-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TrfWJ00udLSQtqyXxHCxAHTQFaOm8+8fFBY6zlU5E/nTEq+kD7M9FlDL2HN/ak+S /b6rFDTLVPIGn3Jk67zI+A== 0000902595-07-000079.txt : 20070802 0000902595-07-000079.hdr.sgml : 20070802 20070802161609 ACCESSION NUMBER: 0000902595-07-000079 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20070727 ITEM INFORMATION: Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20070802 DATE AS OF CHANGE: 20070802 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VITESSE SEMICONDUCTOR CORP CENTRAL INDEX KEY: 0000880446 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 770138960 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-31614 FILM NUMBER: 071020695 BUSINESS ADDRESS: STREET 1: 741 CALLE PLANO CITY: CAMARILLO STATE: CA ZIP: 93012 BUSINESS PHONE: 8053883700 MAIL ADDRESS: STREET 1: 741 CALLE PLANO CITY: CAMARILLO STATE: CA ZIP: 93012 8-K 1 form8k_1139140.txt VITESSE_FORM 8K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------------- FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): July 27, 2007 VITESSE SEMICONDUCTOR CORPORATION (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation) 1-31614 77-0138960 (Commission File Number) (IRS Employer Identification No.) 741 Calle Plano, Camarillo, California 93012 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (805) 388-3700 Not applicable (Former name or former address, if changed since last report) Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below): |_| Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |_| Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |_| Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers. Directors' Compensation As previously discussed, the Board of Directors of Vitesse Semiconductor Corporation (the "Company") has launched a process to reconstitute its membership. As part of this process, the Board has initiated searches for new highly qualified directors who are independent of management. The Board undertook this process concurrent with the efforts to address the Company's operational, accounting and governance problems and to turn around the Company's operating performance. As part of this process, led by the Board's Nominating and Corporate Governance Committee under its recently elected Chairperson, Willow Shire, the Board announced that it will solicit recommendations from shareholders to identify highly qualified, independent candidates for new directors of the Company. The Board has engaged the recruiting firm of Russell Reynolds Associates to assist with the process of finding and selecting candidates. During this process, at least one candidate questioned the adequacy of the compensation package for the directors of the Company. The Board, in response, engaged a compensation consultant to advise the Board of Directors regarding the compensation of directors, and to determine the level that would be appropriate to attract and retain highly qualified and independent members. The Board has now completed that review of the compensation and related practices. After consultation with the compensation consultant, the Board determined that the current compensation package for directors was well below the mid-point, when compared to comparable companies. To bring its compensation into line with peers and to assist in this recruiting effort, on July 27, 2007, the Board of Directors adopted the following compensation package for directors: (i) directors will receive an annual retainer of $25,000 paid quarterly, $1,000 for each in-person Board meeting and $500 for each scheduled conference call Board meeting; (ii) the Chairperson of the Board (or Independent Lead Director if the Chairperson of the Board is an executive of the Company) will receive an annual retainer of $45,000 and the Chairpersons of the committees of the Board will each receive an annual retainer of $10,000; (iii) for each Committee meeting, the Chairperson of the Committee will receive $1,250 and the other members of the Committee will receive $1,000; and (iv) the equity portion of the compensation package was changed so that new directors after June 1, 2007 will receive an option to purchase 75,000 shares of the common stock of the Company and continuing directors will continue to be entitled to receive an annual grant of an option to purchase 40,000 shares of the common stock of the Company, however the Board has determined that the annual grants for all directors will be waived until the Company has filed the required financial statements with the Securities and Exchange Commission. Amendment of Employment Agreement The Board of Directors also considered the compensation arrangements in place for Christopher Gardner, the Company's Chief Executive Officer, in light of his accomplishments over the past year and the challenges facing the Company. As a result, on July 27, 2007, the Company and Christopher Gardner entered into an Amended and Restated Employment Agreement (the "Gardner Agreement") that amends and restates the employment agreement between the Company and Mr. Gardner dated as of June 26, 2006. A copy of the Gardner Agreement is attached to this Form 8-K as Exhibit 10.1 and is incorporated herein by reference. The Gardner Agreement amends Mr. Gardner's initial employment agreement to increase his base salary to $350,000, effective from April 1, 2007, and to provide that "Severance Pay" shall be 24 months of Mr. Gardner's base salary plus two times the average of the maximum target bonus for the two most recent fiscal years prior to termination, payable in a lump sum on the date of termination of employment under certain specified circumstances. Also, the definition of "Change in Status" was revised to provide that Mr. Gardner's guaranteed monthly compensation for consulting following termination of his employment under certain specified circumstances shall expire on the earlier of either three years after the date of termination of his employment or one year after the Company has an effective registration statement under the Securities Act of 1933 with respect to the shares to be issued upon exercise of options granted to him, and his options will continue to vest normally during his service as a consultant and will be exercisable until the earlier of 90 days following his termination as a consultant and the normal expiration date of such options. Amendments to 2001 Stock Incentive Plan On July 27, 2007, the Board of Directors amended and restated the Company's 2001 Stock Incentive Plan to provide that new directors elected after June 1, 2007 will receive an option to purchase 75,000 shares of the common stock of the Company and the additional grants of options to purchase 60,000 shares of the common stock of the Company to the Chairperson of the Board have been eliminated. A copy of the Amended and Restated 2001 Stock Incentive Plan is attached to this Form 8-K as Exhibit 10.2 and is incorporated herein by reference. Item 9.01 Financial Statements and Exhibits (d) Exhibits Exhibit No. Description ------------- ------------------- 10.1 Amended and Restated Employment Agreement, dated July 27, 2007, between the Company and Christopher Gardner 10.2 Amended and Restated 2001 Stock Incentive Plan SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Dated: August 2, 2007 VITESSE SEMICONDUCTOR CORPORATION By: /s/ MICHAEL B. GREEN ------------------------------- Michael B. Green Vice President, General Counsel and Secretary EXHIBIT INDEX Exhibit No. Description -------------- ----------------------- 10.1 Amended and Restated Employment