Document:

Filed by Automated Filing Services Inc. (604) 609-0244 - IAS Communications, Inc. - Exhibit 10.12

 EXHIBIT 10.12 

 Settlement and Release Agreement 

 This Settlement and Release Agreement is made an entered into
  as of the ____ day of January, 2005 by and between IAS Communications, Inc.,
  and Oregon corporation (“IAS”) and Integral Concepts Inc. a West
  Virginia corporation (“ICI”). 

 WHEREAS: ICI and West Virginia University Research Corporation
  (“WVURC”) entered into a license agreement dated April 12, 1994
  (the “License”) for certain technologies related to the design,
  construction and operation of the Toroidal Helical Antenna, U.S. Patent Office
  Serial No. 07/992,970, et seq., and defined herein to be embraced with the expression
  “The Technology”; and 

 WHEREAS: IAS was granted an exclusive worldwide sublicense
  from ICI of its right, title and interest in and to the Technology, excluding
  all military applications and resulting procurement interests, pursuant to the
  sublicense dated July 10, 1995, by and between IAS and ICI (the “Sublicense”);
  and 

 WHEREAS: ICI and WVURC are going to terminate the License;
  and 

 WHEREAS: ICI and IAS desire to terminate the Sublicense, all
  as provided for herein. 

 NOW, THEREFORE, IT IS AGREED AS FOLLOWS: 

	 	 5.      	 The Sublicense is hereby terminated and
        all rights, duties and obligations of the parties thereunder cease on
        the date of this agreement. 

	 
	 	 6.      	 ICI does hereby fully, forever, irrevocably,
        and unconditionally release and discharge IAS including, as applicable,
        all past and present officers, directors, stockholders, affiliates (including,
        but not limited to parent, subsidiary and affiliated corporations), agents,
        employees, representatives, lawyers, administrators, spouses, and all
        persons acting by, through, under, or in concert with them, from any and
        all claims, damages or other sums, and including attorney’s fees
        and costs, which ICI may have against them, or any of them, which could
        have arisen out of any act or omission occurring from the beginning of
        time to the effective date of this Agreement, whether now known or unknown,
        and whether asserted or unasserted. 

	 
	 	 7.      	 IAS does hereby fully, forever, irrevocably,
        and unconditionally release and discharge ICI including, as applicable,
        all past and present officers, directors, stockholders, affiliates, related
        business entities, agents, employees, representatives, lawyers, administrators,
        spouses, and all persons acting by, through, under, or in concert with
        them, from any and all claims, damages or other sums, including attorneys’
        fees and costs, which IAS may have against them, or any of them, which
        could have arisen out of any act or omission occurring from the beginning
        of time to the effective date of this Agreement, whether now known or
        unknown, and whether asserted or unasserted. 

	 
	 	 8.      	 Miscellaneous 

	 
	 	 	 (a)     
      
	 West Virginia Law. This Agreement
        shall be construed in accordance with the laws of the State of West Virginia.
      

	 
	 	 	 (b)      
	 Attorney’s Fees. In any action
        brought to enforce this Agreement, or to seek damages for breach thereof,
        the prevailing party shall be entitled to recover a reasonable attorney’s
        fee (including a reasonable attorney’s fee on any appeal thereof),
        and reasonable costs of litigation in addition to any other award or decree
        granted or given by the court. 

	 
	 	 	 (c)      
	 Entire Agreement. This Agreement constitutes
        the entire agreement and understanding between the parties, and may only
        be modified or amended by a subsequent written agreement executed by both
        parties. 

 

	 	 	 (d)      	 No Waiver. No failure on the part
        of either party to exercise and no delay in exercising any rights hereunder
        shall operate as a waiver thereof; nor shall any waiver or acceptance
        of a partial, single or delayed performance of any term or condition of
        this Agreement operate as a continuing waiver or a waiver of any subsequent
        breach thereof. 

	 
	 	 	 (e)      	 Severability. If any provision of
        this Agreement is held to be illegal, invalid or unenforceable, such provision
        shall be fully severable and this Agreement shall be continued and enforced
        as if such illegal, invalid or unenforceable provision were never a part
        hereof; and in lieu of such provision, there shall be added automatically
        as part of this Agreement a provision as similar in terms to such illegal,
        invalid or unenforceable provision as may be possible to make such provision
        legal, valid and enforceable. 

IAS Communications, Inc. 

 By        /s/ John Robertson 

  John G. Robertson, President 

Integral Concepts Inc. 

 By:        /s/ James Smith___________EXHIBIT 4.2
                                STOCK OPTION PLAN

         THIS  STOCK   OPTION   PLAN  (the   "Plan")  is  made  and  adopted  by
MACHINETALKER, INC., a Delaware corporation (the "Company"), for the purposes of
enabling  the  Company  to grant  stock  options  to its  employees  and  others
providing services to the Company.

SECTION 1. DEFINITIONS. For purposes of this Plan, the term:

1.1  "BOARD" means the board of Directors of the Company.

1.2  "CODE"  means the Internal  Revenue  Code of 1986,  as amended from time to
     time.

1.3  "COMMITTEE" means such Committee of the Board of Directors as the Board may
     constitute and appoint from time to time to administer  the Plan,  pursuant
     to Section 2.2, below.

1.4  "COMMON STOCK" means shares of the common capital stock of the Company.

1.5  "COMPANY" means MACHINETALKER, INC., a Delaware corporation.

