VITESSE SEMICONDUCTOR CORPORATION

 

                           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.

 

     "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.

 

 

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     "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;

 

     (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.

 

 

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     "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.

 

     "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

Nine Million (9,000,000) 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 5.0% of the Issued Shares on the last day of the

fiscal year immediately preceding the year in which such adjustment is made,

and (ii) Fifteen Million (15,000,000) 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.

 

     (e) Shares underlying Substitute Awards shall not reduce the number of

Shares remaining available for issuance under the Plan.

 

 

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     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.

 

     (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;

 

 

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               (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;

 

               (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.

 

 

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     (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 ompany, 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 (except in the case

of the Chairman of the Board, who shall receive an Option to purchase 60,000

shares) (the "Annual Option") on each January 1 following the approval of this

Plan.

 

                (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

shall receive an Option to purchase 40,000 Shares (except in the case of the

Chairman of the Board, who shall receive an Option to purchase 60,000 Shares)

on the date of such election or nomination (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

 

 

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                    (B) the Option shall be exercisable only while the Outside

Director remains a Directors 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.

 

     (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 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

 

 

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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 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:

 

                         (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.

 

 

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                    (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.

 

               (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.

 

 

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          (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.

 

               (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 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

 

 

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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;

 

               (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.

 

 

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     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.

 

     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

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

 

 

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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.

 

     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.

 

 

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<PAGE>

 

          (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 is adopted as provided in Section 6 and at or prior to 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.

 

 

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