Agreement, dated July 27, 2007, between the Company and Christopher Gardner 10.2 Amended and Restated 2001 Stock Incentive Plan EX-10 2 exh10_1.txt EXHIBIT 10_1 AMENDED AND RESTATED EMPLOYMENT AGREEMENT This Amended and Restated Employment Agreement (this "Agreement") is entered into as of July 27 2007, by and between Vitesse Semiconductor Corporation, a Delaware corporation ("Vitesse") and Christopher Gardner (the "Executive") and amends and restates the Employment Agreement dated as of June 26, 2006 (the "Effective Date"). RECITALS A. Executive serves as Vitesse's Chief Executive Officer as of the date of this Agreement. B. Vitesse and Executive desire to set forth in this Agreement the terms and conditions upon which the Executive shall continue to serve as Vitesse's Chief Executive Officer. NOW, THEREFORE, in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which hereby are acknowledged, Vitesse and Executive hereby agree as follows: 1. POSITION AND COMPENSATION It is hereby agreed that Executive shall continue to be employed by Vitesse in the position of Chief Executive Officer at a base salary of $350,000 per year, retroactive to April 1, 2007. Vitesse and Executive further agree that Executive's base salary shall be reviewed not less than once per year from the Effective Date of this Agreement. Changes in Executive's compensation shall be recorded in a Compensation Adjustment form signed and dated by Vitesse and Executive. In addition to salary, Executive shall also be eligible to participate in the Vitesse's bonus plan for senior executives as from time to time in effect. 2. EMPLOYEE STOCK INCENTIVE PLAN Executive shall be eligible to receive options under the Vitesse Semiconductor Corporation 2001 Stock Incentive Plan ("SIP") as determined by the Compensation Committee of the Board of Directors of Vitesse (the "Board") and consistent with his position as Chief Executive Officer. 1 3. BENEFITS Employment benefits shall be provided to Executive in accordance with the programs of Vitesse then available to its senior executives, as amended from time to time. 4. VACATION Executive shall be entitled to five weeks of paid vacation per year. Unused vacation time may be carried forward only to the extent consistent with Vitesse's then current policy with respect to vacation time. 5. TERMINATION OF EMPLOYMENT Vitesse and Executive understand and agree that Executive's employment may be terminated under the circumstances and in accordance with the terms set forth below: A. By mutual agreement at any time with or without notice; provided that such agreement must be stated in writing and signed and dated by Executive and an authorized agent of Vitesse. B. By either Vitesse or Executive upon sixty (60) days written notice delivered to the other party; provided, however, that Vitesse may at its sole discretion elect to provide sixty (60) days pay to Executive in lieu of notice. C. By Vitesse For Cause. A termination of employment "For Cause" is defined as termination by reason of (i) Executive's conviction of a felony or plea of guilty or nolo contendere to a felony; (ii) Executive's intentional failure or refusal to perform his employment duties and responsibilities; (iii) Executive's intentional misconduct that injures Vitesse's business; (iv) Executive's intentional violation of any other material provision of this Agreement or Vitesse's code of business conduct and ethics; or (v) as provided in Section 8 of this Agreement. Executive's inability to perform his duties because of death or disability shall not constitute a basis for Vitesse's termination of Executive's employment For Cause. Notwithstanding the foregoing, Executive's employment shall not be subject to termination For Cause without Vitesse's delivery to 2 Executive of a written notice of intention to terminate. Such notice must describe the reasons for the proposed employment termination For Cause, and must be delivered to Executive at least fifteen (15) days prior to the proposed termination date ("the Notice Period"). Executive shall be provided an opportunity within the Notice Period to cure any such breach (if curable) giving rise to the proposed termination, and shall be provided an opportunity to be heard before the Board. Thereafter, the Board shall deliver to Executive a written notice of termination after the expiration of the Notice Period stating that a majority of the members of the Board have found that Executive engaged in the conduct described in this Paragraph 5.C. D. Vitesse may terminate Executive's employment immediately upon his death or upon Vitesse's provision to Executive of not less than fifteen (15) days written notice to Executive that Vitesse has determined that Executive is unable to continue to perform his job duties due to Disability. "Disability" means a physical or mental impairment of Executive as certified in a written statement from a licensed physician selected or approved by the Board that renders Executive unable to perform his duties under this Agreement (after reasonable accommodation, if necessary, by Vitesse that does not impose an undue hardship on Vitesse) for one hundred and fifty (150) consecutive days or for at least two hundred and ten (210) days (regardless of whether such days are consecutive) during any period of three hundred sixty- five (365) consecutive days. In conjunction with determining the existence of a Disability, Executive consents to any reasonable medical examinations (at Vitesse's expense) that the Board determines are relevant to a determination of Executive's Disability, and agrees that Vitesse is entitled to receive the written results of such examinations. Executive agrees to waive any applicable physician- patient privilege which may arise with respect to such examinations. 6. SEVERANCE PAY AND CHANGE IN STATUS If employment is terminated by mutual agreement, by Vitesse For Cause, or by Executive upon sixty (60) days notice of intent to terminate employment for other than Good Reason (as defined below), Executive shall receive his base salary and any vested bonus prorated through his final day of employment, but shall not be eligible to receive any Severance Pay (as defined below) or Change in Status (as defined below). If employment is terminated by Vitesse upon sixty (60) days notice of intent to terminate employment or pay in lieu of notice other than For Cause, or by Executive upon sixty (60) days notice of intent to terminate employment for Good Reason, Executive shall receive his base salary and any vested bonus prorated through his final day of employment and Severance Pay and a Change in Status. 