1.6  "EXERCISE  PRICE" means the amount due pursuant to Section  6.1(c),  below,
     for the  purchase  of shares of Common  Stock upon the  exercise of Options
     granted hereunder.

1.7  "FAIR MARKET  VALUE" means,  as of any date,  the value of the Common Stock
     determined as follows:

     (a) If the Common Stock is listed on an established national stock exchange
     or the National  Market  System of the National  Association  of Securities
     Dealers, Inc., Automated Quotation ("NASDAQ") System, the Fair Market Value
     of a share of Common Stock 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  (or the  exchange  with the  greatest  volume of  trading in the
     Common  Stock)  on  the  last  market  trading  day  prior  to  the  day of
     determination,  as reported in The Wall Street Journal or such other source
     as the Board or Committee deems reliable;

     (b) If the  Common  Stock is quoted on the  NASDAQ  System  (but not on the
     National  Market  System  thereof) or 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 on the last market  trading day prior
     to the day of determination, as reported in The Wall Street Journal or such
     other source as the Board or Committee deems reliable; and

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

1.8  "HOLDER"  means  each   individual  to  whom  an  Incentive   Option  or  a
     Nonqualified  Option is granted,  or to whom shares of Restricted Stock are
     issued, under this Plan.

1.9  "INCENTIVE  OPTIONS" means "incentive stock options," as defined in Section
     422 of the Code.

1.10 "NONQUALIFIED OPTIONS" means all options granted under this Plan to acquire
     stock of the Company,  its Parent, or any of its  Subsidiaries,  other than
     Incentive Options.

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1.11 "OPTION" shall mean each Incentive Option and Nonqualified Option permitted
     to be granted under this Plan.

1.12 "OPTION  SHARES"  shall  mean the  number of shares  for which an Option is
     granted under this Plan.

1.13 "PARENT"  means a corporation  that owns directly or indirectly 50% or more
     of the total combined voting power of all classes of stock of the Company.

1.14 "PLAN" means this Stock Option Plan of the Company, as amended from time to
     time.

1.15 "RESTRICTED  STOCK"  means  shares of Common Stock which (a) either (i) are
     issued upon exercise of an Option prior to Holder's  becoming  fully vested
     therein, or (ii) otherwise are issued by the Company pursuant to Section 7,
     below,  in lieu of granting an option for the purchase of such shares,  and
     (b) are subject to such vesting  schedule and transfer  restrictions as the
     Board or the Committee deems appropriate.

1.16 "RESTRICTED  STOCKHOLDER" means the employee of, consultant to, or director
     of the  Company  or other  person to whom  shares of  Restricted  Stock are
     issued pursuant to this Plan.

1.17 "RESTRICTED  STOCK AGREEMENT"  means an agreement  executed by a Restricted
     Stockholder  and the Company as  contemplated  by Section 7,  below,  which
     imposes  on  the  shares  of  Restricted   Stock  held  by  the  Restricted
     Stockholder such restrictions as the Board or Committee deem appropriate.

1.18 "SUBSIDIARY"  means each  corporation in which stock possessing 50% or more
     of the  total  combined  voting  power  of all  classes  of  stock  of such
     corporation or corporations is owned directly or indirectly by the Company.

SECTION  2.  PURPOSE.  This Plan is  intended  to provide  incentives  to enable
officers and employees of the Company, its Parent, and its Subsidiaries, and for
certain other  individuals  providing  services to or acting as directors of the
Company,  its Parent, or its Subsidiaries,  to acquire or increase a proprietary
interest in the Company, its Parent, or its Subsidiaries, and their success. The
Company intends that this purpose shall be effected by the granting of Incentive
Options and  Nonqualified  Options,  and the  issuance  of shares of  Restricted
Stock, under the Plan.

SECTION 3. OPTIONS TO BE GRANTED AND ADMINISTRATION

3.1  OPTIONS  TO BE  GRANTED.  Options  granted  under  the Plan  may be  either
     Incentive Options or Nonqualified Options.

3.2  ADMINISTRATION  BY THE BOARD.  This Plan shall be administered by the Board
     of Directors of the Company.

          (a) The Board shall have full and final  authority to operate,  manage
     and administer the Plan on behalf of the Company.  This authority includes,
     but is not  limited  to: (i) the power to grant  Options  conditionally  or
     unconditionally;  (ii)  the  power  to  prescribe  the form or forms of the
     instruments  evidencing Options granted under this Plan; (iii) the power to
     interpret the Plan; (iv) the power to provide regulations for the operation
     of  the  incentive  features  of  the  Plan,  and  otherwise  to  prescribe

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<PAGE>

     regulations for interpretation,  management and administration of the Plan;
     (v) the power to delegate responsibility for Plan operation, management and
     administration  on such terms,  consistent  with the Plan, as the Board may
     establish;  (vi) the power to delegate to other persons the  responsibility
     for performing  ministerial acts in furtherance of the Plan's purpose;  and
     (vii) the power to engage  the  services  of persons  or  organizations  in
     furtherance  of the Plan's  purpose,  including  but not  limited to banks,
     insurance companies, brokerage firms and consultants.

          (b) In  addition,  as to each  Option,  the Board  shall have full and
     final  authority in its  discretion to determine:  (i) the number of shares
     subject to each Option;  (ii) the time or times at which  Options  shall be
     granted;  (iii) the  Option  price for the shares  subject to each  Option,
     which price  shall be subject to the  applicable  requirements,  if any, of
     Section  6.1(c)  hereof,  and (iv) the time or times when each Option shall
     become exercisable, the conditions under which exercise may be accelerated,
     and the duration of the exercise period.

