long-term depending
on the period that the ISO Shares were held.

          (d)  Notice of Disqualifying Disposition of ISO Shares. If the Option
               -------------------------------------------------
granted to Optionee herein is an ISO, and if Optionee sells or otherwise
disposes of any of the Shares acquired pursuant to the ISO on or before the
later of (1) the date two years after the Date of Grant, or (2) the date one
year after the date of exercise, the Optionee shall immediately notify the
Company in writing of such disposition. Optionee agrees that Optionee may be
subject to income tax withholding by the Company on the compensation income
recognized by the Optionee.

     9.   Entire Agreement; Governing Law. The Plan is incorporated herein by
          -------------------------------
reference. The Plan and this Option 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 Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee. This agreement is governed by and construed in accordance with the
laws of the State of California applicable to contracts entered into and wholly
to be performed within the State of California residents.

     10.  No Guarantee of Continued Service. OPTIONEE ACKNOWLEDGES AND AGREES
          ---------------------------------
THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED
ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (NOT THROUGH
THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES
HEREUNDER). OPTIONEE 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 ENGAGEMENT AS A
SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL
NOT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE

                                       -4-

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COMPANY'S RIGHT TO TERMINATE OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT
ANY TIME, WITH OR WITHOUT CAUSE.

     Optionee 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
this Option subject to all of the terms and provisions thereof. Optionee has
reviewed the Plan and this Option in their entirety, has had an opportunity to
obtain the advice of counsel prior to executing this Option and fully
understands all provisions of the Option. Optionee 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 Option. Optionee
further agrees to notify the Company upon any change in the residence address
indicated below.

NASSDA CORPORATION

____________________________________
By

____________________________________
Title

OPTIONEE'S ACCEPTANCE AND ACKNOWLEDGMENT

Dated:______________________________         ___________________________________
                                             Residential Address

____________________________________         ___________________________________
Optionee's Signature                         City, State, Zip Code

__________  I hereby acknowledge that I am not legally married as of the date of
            this Agreement.

__________  I hereby acknowledge that I am legally married as of the date of
            this Agreement and, if applicable, by executing this Agreement, my
            spouse agrees to be bound by all the terms and conditions of this
            Agreement.

____________________________________
Spouse's Signature

SPOUSAL SIGNATURE IS REQUIRED FOR RESIDENTS OF COMMUNITY PROPERTY STATES:
ARIZONA, CALIFORNIA, IDAHO, LOUISIANA, NEVADA, NEW MEXICO, TEXAS, WASHINGTON AND
WISCONSIN.

THIS OPTION WILL BECOME EFFECTIVE UPON RECEIPT BY THE COMPANY OF ONE FULLY
EXECUTED COPY OF THIS AGREEMENT

                                       -5-

<PAGE>

                                    EXHIBIT A
                                    ---------

                             2001 STOCK OPTION PLAN

                                 EXERCISE NOTICE

NASSDA Corporation
2975 Scott Boulevard, Suite 110
Santa Clara, CA 95054

Attention: Chief Executive Officer

     1.   Exercise of Option. Effective as of today, ___________, 20__, the
          ------------------
undersigned ("Optionee") hereby elects to exercise Optionee's option to purchase
_________ shares of the Common Stock (the "Shares") of NASSDA Corporation (the
"Company") under and pursuant to the 2001 Stock Option Plan (the "Plan") and the
Stock Option Agreement dated ________, 20___ (the "Option Agreement").

     2.   Delivery of Payment. Purchaser herewith delivers to the Company the
          -------------------
full purchase price of the Shares, as set forth in the Option Agreement.

     3.   Representations of Optionee. Optionee acknowledges that Optionee has
          ---------------------------
received, read and understood the Plan and the Option Agreement and agrees to
abide by and be bound by their terms and conditions.

     4.   Rights as Stockholder. Until the issuance of the Shares (as evidenced
          ---------------------
by the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company), no right to vote or receive dividends or any
other rights as a stockholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Shares shall be issued to the
Optionee 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 except as provided in Section 11 of the Plan.

     5.   Tax Consultation. Optionee understands that Optionee may suffer
          ----------------
adverse tax consequences as a result of Optionee's purchase or disposition of
the Shares. Optionee represents that Optionee has consulted with any tax
consultants Optionee deems advisable in connection with the purchase or
disposition of the Shares and that Optionee is not relying on the Company for
any tax advice.