3 If employment is terminated because of Executive's Disability, Executive shall receive his base salary and any vested bonus prorated through his final day of receipt of base salary, but shall not be entitled to any Severance Pay or Change in Status. If employment is terminated because of Executive's death, Executive's estate shall receive Executive's base salary and any vested bonus prorated until the date of death, but shall not be entitled to any Severance Pay or Change in Status. "Good Reason" means, without Executive's written consent, the occurrence of any of the following actions unless the action is fully corrected (if possible) within fifteen (15) days after Vitesse receives written notice of the action from Executive: (a) Vitesse's reduction in Executive's base salary; (b) Vitesse's failure to pay Executive any amount that is expressly required to be paid under this Agreement; (c) Vitesse's material and adverse reduction of the nature of Executive's duties and responsibilities, disregarding mere changes in title; (d) Vitesse's requirement that Executive perform his principal employment duties at an office that is more than twenty (20) miles from Camarillo, California; or, (e) a Change of Control of Vitesse (as defined below). "Change Of Control" means each occurrence of any of the following: (a) the acquisition, directly or indirectly, by any person or group (within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended), of beneficial ownership of more than 51% of the aggregate outstanding voting power of the capital stock of Vitesse; (b) (i) Vitesse consolidates with or merges into another entity and is not the surviving entity or conveys, transfers or leases all or substantially all of its property and assets to another person, or (ii) any entity consolidates with or merges into Vitesse in a transaction pursuant to which the outstanding voting capital stock of Vitesse is reclassified or changed into or exchanged for cash, securities or other property, other than any such transaction described in this clause (ii) in which no person or group (within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) has, directly or indirectly, acquired beneficial ownership of more than 51% of the aggregate outstanding voting capital stock of Vitesse; or 4 (c) approval by Vitesse's shareholders of the complete liquidation or dissolution of Vitesse. "Severance Pay" means twenty four (24) months of Executive's base salary plus two times the average of the maximum target bonus (whether earned or not) for the two most recent fiscal years prior to the termination payable in a lump sum on the date of termination of employment. "Change In Status" means Executive shall continue to perform services as a Consultant for Vitesse and receive compensation at a guaranteed rate of not less than Three Thousand Dollars ($3,000) per month for a period not to exceed three (3) years following the termination of Executive's employment. Vitesse agrees that Executive shall not be required to perform more than ten (10) hours of services per month as a Consultant, and shall receive additional compensation at the rate of Three Hundred Dollars ($300) per hour for all services performed in excess of ten (10) hours per month. Executive's guaranteed monthly compensation for consulting shall expire on the earlier of either three (3) years after the date of termination of his employment or one year after Vitesse has an effective registration statement under the Securities Act of 1933 with respect to the shares to be issued upon exercise of options granted to Executive under Vitesse's SIP. Executive will continue to vest normally in all existing options during his services as a Consultant. All existing options will be exercisable until the earlier of 90 days following termination of Executive's services as a Consultant and the normal expiration date of such options. 7. EMPLOYMENT DUTIES Executive will report to Vitesse's Board and shall perform all duties assigned to him by the Board. Executive's duties may be conveyed to him through a job description, or through other written or verbal instructions from Vitesse's Board. Executive's duties are expected to involve travel from time to time to various locations and events, and are expected to involve significant unpaid overtime. 5 8. COMPLIANCE WITH VITESSE POLICIES AND PROCEDURES As a member of Vitesse management, Executive will be expected to comply with all provisions of the Vitesse Policies and Procedures Manual and Employee Handbook, as amended from time to time. Executive acknowledges, by signature on this Agreement, that failure to comply with and ensure enforcement of Vitesse's policies, procedures and all federal/state laws relating to business operations may result in immediate termination of employment For Cause. 9. CONFLICT OF INTEREST Executive acknowledges that his position is a full-time position and agrees to devote his entire productive time, ability and attention to Vitesse's business. Executive further agrees that while employed by Vitesse, he will not directly or indirectly engage in outside employment, consulting or other business activities unless he has obtained written consent from the Vitesse Board. 10. NO SOLICITATION OF CUSTOMERS Executive promises and agrees that during the term of this Agreement and for a period of two (2) years thereafter, Executive will not, directly or indirectly, individually or as a consultant to, or as an employee, officer, stockholder, director or other owner or participant in any business, influence or attempt to influence customers, vendors, suppliers, joint venturers, associates, consultants, agents, or partners of Vitesse, either directly or indirectly, to divert their business away from Vitesse, to any individual, partnership, firm, corporation or other entity then in competition with the business of Vitesse, and he will not otherwise materially interfere with any business relationship of Vitesse. 11. SOLICITATION OF EMPLOYEES Executive promises and agrees that during the term of this Agreement and for a period of two (2) years thereafter, Executive will not, directly or indirectly, individually or as a consultant to, or as an employee, officer, stockholder, director or other owner of or participant in any business, solicit (or assist in soliciting) any person who is then, or at any time within six (6) 6 months prior thereto was, an employee of Vitesse who earned annually $25,000 or more as an employee of Vitesse during the last six (6) months of his or her own employment to work for (as an employee, consultant or otherwise) any business, individual, partnership, firm, corporation, or other entity whether or not engaged in competitive business with Vitesse. 12. ARBITRATION Any controversy arising out of or relating to Executive's employment, any termination of Executive's employment, this Agreement or because of an alleged breach, default, or misrepresentation in connection with any of the provisions of this Agreement, including (without limitation) any state or federal statutory claims, shall be submitted to final and binding arbitration, to be held in Ventura County, California before a sole neutral arbitrator. The arbitration shall be administered by JAMS pursuant to its Comprehensive Arbitration Rules and Procedures. Judgment on the award may be entered in any court having jurisdiction. The parties acknowledge and agree that they are hereby waiving any rights to trial by jury in any action, proceeding or counterclaim brought by either of the parties against the other in connection with any matter whatsoever arising out of or in any way connected with any of the matters referenced in this Section 12. The parties agree that in any proceeding with respect to such matters, each party shall bear its own attorney's fees and costs. 13. TERM Subject to the provisions of Section 5 of this Agreement, the term of this Agreement shall end on the second anniversary of the date of this Agreement. 14. PARTIAL INVALIDITY It is the desire and intent of Vitesse and Executive that the provisions of this Agreement be enforced to the fullest extent permissible under applicable federal, state and municipal laws. Accordingly, if any specific provision or portion of this Agreement are determined to be invalid or unenforceable within the particular jurisdiction in which enforcement is sought, that portion of the Agreement will be considered as deleted for the purposes of adjudication. All other portions of this Agreement will be considered valid and enforceable within that jurisdiction. 