3.3  APPOINTMENT  AND  PROCEEDINGS  OF COMMITTEE.  The Board may appoint a Stock
     Option  Committee which shall consist of at least two members of the Board.
     The  Board  may from  time to time  appoint  members  of the  Committee  in
     substitution for or in addition to members  previously  appointed,  and may
     fill  vacancies,  however  caused,  in the Committee.  The Committee  shall
     select one of its members as its  chairman  and shall hold its  meetings at
     such times and places as it shall deem advisable. A majority of its members
     shall  constitute a quorum,  and all actions of the Committee shall require
     the affirmative vote of a majority of its members.  Any action may be taken
     by a written  instrument  signed by all of the  members,  and any action so
     taken  shall be as fully  effective  as if it had been taken by a vote of a
     majority of the members at a meeting duly called and held.

3.4  POWERS  OF  COMMITTEE.  Subject  to the  provisions  of this  Plan  and the
     approval  of the  Board,  the  Committee  shall  have  the  power  to  make
     recommendations  to the Board as to whom  Options  should be  granted,  the
     number of shares to be covered by each Option,  the time or times of Option
     grants,  and the terms and  conditions  of each Option.  In  addition,  the
     Committee  shall have authority to interpret the Plan, to prescribe,  amend
     and rescind rules and regulations relating to the Plan, and to exercise the
     administrative  and ministerial  powers of the Board with regard to aspects
     of the Plan other than the  granting of  Options.  The  interpretation  and
     construction  by the  Committee  of any  provisions  of the  Plan or of any
     Option  granted  hereunder  and the  exercise of any power  delegated to it
     hereunder  shall be final,  unless  otherwise  determined by the Board.  No
     member of the Board or the  Committee  shall be  liable  for any  action or
     determination  made in good  faith  with  respect to the Plan or any Option
     granted hereunder.

SECTION 4. STOCK

4.1  SHARES SUBJECT TO PLAN. The Company hereby  reserves and sets aside for the
     granting of Options under the plan Two Million (2,000,000) shares of Common
     Stock.  Such  number of shares is  subject to  adjustment  as  provided  in
     Section 9, below.

4.2  LAPSED OR UNEXERCISED  OPTIONS.  Whenever any outstanding  Option under the
     Plan  expires,  is  canceled  or is  otherwise  terminated  (other  than by
     exercise),  the shares of Common Stock allocable to the unexercised portion
     of such Option automatically shall be deemed to be restored to the Plan and
     again shall be available  for the granting of other Options and issuance of
     shares of Restricted Stock under the Plan.

4.3  UNVESTED SHARES OF RESTRICTED  STOCK  REPURCHASED BY COMPANY.  Whenever any
     unvested shares of Restricted Stock are repurchased by the Company pursuant

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     to Section 7, below, such repurchased shares  automatically shall be deemed
     to be restored to the Plan and again shall be available for the granting of
     other Options or issuance of shares of Restricted Stock under the Plan.

SECTION 5. ELIGIBILITY

5.1  ELIGIBLE  OPTIONEES.  Incentive Options may be granted only to officers and
     other  employees  of the Company or its Parent or  Subsidiaries,  including
     members of the Board who are also  employees  of the Company or a Parent or
     Subsidiary.  Nonqualified  Options  may be  granted  to  officers  or other
     employees of the Company or its Parent or  Subsidiaries,  to members of the
     Board or the board of  directors of a Parent or any  Subsidiary  whether or
     not employees of the Company or such Parent or  Subsidiary,  and to certain
     other  individuals  providing  services  to the  Company  or its  Parent or
     Subsidiaries.

5.2  LIMITATIONS ON 10% STOCKHOLDERS. No Incentive Option shall be granted to an
     individual  who,  at  the  time  the  Incentive  Option  is  granted,  owns
     (including  ownership  attributed  pursuant to Section  424(d) of the Code)
     more than 10% of the total combined voting power of all classes of stock of
     the Company or a Parent or Subsidiary  of the Company (a  "greater-than-10%
     stockholder"),  unless such Incentive Option provides that (i) the purchase
     price per share shall not be less than 110% of the Fair Market Value of the
     Common Stock at the time such  Incentive  Option is granted,  and (ii) such
     Incentive  Option  shall  not  be  exercisable  to  any  extent  after  the
     expiration of five (5) years from the date on which it is granted.

5.3  LIMITATION  ON  EXERCISABLE   OPTIONS.  The  aggregate  Fair  Market  Value
     (determined  at the time the  Incentive  Option is  granted)  of the Common
     Stock with respect to which Incentive Options are exercisable for the first
     time by any person  during any  calendar  year under the Plan and under any
     other Option plan of the Company (or a parent or  subsidiary  as defined in
     Section 424 of the Code) shall not exceed  $100,000.  Any Option granted in
     excess of the  foregoing  limitation  shall be  specifically  designated as
     being a Nonqualified  Option.  The first sentence of this Section 5.3 shall
     be applied by  reference to the Fair Market Value of Common Stock as of the
     time the Option is granted.