     6.   Successors and Assigns. The Company may assign any of its rights under
          ----------------------
this Agreement to single or multiple assignees, and this Agreement shall inure
to the benefit of the successors and assigns of the Company. Subject to the
restrictions on transfer herein set forth, this Agreement shall be binding upon
Optionee and his or her heirs, executors, administrators, successors and
assigns.

<PAGE>

     7.   Interpretation. Any dispute regarding the interpretation of this
          --------------
Agreement shall be submitted by Optionee 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.

     8.   Governing Law; Severability. This Agreement is governed by the
          ---------------------------
internal substantive laws but not the choice of law rules, of Delaware.

     9.   Entire Agreement. The Plan and Option Agreement are incorporated
          ----------------
herein by reference. This Agreement, the Plan, the Option 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 Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee.

Submitted by:                                Accepted by:

OPTIONEE:                                    NASSDA Corporation

____________________________________         _________________________________
Signature                                    By

____________________________________         _________________________________
Print Name                                   Its

Address:                                     Address:
-------                                      -------

____________________________________         _________________________________
____________________________________         _________________________________

                                             _________________________________
                                             Date Received

                                      -2-<PAGE>

                                                                EXHIBIT 10.4

                               NASSDA CORPORATION

                            2001 DIRECTOR OPTION PLAN

     1. Purposes of the Plan. The purposes of this 2001 Director Option Plan are
        --------------------
to attract and retain the best available personnel for service as Outside
Directors (as defined herein) of the Company, to provide additional incentive to
the Outside Directors of the Company to serve as Directors, and to encourage
their continued service on the Board.

         All options granted hereunder shall be nonstatutory stock options.

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

         (a)    "Board" shall mean the Board of Directors of the Company.
                 -----

         (b)    "Code" shall mean the Internal Revenue Code of 1986, as amended.
                 ----

         (c)    "Common Stock" shall mean the common stock of the Company.
                 ------------

         (d)    "Company" shall mean NASSDA Corporation, a Delaware corporation.
                 -------

         (e)    "Director" shall mean a member of the Board.
                 --------

         (f)    "Disability" shall mean total and permanent disability as
                 ----------
defined in section 22(e)(3) of the Code.

         (g)    "Employee" shall mean any person, including officers and
                 --------
Directors, employed by the Company or any Parent or Subsidiary of the Company.
The payment of a Director's fee by the Company shall not be sufficient in and of
itself to constitute "employment" by the Company.

         (h)    "Exchange Act" shall mean the Securities Exchange Act of 1934,
                 ------------
as amended.

         (i)    "Fair Market Value" shall mean, as of any date, the value of
                 -----------------
Common Stock determined as follows:

                (i)  If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;

<PAGE>

               (ii)  If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock for the last market trading day prior to the time of
determination, as reported in The Wall Street Journal or such other source as
the Board deems reliable; or

               (iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board.

          (j)  "Inside Director" shall mean a Director who is an Employee.
                ---------------

          (k)  "Option" shall mean a stock option granted pursuant to the Plan.
                ------

          (l)  "Optioned Stock" shall mean the Common Stock subject to an
                --------------
Option.

          (m)  "Optionee" shall mean a Director who holds an Option.
                --------

          (n)  "Outside Director" shall mean a Director who is not an Employee
                ----------------
of the Company.

          (o)  "Parent" shall mean a "parent corporation," whether now or
                ------
hereafter existing, as defined in Section 424(e) of the Code.

          (p)  "Plan" shall mean this 2001 Director Option Plan.
                ----

          (q)  "Share" shall mean a share of the Common Stock, as adjusted in
                -----
accordance with Section 10 of the Plan but after accounting for the
four-for-three stock split effected in August 2001.

          (r)  "Subsidiary" shall mean a "subsidiary corporation," whether now
                ----------
or hereafter existing, as defined in Section 424(f) of the Internal Revenue Code
of 1986.

     3.   Stock Subject to the Plan. Subject to the provisions of Section 10 of
          -------------------------
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 266,667 Shares (post-split) (the "Pool") (the Shares may be
authorized, but unissued, or reacquired Common Stock), together with an annual
increase to the number of Shares reserved thereunder on the first day of the
Company's fiscal year, beginning with October 1, 2002, equal to the lesser of
(i) 100,000 Shares (post-split), (ii) four-tenths of one percent (.4%) of the
outstanding Shares of Common Stock on the last day of each prior fiscal year or
(iii) such amount as determined by the Board.