7 15. ENTIRE AGREEMENT Vitesse and Executive understand and agree that this Agreement constitutes the full and complete understanding and agreement between them regarding the terms of Executive's employment and supersedes all prior understandings, representations, and agreements with respect to the employment. Vitesse and Executive understand that the Vitesse Semiconductor Corporation 2001 Stock Incentive Plan and the Compensation Adjustment forms (if any) referred to in this Agreement shall be fully incorporated into this Agreement by reference. 16. EXECUTIVE ACKNOWLEDGEMENT Executive acknowledges that he has read and understands this Employment Agreement and agrees to the terms and conditions contained herein. Executive agrees that he has had the opportunity to confer with legal counsel of his choosing regarding this Agreement. Executive further acknowledges that this Agreement has not been executed by Executive in reliance upon any representation or promise except those contained herein, and that Vitesse has made no guarantee regarding Executive's employment other than those specified in this Agreement. "Executive" Dated: 27 July 2007 /s/ CHRISTOPHER GARDNER ------------------------------------ Christopher Gardner VITESSE SEMICONDUCTOR CORPORATION, a Delaware Corporation Dated: 27 July 2007 By /s/ WILLOW B. SHIRE ------------------------------------ Willow B. Shire Chairperson of the Compensation Committee EX-10 3 exh10_2.txt EXHIBIT 10_2 VITESSE SEMICONDUCTOR CORPORATION AMENDED AND RESTATED 2001 STOCK INCENTIVE PLAN 1. PURPOSES OF PLAN. The purposes of this 2001 Stock Incentive Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to Employees, Consultants and Directors of the Company and its Subsidiaries and to promote the success of the Company's business. Awards granted under the Plan may be incentive stock options (as defined under Section 422 of the Code) or non-statutory stock options, as determined by the Administrator at the time of grant of an option and subject to the applicable provisions of Section 422 of the Code and the regulations promulgated thereunder, and any other awards selected by the Administrator to be granted under the plan from time to time. 2. DEFINITIONS. As used herein, the following definitions shall apply: "Administrator" means the Board or any Committee selected to administer the Plan, in accordance with Section 4 of the Plan. "Award" means an Option or any other award selected by the Committee to be granted under this Plan. "Board" means the Board of Directors of the Company. "Code" means the Internal Revenue Code of 1986, as amended from time to time, and any successor thereto. "Committee" means a Committee, if any, appointed by the Board in accordance with paragraph (a) of Section 4 of the Plan. "Common Stock" means the Common Stock, no par value per share, of the Company. "Company" means Vitesse Semiconductor Corporation, a Delaware corporation. "Consultant" means any person, including an advisor, who is engaged by the Company or any Parent or Subsidiary to render services and is compensated for such services, provided the term Consultant shall not include Directors who are not compensated for their services or are paid only a Director's fee by the Company. 1 "Continuous Status as an Employee or Consultant" means the absence of any interruption or termination of service as an Employee or Consultant. Continuous Status as an Employee or Consultant shall not be considered interrupted in the case of: (i) any leave of absence approved by the Administrator, including sick leave, military leave, or any other personal leave; provided, however, that for purposes of Incentive Stock Options any such leave may not exceed ninety (90) days, unless reemployment upon the expiration of such leave is guaranteed by contract (including certain Company policies) or statute; or (ii) transfers between locations of the Company or between the Company, its Parent, its Subsidiaries, or its successor. "Director" shall mean a member of the Board. "Disability" means total and permanent disability, as defined in Section 22(e)(3) of the Code. "Employee" means any person, including Officers and Directors, employed by the Company, Parent or any Subsidiary. The payment of Directors' fees by the Company shall not be sufficient to constitute "employment" by the Company. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Fair Market Value" means, as of any date the value of Common Stock determined as follows: (a) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation 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, if listed on more than one exchange, the exchange with the greatest volume of trading in Common Stock) or system 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 Administrator deems reliable; 2 (b) If the Common Stock is quoted on the NASDAQ System (but not on the National market System thereof) or 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 bid and 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 Administrator deems reliable; (c) In the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Administrator. "Incentive Stock Option" means an Option that satisfies the provisions of Section 422 of the Code. "Issued Shares" means, for any fiscal year, the number of shares of the Company's Common Stock outstanding on the last day of the fiscal year, plus any shares reacquired by the Company during the preceding fiscal year. "Nonstatutory Stock Option" means an Option that is not an Incentive Stock Option. "Officer" means an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder. "Option" means a stock option granted pursuant to the Plan. "Optioned Stock" means the Common Stock subject to an Option. "Optionee" means an Employee, Director or Consultant who holds an Option. "Outside Director" means a Director who is not an Employee. "Parent" corporation shall have the meaning defined in Section 424(e) of the Code. "Participant" means a holder of an Award under this Plan. "Plan" means this 2001 Stock Option Plan. "Share" means a share of the Common Stock, as adjusted in accordance with Section 10 of the Plan. 3 "Substitute Awards" shall mean awards granted in assumption of, or in substitution for, outstanding awards previously granted by a company acquired by the Company or with which the Company combines. "Subsidiary" corporation shall have the meaning defined in Section 424(f) of the Code. In addition, the terms "Rule 16b-3" and "Applicable Laws," the term "10% Stockholder," and the term "Tax Date" shall have the meanings set forth, respectively, in Sections 4, 7 and 8 below. 