SECTION 6. TERMS OF OPTION AGREEMENTS

6.1  MANDATORY TERMS. Each Option agreement shall contain such provisions as the
     Board or the  Committee  from time to time  determines  to be  appropriate.
     Option  agreements  need not be  identical,  but each Option  agreement  by
     appropriate  language  shall  include the substance of all of the following
     provisions:

          (A) EXPIRATION.  Notwithstanding any other provision of the Plan or of
     any Option agreement, each Option shall expire on the date specified in the
     Option agreement,  which date shall not be later than the tenth anniversary
     of the date on which the Option was granted (fifth  anniversary in the case
     of an Incentive Option granted to a greater-than-10% stockholder).

          (B) EXERCISE;  VESTING. Each Option shall be exercisable in full or in
     installments  (which need not be equal) and at such times as  designated by
     the Board or the Committee. To the extent not exercised, installments shall
     accumulate  and be  exercisable,  in whole or in  part,  at any time  after
     becoming  exercisable,  but not  later  than the date the  Option  expires.
     Unless the Board or  Committee  determines  otherwise  with  respect to any
     Option  granted or any shares of  Restricted  Stock issued  hereunder,  the
     Holder  of each  Option  shall  become  vested  in  such  Option  and  each
     Restricted Stockholder shall become vested in shares of Restricted Stock as
     follows:  (i)  twenty-five  percent  (25%) of the shares  after twelve (12)

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     consecutive  months of employment  with the Company,  and (ii)  thereafter,
     one-thirty-sixth  (1/36th) of the remainder of the shares for each complete
     subsequent month of continuous employment with the Company.

          (C) PURCHASE  PRICE.  The purchase price per share of the Common Stock
     under each Incentive Option shall be not less than the Fair Market Value of
     the Common Stock on the date the Option is granted (110% of the Fair Market
     Value in the case of a  greater-than-10%  stockholder).  The price at which
     shares may be purchased pursuant to Nonqualified Options shall be specified
     by the Board or the Committee at the time the Option is granted, and may be
     less than,  equal to or greater than the Fair Market Value of the shares of
     Common Stock on the date such Nonqualified Option is granted, but shall not
     be less than the par value of shares of Common Stock.

          (D) TRANSFERABILITY OF OPTIONS. Options granted under the Plan and the
     rights and privileges  conferred thereby may not be transferred,  assigned,
     pledged or  hypothecated  in any manner  (whether  by  operation  of law or
     otherwise)  other  than by  will  or by  applicable  laws  of  descent  and
     distribution, and shall not be subject to execution,  attachment or similar
     process. Upon any attempt to so transfer,  assign,  pledge,  hypothecate or
     otherwise  dispose of any Option  under the Plan (or any right or privilege
     conferred  hereby),  contrary to the  provisions  of the Plan,  or upon any
     attempted  levy or any  attachment  or similar  process upon the rights and
     privileges  conferred  hereby,  such Option shall  thereupon  terminate and
     become null and void.

          (E)  TERMINATION  OF  EMPLOYMENT  OR  DEATH  OF  OPTIONEE.  Except  as
     otherwise  expressly  provided  in the terms and  conditions  of the Option
     granted to an Optionee,  Options  granted  hereunder shall terminate on the
     earliest to occur of (i) the date of expiration thereof; (ii) if the Holder
     is employed by the Company and such employment is terminated by the Company
     for cause,  as hereinafter  defined,  on the date of such  termination;  or
     (iii) if the Holder is  employed  by the  Company  and such  employment  is
     terminated  for any reason other than death or for cause as  aforesaid,  on
     the earlier of the date of expiration thereof or ninety (90) days following
     the date of such termination.

               (i) Until the date on which the Option so expires, the Holder may
          exercise that portion of his Option which is  exercisable  at the time
          of  termination  of  such  relationship.  An  employment  relationship
          between the Company and the Holder shall be deemed to exist during any
          period  during  which the Holder is  employed  by the  Company or by a
          Parent or any  Subsidiary.  Whether  authorized  leave of  absence  or
          absence on military government service shall constitute termination of
          the employment  relationship  between the Company and the Holder shall
          be determined  by the Board or the Committee at the time thereof.  For
          purposes of this Section  6.1(e),  the term "cause" shall mean (a) any
          material breach by the Holder of any agreement to which the Holder and
          the Company are both parties,  (b) any act (other than  retirement) or
          omission  to act by the Holder  which may have a material  and adverse
          effect on the  Company's  business  or on the  Optionee's  ability  to
          perform services for the Company,  including,  without limitation, the
          commission of any crime (other than minor traffic  violations),(c) any
          material  misconduct  or  material  neglect of duties by the Holder in
          connection  with  the  business  or  affairs  of  the  Company  or any
          Subsidiary  or affiliate of the Company,  or any other act or omission
          constituting  "cause" for  termination  of Holder's  employment by the
          Company  under any  employment  agreement  between such Holder and the
          Company.

               (ii)  In  the  event  of the  death  of any  Holder  while  in an
          employment or other  relationship with the Company and before the date
          of  expiration  of such  Option,  such Option  shall  terminate on the
          earlier of such date of  expiration  or one hundred  eighty (180) days
          following the date of such death. After the death of the Optionee, his
          executor,  Board or  Committee  or any  person or  persons to whom his

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          Option  may  be  transferred  by  will  or  by  laws  of  descent  and
          distribution,  shall  have  the  right,  at any  time  prior  to  such
          termination,  to  exercise  the  Option to the  extent  the Holder was
          entitled to exercise such Option as of the date of his death.