          If an Option expires or becomes unexercisable without having been
exercised in full, the unpurchased Shares which were subject thereto shall
become available for future grant or sale under the Plan (unless the Plan has
terminated). Shares that have actually been issued under the Plan shall not be
returned to the Plan and shall not become available for future distribution
under the Plan.

                                       -2-

<PAGE>

     4.   Administration and Grants of Options under the Plan.
          ---------------------------------------------------

          (a)  Procedure for Grants. All grants of Options to Outside Directors
               --------------------
under this Plan shall be automatic and nondiscretionary and shall be made
strictly in accordance with the following provisions:

               (i)   No person shall have any discretion to select which Outside
Directors shall be granted Options or to determine the number of Shares to be
covered by Options.

               (ii)  Each Outside Director shall be automatically granted an
Option to purchase Shares (the "First Option") on the date on which the later of
the following events occurs: (A) the effective date of this Plan, as determined
in accordance with Section 6 hereof; or (B) the date on which such person first
becomes an Outside Director, whether through election by the shareholders of the
Company or appointment by the Board to fill a vacancy; provided, however, that
an Inside Director who ceases to be an Inside Director but who remains a
Director shall not receive a First Option. The First Option for an Outside
Director who has not previously received a stock option grant from the Company
shall be for 40,000 Shares (post-split), and an Outside Director who has
previously received a stock option grant from the Company shall not receive a
First Option.

               (iii) Each Outside Director shall subsequently be automatically
granted an Option to purchase Shares (a "Subsequent Option") on October 1 of
each year commencing with October 1, 2002; provided, however, that that each
Outside Director who is an Outside Director on the effective date of this Plan,
as determined in accordance with Section 6 hereof, shall be automatically
granted a Subsequent Option on such date. The Subsequent Option shall be for
20,000 Shares (post-split).

               (iv)  Notwithstanding the provisions of subsections (ii) and
(iii) hereof, any exercise of an Option granted before the Company has obtained
shareholder approval of the Plan in accordance with Section 16 hereof shall be
conditioned upon obtaining such shareholder approval of the Plan in accordance
with Section 16 hereof.

               (v)   The terms of a First Option granted hereunder shall be as
follows:

                     (A)  the term of the First Option shall be ten (10) years.

                     (B)  the First Option shall be exercisable only while the
Outside Director remains a Director of the Company, except as set forth in
Sections 8 and 10 hereof.

                     (C)  the exercise price per Share shall be 100% of the Fair
Market Value per Share on the date of grant of the First Option provided,
however, that in the case of a First Option granted on the effective date of the
Company's initial public offering pursuant to a registration statement filed
with the Securities and Exchange Commission, the exercise price per share shall
be the initial public offering price per share.

                                       -3-

<PAGE>

                 (D)  subject to Section 10 hereof, the First Option shall
become exercisable as to 1/3 of the Shares subject to the First Option one year
following the date of grant and 1/36/th/ of the Shares subject to the First
Option shall vest each month thereafter, so that the First Option shall be fully
exercisable three (3) years after its date of grant, provided that the Optionee
continues to serve as a Director on such dates.

          (vi)   The terms of a Subsequent Option granted hereunder shall be
as follows:

                 (A)  The term of the Subsequent Option shall be ten (10)
years.

                 (B)  The Subsequent Option shall be exercisable only while
the Outside Director remains a Director of the Company, except as set forth in
Sections 8 and 10 hereof.

                 (C)  the exercise price per Share shall be 100% of the Fair
Market Value per Share on the date of grant of the Subsequent Option; provided,
however, that in the case of a First Option granted on the effective date of the
Company's initial public offering pursuant to a registration statement filed
with the Securities and Exchange Commission, the exercise price per share shall
be the initial public offering price per share

                 (D)  subject to Section 10 hereof, the Subsequent Option
shall become exercisable with respect to 1/24/th/ of the Shares subject to the
Subsequent Option at the end of each month beginning with the thirteenth month
following the date of grant, so that the Subsequent Option shall be fully
exercisable three (3) years after its date of grant, provided that the Optionee
continues to serve as a Director on such dates.

          (vii)  In the event that any Option granted under the Plan would
cause the number of Shares subject to outstanding Options plus the number of
Shares previously purchased under Options to exceed the Pool, then the remaining
Shares available for Option grant shall be granted under Options to the Outside
Directors on a pro rata basis. No further grants shall be made until such time,
if any, as additional Shares become available for grant under the Plan through
action of the Board or the shareholders to increase the number of Shares which
may be issued under the Plan or through cancellation or expiration of Options
previously granted hereunder.