3. STOCK SUBJECT TO THE PLAN. (a) Subject to the provisions of Section 10 of the Plan, the maximum aggregate number of Shares which may be subject to Awards under the Plan is Seven Million Five Hundred Thousand (7,500,000) shares, plus an annual increase to be added on the first day of the Company's fiscal year beginning in 2002 by the lesser of (i) a number of shares equal to 4.0% of the Issued Shares on the last day of the fiscal year immediately preceding the year in which such adjustment is made, and (ii) Seventeen Million Five Hundred Thousand (17,500,000) shares, plus shares issued or subject to issuance on exercise or settlement of Awards pursuant to the Incentive Plan that are forfeited to the Company under award terms or conditions. (b) The Shares may be authorized, but unissued, or reacquired Common Stock. (c) If an Award should expire or become unexercisable or otherwise forfeited for any reason without having been exercised in full or settled in stock, the unpurchased Shares which were subject thereto shall, unless the Plan shall have been terminated, become available for other Awards under the Plan. If the Company reacquires Shares which were issued pursuant to the exercise of an Option, such Shares shall not become available for future grant under the Plan; provided, however, that if Shares of restricted stock issued pursuant to Section 7(d) hereof are repurchased by the Company at their original purchase price, such Shares shall become available for future grant under the Plan. 4 (e) Shares underlying Substitute Awards shall not reduce the number of Shares remaining available for issuance under the Plan. 4. ADMINISTRATION OF THE PLAN. (a) COMPOSITION OF ADMINISTRATOR. (i) ADMINISTRATION WITH RESPECT TO DIRECTORS. With respect to grants of Awards to Outside Directors of the Company, the Plan shall be administered by the Board. (ii) ADMINISTRATION WITH RESPECT TO CONSULTANTS AND OTHER EMPLOYEES. With respect to grants of Awards to Employees or Consultants of the Company, the Plan shall be administered by (A) the Board or (B) a Committee designated by the Board intended to satisfy the requirements of Rule 16b-3 of the Exchange Act and Section 162(m) of the Code, which Committee shall be constituted in such a manner as to satisfy the Applicable Laws. (iii) MULTIPLE ADMINISTRATIVE BODIES. If permitted by Rule 16b-3 and by the Applicable Laws, the Plan may (but need not) be administered by different administrative bodies with respect to Directors, non-Director Officers, and Employees and Consultants who are neither Directors nor Officers. (iv) GENERAL. Once a Committee has been appointed pursuant to subsection (i) or (ii) of this Section 4(a), such Committee shall continue to serve in its designated capacity until otherwise directed by the Board. From time to time the Board may increase the size of any Committee and appoint additional members thereof, remove members (with or without cause) and appoint new members in substitution therefore, fill vacancies (however caused) or remove all members of the Committee and thereafter directly administer the Plan, all to the extent permitted by the Applicable Laws, and, in the case of a Committee appointed under subsection (i) hereof, to the extent permitted by Rule 16b-3 as it applies to a plan intended to qualify thereunder as a discretionary plan. 5 (b) POWERS OF THE ADMINISTRATOR WITH RESPECT TO EMPLOYEES AND CONSULTANTS. Subject to the provisions of the Plan, and, in the case of a Committee, subject to the specific duties delegated by the Board to such Committee, the Administrator shall have the authority, in its discretion: (i) to determine the Fair Market Value of the Common Stock, in accordance with Section 2(m) of the Plan; (ii) to select the Officers, Consultant and Employees to whom Awards may from time to time be granted hereunder; (iii) to determine whether and to what extent Options are granted hereunder; (iv) to determine the number of shares of Common Stock to be covered by each such Option granted hereunder; (v) to approve forms of agreement for use under the Plan; (vi) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any Award granted hereunder (including, but not limited to, whether such Option is an Incentive Stock Option or a Nonstatutory Stock Option, the exercise price and any restriction or limitation, or any vesting acceleration or waiver of forfeiture restrictions regarding any Option or other award and/or the shares of Common Stock relating thereto, based in each case on such factors as the Administrator shall determine, in its sole discretion) and to provide for the grant of Awards other than Options on terms determined in their discretion; provided, however, that in the event of a merger or asset sale, the applicable provisions of Section 10 of the Plan shall govern vesting acceleration; (vii) to determine whether and under what circumstances an Option may be settled in cash under subsection 7(a)(vii) instead of Common Stock; 6 (viii) to reduce the exercise price of any Option to the then current Fair Market Value if the Fair Market Value of the Common Stock covered by such Option shall have declined since the date the Option was granted; (ix) to interpret the Plan; (x) to prescribe, amend and rescind rules and regulations relating to the Plan; (xi) with the consent of the holder thereof, to modify or amend each Option; and (xii) to make all other determinations deemed necessary or advisable for the administration of the Plan. (c) POWERS OF THE BOARD WITH RESPECT TO DIRECTORS. Subject to the provisions and restrictions of the Plan, the Board shall have the authority, in its discretion: (i) to determine, upon review of relevant information and in accordance with Section 2(m) of the Plan, the Fair Market Value of the Common Stock; (ii) to interpret the Plan; (iii) to prescribe, amend and rescind rules and regulations relating to the Plan; (iv) to authorize any person to execute on behalf of the Company any instrument required to effectuate the grant of an Award previously granted hereunder; and (v) to make all other determinations deemed necessary or advisable for the administration of the Board. (d) EFFECT OF ADMINISTRATOR'S DECISION. All decisions, determinations and interpretations of the Administrator shall be final and binding on all Optionees. 5. ELIGIBILITY. (a) ELIGIBILITY FOR EMPLOYEES AND CONSULTANTS. Nonstatutory Stock Options and other Awards may be granted to Employees and Consultants. Incentive Stock Options may be granted only to Employees. An Optionee who has been granted an Option may, if he or she is otherwise eligible, be granted additional Options. 7 (b) ELIGIBILITY FOR OUTSIDE DIRECTORS. Awards may be granted to Outside Directors. All Options shall be automatically granted in accordance with the terms set forth in Section 7 hereof. An Outside Director who has been granted an Option may, if he or she is otherwise eligible, be granted an additional Option or Options in accordance with such provisions. (c) NO EMPLOYMENT AGREEMENT. Neither the Plan nor any Option agreement shall confer upon any Optionee any right with respect to continuation of employment by or service as a Director or Consultant to the Company, no shall it interfere in any way with the Optionee's right or the Company's right to terminate the Optionee's employment or other relationship at any time. (d) LIMITATION ON GRANTS. No Employee shall be granted, in any fiscal year of the Company, Options to purchase more than 2,500,000 Shares. 