               (f)  RIGHTS  OF  OPTIONEES.  No Holder  shall be  deemed  for any
          purpose to be the owner of any shares of Common  Stock  subject to any
          Option unless and until (i) the Option shall have been  exercised with
          respect to such  shares  pursuant to the terms  thereof,  and (ii) the
          Company  shall have issued and  delivered a  certificate  representing
          such shares.  Thereupon,  the Holder shall have full voting,  dividend
          and other  ownership  rights  with  respect  to such  shares of Common
          Stock,  subject  to any  agreements  entered  into  by the  Holder  in
          connection  with the Optionees  exercise of the Option and acquisition
          of the stock.

6.2  CERTAIN  OPTIONAL  TERMS.  The Board or the Committee may in its discretion
     provide,  upon the grant of any Option  hereunder,  that the stock shall be
     subject to the terms of a repurchase or shareholders'  agreement  including
     any and all commercially  reasonable  terms,  such as, without  limitation,
     that the Company shall have the right from time to time to  repurchase  all
     or any number of shares  purchased  upon  exercise of such Option.

          (a) The  repurchase  price per share  payable by the Company  shall be
     such amount or be  determined in such a manner as is fixed or determined by
     the Board or the Committee at the time the Option for the shares subject to
     repurchase  was granted.  The Board or the  Committee may also provide that
     the  Company  shall  have a right  of first  refusal  with  respect  to the
     transfer or proposed  transfer of any shares  purchased upon exercise of an
     Option  granted  hereunder.  In the event the Board or the Committee  shall
     grant Options subject to the Company's repurchase rights or rights of first
     refusal, the certificate or certificates  representing the shares purchased
     pursuant to the exercise of such Option  shall carry a legend  satisfactory
     to counsel for the Company referring to such rights.

          (b)  Notwithstanding  the  foregoing,  (i) the form of Stock  Transfer
     Agreement  attached  to this Plan at EXHIBIT A is hereby  approved  for use
     with  stockholders with respect to shares issued under this Plan. Such form
     may be used under this Plan by the Board,  the Committee,  and the officers
     of the Company, in their discretion,  without any further approval from the
     stockholders, the Board or the Committee.

SECTION 7. AWARD OF RESTRICTED STOCK

7.1  AWARD OF RESTRICTED STOCK. The Board or Committee from time to time, in its
     absolute discretion, may (a) award Restricted Stock (in lieu of Options) to
     employees of, consultants to, and directors of the Company,  and such other
     persons as the Board or  Committee  may select,  and (b) permit  Holders of
     Options to exercise such Options prior to full vesting therein and hold the
     Common Stock issued upon  exercise of the Option as  Restricted  Stock.  In
     either such event, the owner of such Restricted Stock shall hold such stock
     subject to such vesting  schedule as the Board or  Committee  may impose or
     such vesting schedule to which the Option was subject, as determined in the
     discretion  of the Board or  Committee.  Any unvested  shares of Restricted
     Stock that are repurchased by the Company  pursuant to this Section 7 shall
     be deemed to be restored to the Plan pursuant to Section 4.3, above.

7.2  RESTRICTED STOCK AGREEMENT.  Restricted Stock shall be issued only pursuant
     to a Restricted Stock Agreement,  which shall be executed by the Restricted
     Stockholder  and the  Company  and  which  shall  contain  such  terms  and
     conditions as the Board or Committee shall  determine  consistent with this
     Plan,  including such  restrictions on transfer as are imposed by the Stock
     Transfer Agreement.

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7.3  RIGHTS AS STOCKHOLDERS.  Upon delivery of the shares of Restricted Stock to
     the Restricted Stockholder or to the escrow holder pursuant to Section 7.8,
     below, the Restricted  Stockholder shall have, unless otherwise provided by
     the Board or  Committee,  all the rights of a  stockholder  with respect to
     said shares, subject to the restrictions in the Restricted Stock Agreement,
     including the right to receive all dividends and other distributions (other
     than stock  dividends,  which  shall be paid to the  escrow  holder for the
     benefit of the  Restricted  Stockholder)  paid or made with  respect to the
     Restricted Stock.

7.4  RESTRICTION ON TRANSFER: VESTING.  Notwithstanding anything in this Plan or
     any Restricted Stock Agreement to the contrary, no Restricted  Stockholders
     may  sell or  otherwise  transfer,  whether  or not for  value,  any of the
     Restricted  Stock prior to the date on which the Restricted  Stockholder is
     vested therein.

7.5  ADDITIONAL  RESTRICTIONS.  All shares of Restricted Stock issued under this
     Plan (including any shares of Common Stock and other securities issued with
     respect to the shares of Restricted  Stock as a result of stock  dividends,
     stock  splits or similar  changes in the capital  structure of the Company)
     shall be  subject  to such  restrictions  as the Board or  Committee  shall
     provide, which restrictions may include,  without limitation,  restrictions
     concerning  voting  rights,  transferability  of the  Restricted  Stock and
     restrictions  based on duration of  employment  with the  Company,  Company
     performance  and  individual  performance;   provided  that  the  Board  or
     Committee  may,  on such terms and  conditions  as it may  determine  to be
     appropriate,  remove any or all of such restrictions.  Restricted Stock may
     not be sold or encumbered until all applicable restrictions have terminated
     or expire.  The restrictions,  if any, imposed by the Board or Committee or
     the Board  under  this  Section 7 need not be  identical  for all shares of
     Restricted Stock and the imposition of any restrictions with respect to any
     Restricted  Stock shall not require the imposition of the same or any other
     restrictions with respect to any other Restricted Stock.