     5.   Eligibility.  Options may be granted only to Outside Directors. All
          -----------
Options shall be automatically granted in accordance with the terms set forth in
Section 4 hereof.

          The Plan shall not confer upon any Optionee any right with respect to
continuation of service as a Director or nomination to serve as a Director, nor
shall it interfere in any way with any rights which the Director or the Company
may have to terminate the Director's relationship with the Company at any time.

     6.   Term of Plan. The Plan shall become effective upon the earlier to
          ------------
occur of its adoption by the Board or its approval by the shareholders of the
Company as described in Section 16 of the Plan; provided, however, the Plan
shall not become effective until the effective date of the Company's initial
public offering pursuant to a registration statement filed with the Securities
and

                                       -4-

<PAGE>

Exchange Commission. It shall continue in effect for a term of ten (10) years
unless sooner terminated under Section 11 of the Plan.

     7. Form of Consideration. The consideration to be paid for the Shares to be
        ---------------------
issued upon exercise of an Option, including the method of payment, shall
consist of (i) cash, (ii) check, (iii) other shares which (x) in the case of
Shares acquired upon exercise of an option, have been owned by the Optionee for
more than six (6) months on the date of surrender, and (y) have a Fair Market
Value on the date of surrender equal to the aggregate exercise price of the
Shares as to which said Option shall be exercised, (iv) consideration received
by the Company under a cashless exercise program implemented by the Company in
connection with the Plan, or (v) any combination of the foregoing methods of
payment.

     8. Exercise of Option.
        ------------------

        (a)  Procedure for Exercise; Rights as a Shareholder. Any Option granted
             -----------------------------------------------
hereunder shall be exercisable at such times as are set forth in Section 4
hereof; provided, however, that no Options shall be exercisable until
shareholder approval of the Plan in accordance with Section 16 hereof has been
obtained.

             An Option may not be exercised for a fraction of a Share.

             An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may consist of any consideration and method of payment
allowable under Section 7 of the Plan. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the stock certificate evidencing such Shares, no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
A share certificate for the number of Shares so acquired shall be issued to the
Optionee as soon as practicable after exercise of the Option. No adjustment
shall be made for a dividend or other right for which the record date is prior
to the date the stock certificate is issued, except as provided in Section 10 of
the Plan.

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

      (b)    Termination of Continuous Status as a Director. Subject to Section
             ----------------------------------------------
10 hereof, in the event an Optionee's status as a Director terminates (other
than upon the Optionee's death or Disability), the Optionee may exercise his or
her Option, but only within three (3) months following the date of such
termination, and only to the extent that the Optionee was entitled to exercise
it on the date of such termination (but in no event later than the expiration of
its ten (10) year term). To the extent that the Optionee was not entitled to
exercise an Option on the date of such termination, and to the extent that the
Optionee does not exercise such Option (to the extent otherwise so entitled)
within the time specified herein, the Option shall terminate.

                                       -5-

<PAGE>

          (c)  Disability of Optionee. In the event Optionee's status as a
               ----------------------
Director terminates as a result of Disability, the Optionee may exercise his or
her Option, but only within twelve (12) months following the date of such
termination, and only to the extent that the Optionee was entitled to exercise
it on the date of such termination (but in no event later than the expiration of
its ten (10) year term). To the extent that the Optionee was not entitled to
exercise an Option on the date of termination, or if he or she does not exercise
such Option (to the extent otherwise so entitled) within the time specified
herein, the Option shall terminate.

          (d)  Death of Optionee. In the event of an Optionee's death, the
               -----------------
Optionee's estate or a person who acquired the right to exercise the Option by
bequest or inheritance may exercise the Option, but only within twelve (12)
months following the date of death, and only to the extent that the Optionee was
entitled to exercise it on the date of death (but in no event later than the
expiration of its ten (10) year term). To the extent that the Optionee was not
entitled to exercise an Option on the date of death, and to the extent that the
Optionee's estate or a person who acquired the right to exercise such Option
does not exercise such Option (to the extent otherwise so entitled) within the
time specified herein, the Option shall terminate.

     9.   Non-Transferability of Options. The Option may not be sold, pledged,
          ------------------------------
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.