6. TERM OF PLAN. Subject to Section 15 of the Plan, the Plan shall become effective upon the earlier to occur of its adoption by the Board or its approval by the stockholders of the Company as described in Section 15. It shall continue in effect for a term of ten (10) years unless sooner terminated under Section 12 of the Plan. 7. OPTIONS. (a) GRANTS WITH RESPECT TO OUTSIDE DIRECTORS. All grants of Options to Outside Directors hereunder shall be automatic and non-discretionary 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 granted to Outside Directors. (ii) During the term of the Plan, each Outside Director shall automatically receive an Option to purchase 40,000 Shares (the "Annual Option") on each January 1 following the approval of this Plan. 8 (iii) Unless otherwise provided for by the Board, each Outside Director who is nominated or elected to the Board during the term of the Plan and after June 1, 2007 shall receive an Option to purchase 75,000 Shares on the date of such election or nomination, or in the case of Willow Shire, an option to purchase 40,000 Shares on the date of her election and an Option to purchase 35,000 Shares on July 27, 2007 (the "New Director Grant"). Notwithstanding the foregoing, the Board shall have the authority to grant a pro rata portion of the New Director Grant to reflect the portion of the year served or to determine that the New Director Grant is not necessary. (iv) The terms of each Option granted hereunder shall be as follows: (A) the term of the Option shall be ten (10) years; and (B) the Option shall be exercisable only while the Outside Director remains a Director of the Company, except as set forth in Section 7(c) hereof; and (C) the exercise price per Share shall be 100% of the Fair Market Value per Share on the date of grant of the Option; and (D) the Option shall be exercisable in installments cumulatively as to 2% of the Optioned Stock for each full month that expires following the date of grant that the Optionee remains a Director. (v) 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 upon exercise of Options to exceed the number of authorized Shares under Section 3 hereof, then each such automatic grant shall be for that number of Shares determined by dividing the total number of Shares remaining available for grant by the number of Outside Directors on the automatic grant date. 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 stockholders to increase the number of Shares which may be issued under the Plan or through cancellation or expiration of Options previously granted hereunder. 9 (b) GRANTS WITH RESPECT TO EMPLOYEES AND CONSULTANTS. The Administrator, in its discretion, may grant Options to eligible participants and shall determine whether such Options shall be Incentive Stock Options or Nonstatutory Stock Options. Each Option shall be evidenced by a written Option agreement which shall expressly identify the Options as Incentive Stock Options or as Nonstatutory Stock Options, and be in such form and contain such provisions as the Administrator shall from time to time deem appropriate. Without limiting the foregoing, the Administrator may, at any time, or from time to time, authorize the Company, with the consent of the respective recipients, to issue Options in exchange for the surrender and cancellation of any or all outstanding Options. Option agreements shall contain the following terms and conditions: (i) EXERCISE PRICE; NUMBER OF SHARES. The per Share exercise price for the Shares issuable upon exercise of an Option shall be such price as is determined by the Administrator. The Option agreement shall specify the number of Shares to which it pertains. (ii) WAITING PERIOD; EXERCISABILITY; TERM. At the time an Option is granted, the Administrator will determine the terms and conditions to be satisfied before Shares may be purchased, including the dates on which Shares subject to the Option may first be purchased or the conditions which must be satisfied prior to the purchase. The Administrator may specify that an Option may not be exercised until the completion of the service period specified at the time of grant. (Any such period is referred to herein as the "waiting period.") At the time an Option is granted, the Administrator shall fix the period within which the Option may be exercised, which shall not be less than the waiting period, if any, nor more than ten (10) years from the date of grant. (iii) FORM OF PAYMENT. The consideration to be paid for the Shares to be issued upon exercise of an Option, including the method of payment, shall be determined by the Administrator (and, in the case of an Incentive Stock Option, shall be determined at the time of grant) and may consist entirely of (1) cash, (2) check, (3) promissory note, (4) 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 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 10 Shares as to which said Option shall be exercised, (5) delivery of a properly executed exercise notice together with irrevocable instructions to a broker to promptly deliver to the Company the amount of sale or loan proceeds required to pay the exercise price, (6) any combination of the foregoing methods of payment, or (7) such other consideration and method of payment for the issuance of Shares to the extent permitted under Applicable Laws. (iv) SPECIAL INCENTIVE STOCK OPTION PROVISIONS. In addition to the foregoing, Options granted under the Plan which are intended to be Incentive Stock Options under Section 422 of the Code shall be subject to the following terms and conditions: (A) EXERCISE PRICE. The per share exercise price for the Shares issuable upon exercise of the Option shall be no less than 100% of the Fair Market Value of Common Stock, determined as of the date of the grant of the Option. (B) DOLLAR LIMITATION. To the extent that the aggregate Fair Market Value of (i) the Shares with respect to which Options designated as Incentive Stock Options plus (ii) the shares of stock of the Company, Parent and any Subsidiary with respect to which other incentive stock options are exercisable for the first time by an Optionee during any calendar year under all plans of the Company and any Parent and Subsidiary exceeds $100,000, such Options shall be treated as Nonstatutory Stock Options. For purposes of the preceding sentence, (i) Options shall be taken into account in the order in which they were granted, and (ii) the Fair Market Value of the Shares shall be determined as of the time the Option or other incentive stock option is granted. (C) GENERAL. Except as modified by the preceding provisions of this subsection 7(a)(iv) and except as otherwise limited by Section 422 of the Code, all of the provisions of the Plan shall be applicable to the Incentive Stock Options granted hereunder. (v) 10% STOCKHOLDER. If any Optionee to whom an Incentive Stock Option is to be granted pursuant to the provisions of the Plan is, on the date of grant, the owner of Common Stock (as determined under Section 424(d) of the Code) possessing more than 10% of the total combined voting power of all classes of stock of the Company or any Subsidiary (a "10% Stockholder"), then the following special provisions shall be applicable to the Option granted to such individual: 11 (A) The per Share Option price of Shares subject to such Incentive Stock Option shall not be less than 110% of the Fair Market Value of Common Stock on the date of grant; and (B) The Option shall not have a term in excess of five (5) years from the date of grant. (vi) RULE 16b-3. Grants of options to Directors, Officers and 10% Stockholders must comply with the applicable provisions of Rule 16b-3 and such Options shall contain such additional conditions or restrictions, if any, as may be required by Rule 16b-3 to be in the written Option Agreement in order to qualify for the maximum exemption from Section 16 of the Exchange Act with respect to Plan transactions. (vii) OTHER PROVISIONS. Each Option granted under the Plan may contain such other terms, provisions, and conditions not inconsistent with the Plan as may be determined by the Administrator. (viii) BUYOUT PROVISIONS. The Administrator may at any time offer to buy out, for a payment in cash or Shares, an Option previously granted, based on such terms and conditions as the Administrator shall establish and communicate to the Optionee at the time that such offer is made. Any such cash offer made to an Officer or Director shall comply with the provisions of Rule 16b-3 relating to cash settlement of stock appreciation rights. This provision is intended only to clarify the powers of the Administrator and shall not in any way be deemed to create any rights on the part of Optionees to buyout offers or payments. (c) METHOD OF EXERCISE. (i) EXERCISABILITY. Any Option granted hereunder shall be exercisable at such times and under such conditions as determined by the Administrator and as shall be permissible under the terms of the Plan. (ii) NO FRACTIONAL SHARES. An Option may not be exercised for a fraction of a Share. 