7.6  REPURCHASE OF UNVESTED  RESTRICTED  STOCK.  Each Restricted Stock Agreement
     shall provide that the Company shall have the right to repurchase  from the
     Restricted  Stockholder the unvested Restricted Stock upon a termination of
     employment,  termination  of  directorship  or  termination of a consulting
     arrangement, as applicable, at a cash price per share equal to the purchase
     price paid by the Restricted Stockholder for such Restricted Stock.

7.7  RIGHT OF FIRST REFUSAL.  In the  discretion of the Board or Committee,  the
     Restricted  Stock Agreement may provide that the Company shall have a right
     of first  refusal  with  respect  to the  Restricted  Stock  and a right to
     repurchase the vested Restricted Stock upon a termination of the Restricted
     Stockholder's   employment  with  the  Company,   the  termination  of  the
     Restricted  Stockholder's  consulting  arrangement  with the  Company,  the
     termination of the Restricted Stockholder's service on the Company's Board,
     or such other events as the Board or Committee may deem appropriate.

7.8  ESCROW.  The  Secretary of the Company or such other  escrow  holder as the
     Board or  Committee  may  appoint  shall  retain  physical  custody of each
     certificate  representing  Restricted  Stock until all of the  restrictions
     imposed on the Restricted Stock expire or have been removed.

7.9  LEGEND. The Board or Committee shall cause a legend or legends to be placed
     on certificates representing shares of Restricted Stock that are subject to
     restrictions  under  Restricted Stock  Agreements,  which legend or legends
     shall make appropriate reference to the applicable restrictions.

                                       7
<PAGE>

SECTION 8. METHOD OF EXERCISE; PAYMENT OF PURCHASE PRICE

8.1  MEANS OF EXERCISE.  Any Option  granted  under the Plan may be exercised by
     the  Holder by  delivering  to the  Company on any  business  day a written
     notice  specifying  the number of shares of Common  Stock the  Holder  then
     desires to purchase and  specifying  the address to which the  certificates
     for such  shares  are to be mailed  (the  "Notice").  The  Notice  shall be
     accompanied by payment for such shares, any required payment of withholding
     taxes,  and such  documents,  including  without  limitation  an investment
     letter and a repurchase  or  shareholder's  agreement  duly executed by the
     Holder relating,  among other things, to restrictions on transfer rights of
     first  refusal  and  Company  buy-back  rights  (if  applicable),   as  may
     reasonably be required or requested by the Company.

8.2  PAYMENT OF EXERCISE PRICE. The consideration for such shares shall be paid,
     with the approval of the Board or Committee, either:

          (a) In cash,  certified or bank check or postal money order payable to
     the order of the Company for an amount equal to the sum of (x) the Exercise
     Price  of such  shares,  plus  (y) the  amount,  if any,  required  to fund
     withholding  taxes due with respect to such exercise,  as  contemplated  by
     Section 11, below. If as of the date of Holder's exercise of the Option the
     Company then is sponsoring a cashless  exercise program through one or more
     approved brokers,  then upon notification by Holder the Company will tender
     to a  Company-approved  broker any cash to be delivered under the foregoing
     clause "(x)" may be provided  with the proceeds of any Option  Shares which
     Holder  elects to cause to be sold in  connection  with the exercise of the
     Option,  the date on which the Company  receives the proceeds from the sale
     of those  shares  shall be  deemed  to be the date on which  the  Option is
     exercised, and any applicable income,  withholding and other taxes shall be
     calculated  based upon the selling  price of the Option  Shares sold by the
     Company-approved broker pursuant to such cashless exercise.

          (b) With one or more  share  certificates  for a number  of  shares of
     outstanding  Company Common Stock having a Fair Market Value on the date of
     tender equal to the sum of (w) the Exercise Price of such shares,  plus (x)
     the amount,  if any, required to fund withholding taxes due with respect to
     such  exercise,  as  contemplated  by Section 11, below;  provided that the
     Company  shall not be  obligated  to accept the  transfer  of any shares of
     Common  Stock  in  payment  of the  exercise  price  unless  such  transfer
     satisfies  all of the  provisions  of Rule  16b-3  then  applicable  to the
     Company.

          (c) If authorized by the applicable  Option  agreement,  by (i) a "net
     exercise" under which Holder  relinquishes the right to acquire a number of
     shares of Common  Stock  issuable  upon  exercise of the Option (but not in
     excess of the vested portion  thereof) having a net Fair Market Value equal
     to the  amount  by which  (x) the Fair  Market  Value of such  relinquished
     shares,  exceeds (y) the  aggregate  Exercise  Price for such  relinquished
     shares, and (ii) payment of cash in an amount equal to the remainder of the
     Exercise Price.

8.3  DELIVERY  OF   CERTIFICATE.   Promptly   after   receipt  of  such  written
     notification and payment,  the Company shall deliver to the Holder or other
     appropriate  person  certificates  for the number of shares with respect to
     which such Option has been so  exercised,  issued in the  Optionee's  name;
     provided,  however,  that such  delivery  shall be deemed  effected for all
     purposes  when the Company or a stock  transfer  agent of the Company shall
     have deposited such  certificates  in the United States mail,  addressed to
     the Holder or other appropriate  person, at the address specified  pursuant
     to Section 8.1 or another appropriate address designated by the Holder.