     10.  Adjustments Upon Changes in Capitalization, Dissolution, Merger or
          ------------------------------------------------------------------
Asset Sale.
----------

          (a)  Changes in Capitalization. Subject to any required action by the
               -------------------------
shareholders of the Company, the number of Shares covered by each outstanding
Option, the number of Shares which have been authorized for issuance under the
Plan but as to which no Options have yet been granted or which have been
returned to the Plan upon cancellation or expiration of an Option, as well as
the price per Share covered by each such outstanding Option, and the number of
Shares issuable pursuant to the automatic grant provisions of Section 4 hereof
shall be proportionately adjusted for any increase or decrease in the number of
issued Shares resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued Shares effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of Shares
subject to an Option.

          (b)  Dissolution or Liquidation. In the event of the proposed
               --------------------------
dissolution or liquidation of the Company, to the extent that an Option has not
been previously exercised, it shall terminate immediately prior to the
consummation of such proposed action.

          (c)  Merger or Asset Sale. In the event of a merger of the Company
               --------------------
with or into another corporation or the sale of substantially all of the assets
of the Company, outstanding Options may be assumed or equivalent options may be
substituted by the successor corporation or a Parent or Subsidiary thereof (the
"Successor Corporation"). If an Option is assumed or substituted for, the

                                       -6-

<PAGE>

Option or equivalent option shall continue to be exercisable as provided in
Section 4 hereof for so long as the Optionee serves as a Director or a director
of the Successor Corporation. Following such assumption or substitution, if the
Optionee's status as a Director or director of the Successor Corporation, as
applicable, is terminated other than upon a voluntary resignation by the
Optionee, the Option or option shall become fully exercisable, including as to
Shares for which it would not otherwise be exercisable. Thereafter, the Option
or option shall remain exercisable in accordance with Sections 8(b) through (d)
above.

        If the Successor Corporation does not assume an outstanding Option or
substitute for it an equivalent option, the Option shall become fully vested and
exercisable, including as to Shares for which it would not otherwise be
exercisable. In such event the Board shall notify the Optionee that the Option
shall be fully exercisable for a period of fifteen (15) days from the date of
such notice, and upon the expiration of such period the Option shall terminate.

        For the purposes of this Section 10(c), an Option shall be considered
assumed if, following the merger or sale of assets, the Option confers the right
to purchase or receive, for each Share of Optioned Stock subject to the Option
immediately prior to the merger or sale of assets, the consideration (whether
stock, cash, or other securities or property) received in the merger or sale of
assets by holders of Common Stock for each Share held on the effective date of
the transaction (and if holders were offered a choice of consideration, the type
of consideration chosen by the holders of a majority of the outstanding Shares).
If such consideration received in the merger or sale of assets is not solely
common stock of the successor corporation or its Parent, the Administrator may,
with the consent of the successor corporation, provide for the consideration to
be received upon the exercise of the Option, for each Share of Optioned Stock
subject to the Option, to be solely common stock of the successor corporation or
its Parent equal in fair market value to the per share consideration received by
holders of Common Stock in the merger or sale of assets.

        11. Amendment and Termination of the Plan.
            -------------------------------------

            (a)  Amendment and Termination. The Board may at any time amend,
                 -------------------------
alter, suspend, or discontinue the Plan, but no amendment, alteration,
suspension, or discontinuation shall be made which would impair the rights of
any Optionee under any grant theretofore made, without his or her consent. In
addition, to the extent necessary and desirable to comply with any applicable
law, regulation or stock exchange rule, the Company shall obtain shareholder
approval of any Plan amendment in such a manner and to such a degree as
required.

            (b)  Effect of Amendment or Termination.  Any such amendment or
                 ----------------------------------
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated.

        12. Time of Granting Options.  The date of grant of an Option shall, for
            ------------------------
all purposes, be the date determined in accordance with Section 4 hereof.

        13. Conditions Upon Issuance of Shares. Shares shall not be issued
            ----------------------------------
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without

                                       -7-

<PAGE>

limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules
and regulations promulgated thereunder, state securities laws, and the
requirements of any stock exchange upon which the Shares may then be listed, and
shall be further subject to the approval of counsel for the Company with respect
to such compliance.

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

          Inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall relieve
the Company of any liability in respect of the failure to issue or sell such
Shares as to which such requisite authority shall not have been obtained.

     14.  Reservation of Shares. The Company, during the term of this Plan, will
          ---------------------
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.

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

     16.  Shareholder Approval.  The Plan shall be subject to approval by the
          --------------------
shareholders of the Company within twelve (12) months after the date the Plan is
adopted.  Such shareholder approval shall be obtained in the degree and manner
required under applicable state and federal law and any stock exchange rules.

                                       -8-

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