12 (iii) PROCEDURE FOR EXERCISE; RIGHTS AS A STOCKHOLDER. An Option shall be deemed to be exercised when the Company receives: (i) written notice of such exercise in accordance with the terms of the Option from the person entitled to exercise the Option and (ii) full payment for the Shares with respect to which the Option is exercised. Full payment may consist of any consideration and method of payment allowable under subsection 7(a)(iii) of the Plan, as authorized by the Administrator (and, in the case of an Incentive Stock Option, determined at the time of grant) and permitted by the Option Agreement. Shares issued upon exercise of an Option shall be issued in the name of the Optionee or, if requested by the Optionee, in the name of the Optionee and his or her spouse. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the stock certificate evidencing such Shares, no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 10 of the Plan. (iv) EFFECT OF EXERCISE. Exercise of an Option in any manner shall result in a decrease in the number of Shares which thereafter shall 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. (d) EFFECT OF TERMINATION. (i) TERMINATION OF STATUS AS A DIRECTOR. If an Outside Director ceases to serve as a Director, he or she may, but only within three (3) months after the date he or she ceases to be a Director of the Company, exercise his or her Option to the extent that he or she was entitled to exercise it at the date of such termination. Notwithstanding the foregoing, in no event may the Option be exercised after its ten year term has expired. To the extent that he or she was not entitled to exercise an Option at the date of such termination, of if he or she does not exercise such Option (which he or she was entitled to exercise) within the time specified herein, the Option shall terminate. 13 (ii) TERMINATION OF EMPLOYMENT OR CONSULTING RELATIONSHIP. In the event an Optionee's Continuous Status as an Employee or Consultant terminates (other than upon the Optionee's death or disability), the Optionee may exercise his or her Option, but only within such period of time not to exceed six months as is determined by the Administrator (with such determination being made at the time of grant and not exceeding ninety (90) days in the case of an Incentive Stock Option) from the date of such termination, and only to the extent that the Optionee was entitled to exercise it at the date of such termination (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement). If, at the date of termination, the Optionee is not entitled to exercise his or her entire Option, the Shares covered by the unexercisable portion of the Option shall be returned to the Plan as of the termination date. If, after termination, the Optionee does not exercise his or her Option within the time specified herein, the Option shall terminate, and all remaining Shares covered by such Option shall be returned to the Plan at the end of such period. (iii) DISABILITY OF OPTIONEE. In the event an Optionee's Continuous Status as an Employee or Consultant terminates as a result of the Optionee's Disability, the Optionee may exercise his or her Option, but only within six months from the date of such termination, and only to the extent that the Optionee was entitled to exercise it at the date of such termination (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement). If, at the date of termination due to Disability, the Optionee is not entitled to exercise his or her entire Option, the Shares covered by the unexercisable portion of the Option shall be returned to the Plan as of the date of Disability. If, after such termination, the Optionee does not exercise his or her Option within the time specified herein, the Option shall terminate, and all remaining Shares covered by such Option shall be returned to the Plan at the end of such period. (iv) 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 deceased Optionee's Option by bequest or inheritance may exercise the Option, but only within six months following the date of death, and only to the extent that the Optionee was entitled to exercise it at the date of death (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement). If, at the time of death, the Optionee was not entitled to exercise his or her entire Option, the Shares covered by the unexercisable portion of the 14 Option shall be returned to the Plan as of the date of death. If, after death, the Optionee's estate or a person who acquired the right to exercise the Option by bequest or inheritance does not exercise the Option within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall be returned to the Plan at the end of such period. (d) EARLY EXERCISE. Options may, but need not, include a provision whereby the Optionee may elect at any time before the Optionee's Continuous Service terminates to exercise the Option as to any part of all of the shares of Common Stock subject to the Option prior to the full vesting of the Option. Any unvested shares of Common Stock so purchased may be subject to a repurchase option in favor of the Company or to any other restriction the Board determines to be appropriate. 8. STOCK WITHHOLDING TO SATISFY WITHHOLDING TAX OBLIGATIONS. (a) ABILITY TO USE STOCK FOR WITHHOLDING. At the discretion of the Administrator, Optionees may satisfy withholding obligations as provided in this Section 8. When an Optionee incurs tax liability in connection with the exercise of an Option, which tax liability is subject to tax withholding under applicable tax laws, and the Optionee is obligated to pay the Company an amount required to be withheld under applicable tax laws, the Optionee may satisfy the withholding tax obligation by electing to have the Company withhold from the Shares to be issued upon exercise of the Option that number of Shares having a Fair Market Value equal to the amount required to be withheld. The Fair Market Value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined ("Tax Date"). (b) ELECTION TO HAVE STOCK WITHHELD. All elections by an Optionee to have Shares withheld for this purpose shall be made in writing in a form acceptable to the Administrator and shall be subject to the following restrictions: (i) the election must be made on or prior to the applicable Tax Date; 15 (ii) once made, the election shall be irrevocable as to the particular Shares of the Option as to which the election is made (unless otherwise permitted by applicable tax regulations under the Code); (iii) all elections shall be subject to the consent or disapproval of the Administrator; and (iv) if the Optionee is a Director, Officer or 10% Stockholder, the election must comply with the applicable provisions of Rule 16b-3 and shall be subject to such additional conditions or restrictions as may be required thereunder to qualify for the maximum exemption from Section 16 of the Exchange Act with respect to Plan transactions. (c) SECTION 83(B) ELECTION. In the event the election to have Shares withheld is made by an Optionee, no election is filed under