                                       8
<PAGE>

SECTION 9. ADJUSTMENT UPON CHANGES IN CAPITALIZATION

9.1  NO EFFECT OF OPTIONS UPON CERTAIN CORPORATE TRANSACTIONS.  The existence of
     outstanding  Options  shall not affect in any way the right or power of the
     Company or its  stockholders  to make or authorize any or all  adjustments,
     recapitalizations,  reorganizations  or  other  changes  in  the  Company's
     capital  structure or its business,  or any merger or  consolidation of the
     Company,  or any issue of Common Stock, or any issue of bonds,  debentures,
     preferred or prior  preference stock ahead of or affecting the Common Stock
     or the rights thereof, or the dissolution or liquidation of the Company, or
     any sale or transfer of all or any part of its assets or  business,  or any
     other  corporate  act or  proceeding,  whether  of a similar  character  or
     otherwise.

9.2  STOCK  DIVIDENDS,   RECAPITALIZATIONS,   ETC.  If  the  Company  effects  a
     subdivision or consolidation of shares or other capital  readjustment,  the
     payment of a stock  dividend,  or other increase or reduction of the number
     of shares of the Common Stock outstanding,  without receiving  compensation
     therefor in money,  services or property,  then: (a) the number,  class and
     per share price of shares of stock subject to outstanding Options hereunder
     shall be appropriately  adjusted in such a manner as to entitle a Holder to
     receive  upon  exercise  of  an  Option,   for  the  same   aggregate  cash
     consideration,  the same total number and class of shares that the owner of
     an equal number of outstanding shares of Common Stock would own as a result
     of the event  requiring  the  adjustment;  and (b) the  number and class of
     shares with respect to which Options may be granted under the Plan shall be
     adjusted by  substituting  for the total  number of shares of Common  Stock
     then  reserved for issuance  under the Plan that number and class of shares
     of stock that the owner of an equal number of outstanding  shares of Common
     Stock would own as a result of the event requiring the adjustment.

9.3  DETERMINATION  OF  ADJUSTMENTS.  Adjustments  under this Section 9 shall be
     determined by the Board or the Committee and such  determinations  shall be
     conclusive.  The Board or the Committee shall have the discretion and power
     in any  such  event  to  determine  and to  make  effective  provision  for
     acceleration  of the time or times at which any Option or  portion  thereof
     shall become  exercisable.  No  fractional  shares of Common Stock shall be
     issued under the Plan on account of any adjustment specified above.

9.4  NO ADJUSTMENT IN CERTAIN CASES. Except as hereinbefore  expressly provided,
     the issue by the  Company  of shares of stock of any class,  or  securities
     convertible  into shares of stock of any class, for cash or property or for
     labor or  services,  either upon direct sale or upon the exercise of rights
     or  warrants  to  subscribe  therefor,  or upon  conversion  of  shares  or
     obligations  of  the  Company   convertible   into  such  shares  or  other
     securities,  shall not affect, and no adjustment by reason thereof shall be
     made with  respect  to, the number or price of shares of Common  Stock then
     subject to outstanding Options.

SECTION 10. EFFECT OF CERTAIN  TRANSACTIONS.  If, while  unexercised  Options or
unvested  shares of  Restricted  Stock remain  outstanding  under the Plan,  the
Company  is a party  to a  reorganization  or  merger  with  one or  more  other
corporations,  whether  or  not  the  Company  is  the  surviving  or  resulting
corporation,  or if the  Company  consolidates  with or into  one or more  other
corporations,  or if the Company is  liquidated,  or if there is a sale or other
disposition of substantially  all of the Company's  capital stock or assets to a
third party or parties (each hereinafter referred to as a "Transaction"), then:

10.1 OPTION OUTSTANDING. Subject to the provisions of Section 10.2, below, after
     the effective  date of such  Transaction  unexercised  Options shall remain
     outstanding  and shall be  exercisable  in  shares  of Common  Stock or, if
     applicable,  shares of such stock or other securities,  cash or property as
     the  holders of shares of Common  Stock  received  pursuant to the terms of
     such Transaction; or

                                       9
<PAGE>

10.2 PERMISSIVE ACCELERATION.  The Board may accelerate the time for exercise of
     any or all unexercised and unexpired Options,  effective as of a date prior
     to the  effective  date of such  Transaction;  provided  that (a) notice of
     acceleration  shall be given to each  Holder  of an  Option  to which  such
     acceleration is to apply, (b) each Holder of an Option shall have the right
     to exercise such Option in part or in full prior to the  effective  date of
     such  Transaction,  and (c) to the  extent  not so  exercised,  all of such
     Options  shall be  canceled  prior  to or as of such  effective  date;  and
     provided  further,  the Board may not accelerate  unexercised and unexpired
     Options  pursuant to this Section 10.2 if to do so would  adversely  affect
     pooling of interests treatment intended to be effected in connection with a
     Transaction.

SECTION 11. NON-EXCLUSIVITY OF THE PLAN; NON-UNIFORM DETERMINATIONS. Neither the
adoption  of the  Plan  by the  Board  nor  the  approval  of  the  Plan  by the
stockholders  of the Company shall be construed as creating any  limitations  on
the power of the Board to adopt such other incentive arrangements as it may deem
desirable,  including without limitation the granting of stock Options otherwise
than under the Plan, and such arrangements may be either applicable generally or
only in specific cases. The Board's or Committee's determinations under the Plan
need not be uniform and may be made by it selectively  among persons who receive
or are eligible to receive  Options  under the Plan (whether or not such persons
are similarly situated).  Without limiting the generality of the foregoing,  the
Board  or  the  Committee  shall  be  entitled,  among  other  things,  to  make
non-uniform  and selective  determinations,  and to enter into  non-uniform  and
selective Option agreements,  as to (i) the persons to receive Options under the
Plan, (ii) the terms and provisions of Options,  (iii) the exercise by the Board
or the  Committee  of its  discretion  in  respect  of the  exercise  of Options
pursuant to the terms of the Plan,  and (iv) the  treatment of leaves of absence
pursuant to Section 6.1(e), above.

SECTION 12. GOVERNMENT AND OTHER REGULATIONS AND WITHHOLDING

12.1 SECTION 260.141.46. Notwithstanding any other provision of this Plan to the
     contrary,  to the extent required by Section  260.141.46 of Title 10 of the
     California  Administrative  Code,  the Company shall deliver to each Holder
     annually  within one  hundred  and  twenty  (120) days after the end of the
     Company's  fiscal year a statement  of income and  expenses for the Company
     for the  immediately  preceding  year and a balance  sheet for the  Company
     dated as of the last day of the immediately preceding fiscal year.

12.2 GOVERNMENT AND OTHER REGULATIONS. The obligation of the Company to sell and
     deliver  shares of Common Stock with respect to Options  granted  under the
     Plan  shall be  subject  to all  applicable  laws,  rules and  regulations,
     including  all  applicable  federal  and  state  securities  laws,  and the
     obtaining  of all such  approvals by  government  agencies as may be deemed
     necessary or  appropriate  by the Board or the  Committee.  All shares sold
     under the Plan shall bear appropriate  legends.  The Company may, but shall
     in no event be  obligated  to,  register or qualify  any shares  covered by
     Options under  applicable  federal and state  securities  laws;  and in the
     event that any shares are so registered or qualified the Company may remove
     any legend on certificates  representing such shares. The Company shall not
     be  obligated  to take any other  affirmative  action in order to cause the
     exercise of an Option or the issuance of shares pursuant  thereto to comply
     with any law or regulation of any governmental authority.

12.3 WITHHOLDING.  Whenever  under  the Plan  shares  are to be  delivered  upon
     exercise  of an  Option,  the  Company  shall be  entitled  to require as a
     condition of delivery that the Holder remit an amount sufficient to satisfy
     all federal,  state and other  governmental  withholding  tax  requirements
     related thereto.

SECTION 13.  "LOCKUP"  AGREEMENT."  The Board or the Committee in its discretion
may specify upon granting an Option that the Holder shall agree, for a period of
time (not to exceed 180 days) from the  effective  date of any  registration  of

                                       10
<PAGE>

securities  of the Company,  upon request of the Company or the  underwriter  or
underwriters managing any underwritten offering of the Company's securities, not
to sell, make any short sale of, loan,  grant any Option for the purchase of, or
otherwise  dispose of any shares issued pursuant to the exercise of such Option,
without  the  prior  written  consent  of the  Company  or such  underwriter  or
underwriters, as the case may be.

SECTION 14. MISCELLANEOUS

14.1 GOVERNING  LAW. The Plan shall be governed by and  construed in  accordance
     with the laws of the State of California.

14.2 TERMINATION  AND AMENDMENT OF PLAN. The Board may terminate the Plan at any
     time, and may amend the Plan at any time and from time to time,  subject to
     the  limitation  that,  except as provided in Sections 9 and 10 hereof,  no
     amendment  shall be effective  unless  approved by the  stockholders of the
     Company in accordance with applicable law and regulations,  at an annual or
     special  meeting  held  within  twelve  months  before or after the date of
     adoption of such  amendment,  in any instance in which such amendment would
     (a) increase  the number of shares of Common Stock as to which  Options may
     be granted  under the Plan;  or (b) change in substance  the  provisions of
     Section 5 hereof relating to eligibility to participate in the Plan. Except
     as provided in Sections 9 and 10 hereof,  rights and obligations  under any
     Option  granted  before  termination  or amendment of the Plan shall not be
     altered or  impaired  by such  termination  or  amendment  except  with the
     consent of the Optionee.

14.3 NO  ASSURANCES  OF  EMPLOYMENT.  Neither  the  adoption  of this Plan,  the
     granting of any Option hereunder,  nor the execution of an Option agreement
     with any Holder is intended or shall be construed as either (a)  conferring
     on any  individual  any right to remain  employed  by the  Company  for any
     specified  term, or (b) limiting in any way the right,  power and authority
     of the Company to terminate the  employment or other service  engagement of
     such person at any time either with or without cause.

14.4 EFFECTIVE  DATE.  The effective  date of the Plan is February  15,2002.  No
     Option may be granted under the Plan after the tenth (10th)  anniversary of
     such effective date.

IN WITNESS WHEREOF,  the undersigned has executed this Plan, effective as of the
date set forth above.

                                                MACHINETALKER, INC.
                                                 a Delaware corporation

                                                By
 -------------------------------                -------------------------------
          Date                                       Roland F. Bryan, President

                                       11

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