Section 83(b) of the Code and the Tax Date is deferred under Section 83 of the Code, the Optionee shall receive the full number of Shares with respect to which the Option is exercised but such Optionee shall be unconditionally obligated to tender back to the Company the proper number of Shares on the Tax Date. 9. LIMITATIONS ON TRANSFER. Options granted under this Plan, and any interest therein, shall not be transferable or assignable by the Optionee, and may not be subject to execution, attachment or similar process, otherwise than by will or by the laws of descent and distribution or pursuant to a qualified domestic relations order as defined by the Code or Title I of the Employee Retirement Income Security Act, or the rules thereunder. The designation of a beneficiary by an Optionee does not constitute a transfer. An Option shall be exercisable during the lifetime of the Optionee only by the Optionee; provided, however, that Nonstatutory Stock Options held by an Optionee may be transferred to such family members, trusts and charitable institutions as the Administrator, in its sole discretion, shall approve, unless otherwise restricted from such transfer under the terms of the grant. 16 10. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER. (a) STOCK SPLITS AND SIMILAR EVENTS. Subject to any required action by the stockholders of the Company, the number of Shares covered by each outstanding Award, and the number of Shares which have been authorized for issuance under the Plan but as to which no Awards 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 outstanding Option, 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 aggregate 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 for this purpose to have been "effected without receipt of consideration". Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. (b) DISSOLUTION OR LIQUIDATION. In the event of the proposed dissolution or liquidation of the Company, all outstanding Awards will terminate immediately prior to the consummation of such proposed action, unless otherwise provided by the Board. The Board may, in the exercise of its sole discretion in such instances, declare that any Award shall terminate as of a date fixed by the Board and give each Optionee the right to exercise his or her Award as to all or any part of the Optioned Stock, including Shares as to which the Option would not otherwise be exercisable. (c) SALE OF ASSETS OR MERGER. In the event of a merger of the Company with or into another corporation, the Award shall be assumed or an equivalent option or award shall be substituted by the successor corporation or a Parent or Subsidiary of such successor corporation. In the event that such successor corporation does not agree to assume the Award or to substitute an equivalent option or award, the Board shall, in lieu of such assumption or substitution, provide for the Optionee to have the right to exercise the Award as to all of the Optioned Stock, including Shares as to which the Option or Stock Purchase Right would not otherwise be exercisable. If the Board makes an Award fully 17 exercisable (or vested) in lieu of assumption or substitution in the event of a merger, the Board shall notify the Participant that the Option shall be fully exercisable for a period of fifteen (15) days from the date of such notice, and the Option will terminate upon the expiration of such period. For the purposes of this paragraph, the Option shall be considered assumed if, following the merger or sale of assets, the assumed option confers the right to purchase, 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); provided, however, that if such consideration received in the merger or sale of assets was not solely common stock of the successor corporation or its Parent, the Board may, with the consent of the successor corporation and the participant, 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. (d) NO OTHER ADJUSTMENTS. 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 Award. 11. TIME OF GRANTING OPTIONS. The date of grant of an Award shall, for all purposes, be the date on which the Administrator makes the determination granting such Award, or such other later date as is determined by the Administrator. Notice of the determination shall be given to each Employee or Consultant to whom an Award is so granted within a reasonable time after the date of such grant. 18 12. AMENDMENT AND TERMINATION OF THE PLAN. (a) AMENDMENT AND TERMINATION. The Board may at any time amend, alter, suspend, or terminate the Plan. The Company shall obtain stockholder approval of any Plan amendment in such a manner and to such a degree as is to the extent necessary and desirable to comply with Rule 16b-3 under the Exchange Act or Section 422 of the Code (or any other applicable law or regulation, including the requirements of any exchange or quotation system on which the Common Stock is) in such a manner and to such a degree as is listed or quoted in such a manner and to such a degree as is required by such law or regulation. (b) EFFECT OF AMENDMENT OR TERMINATION. No amendment, alteration, suspension or termination of the Plan shall impair the rights of any Participant with respect to Awards already granted unless mutually agreed otherwise between the Participant and the Administrator, which agreement must be in writing signed by the Participant and the Company. 13. CONDITIONS UPON ISSUANCE OF SHARES. (a) COMPLIANCE WITH LAWS. Shares shall not be issued upon exercise of an Option or the vesting of an Award unless such exercise and the issuance and delivery of such Shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, state securities laws and the requirements of any stock exchange or quotation system upon which the Shares may then be listed or quoted, and shall be further subject to the approval of counsel for the Company with respect to such compliance. 19 (b) INVESTMENT INTENT. As a condition to the exercise of an Option or the issuance of Shares upon 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. (c) NO COMPANY LIABILITY. 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 non- issuance or sale of such Shares as to which such requisite authority shall not have been obtained. (d) GRANTS EXCEEDING ALLOTTED SHARES. If the Stock covered by an Award exceeds, as of the date of grant, the number of Shares which may be issued under the Plan without additional stockholder approval, such Option shall be void with respect to such excess stock, unless stockholder approval of an amendment sufficiently increasing the number of Shares subject to the Plan to permit full exercise or settlement of the Award is timely obtained in accordance with Section 15 of the Plan. 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 and the Awards granted hereunder. 15. STOCKHOLDER APPROVAL. (a) REQUIREMENT. Continuance of the Plan shall be subject to approval by the stockholders of the Company within twelve (12) months before or after the date the Plan was originally adopted as provided in Section 6 and at or prior to 21 the first annual meeting of stockholders held subsequent to the first granting of an Option hereunder. Such stockholder approval shall be obtained in the manner and to the degree that is required under applicable federal and state laws. (b) MANNER OF SOLICITATION. Approval of the Plan by the stockholders of the Company shall be solicited substantially in accordance with Section 14(a) of the Exchange Act and the rules and regulation promulgated thereunder. 22 -----END PRIVACY-ENHANCED MESSAGE-----