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EXHIBIT 4.19
PATRIOT SCIENTIFIC CORPORATION
2001 STOCK OPTION PLAN
1. PURPOSE. This Stock Option Plan (the "Plan") is intended to serve as
an incentive to, and to encourage stock ownership by, certain eligible
participants rendering services to Patriot Scientific Corporation, a Delaware
corporation (the "Corporation"), and certain affiliates as set forth below, so
that they may acquire or increase their proprietary interest in the Corporation.
2. ADMINISTRATION.
2.1 Committee. The Plan shall be administered by the Board of
Directors of the Corporation (the "Board of Directors") or a committee of two or
more members appointed by the Board of Directors (the "Committee") who are
Non-Employee Directors as defined in Rule 16b-3 promulgated under Section 16 of
the Securities Exchange Act of 1934 and outside directors as defined in Treasury
Regulation Section 1.162-27(e)(3). The Committee shall select one of its members
as Chairman and shall appoint a Secretary, who need not be a member of the
Committee. The Committee shall hold meetings at such times and places as it may
determine and minutes of such meetings shall be recorded. Acts by a majority of
the Committee in a meeting at which a quorum is present and acts approved in
writing by a majority of the members of the Committee shall be valid acts of the
Committee.
2.2 Term. If the Board of Directors selects a Committee, the
members of the Committee shall serve on the Committee for the period of time
determined by the Board of Directors and shall be subject to removal by the
Board of Directors at any time. The Board of Directors may terminate the
function of the Committee at any time and resume all powers and authority
previously delegated to the Committee.
2.3 Authority. The Committee shall have sole discretion and
authority to grant options under the Plan to eligible participants rendering
services to the Corporation or any "parent" or "subsidiary" of the Corporation,
as defined in Section 424 of the Internal Revenue Code of 1986, as amended (the
"Code") ("Parent or Subsidiary"), at such times, under such terms and in such
amounts as it may decide. For purposes of this Plan and any Stock Option
Agreement (as defined below), the term "Corporation" shall include any Parent or
Subsidiary, if applicable. Subject to the express provisions of the Plan, the
Committee shall have complete authority and discretion to interpret the Plan, to
prescribe, amend and rescind the rules and regulations relating to the Plan, to
determine the details and provisions of any Stock Option Agreement, to
accelerate any options granted under the Plan and to make all other
determinations necessary or advisable for the administration of the Plan.
2.4 Type of Option. The Committee shall have full authority and
discretion to determine, and shall specify, whether the eligible individual will
be granted options intended to qualify as incentive options under Section 422 of
the Code ("Incentive Options") or options which are not intended to qualify
under Section 422 of the Code ("Non-Qualified Options"); provided, however, that
Incentive Options shall only be granted to employees of the Corporation, or a
Parent or Subsidiary thereof, and shall be subject to the special limitations
set forth herein attributable to Incentive Options.
2.5 Interpretation. The interpretation and construction by the
Committee of any provisions of the Plan or of any option granted under the Plan
shall be final and binding on all parties having an interest in this Plan or any
option granted hereunder. No member of the Committee shall be liable for any
action or determination made in good faith with respect to the Plan or any
option granted under the Plan.
3. ELIGIBILITY.
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3.1 General. All directors, officers, employees of and
consultants to the Corporation, or any Parent or Subsidiary, relative to the
Corporation's, or any Parent's or Subsidiaries', management, operation or
development shall be eligible to receive options under the Plan. The selection
of recipients of options shall be within the sole and absolute discretion of the
Committee. No person shall be granted an option under this Plan unless such
person has executed the grant representation letter set forth on Exhibit "A," as
such Exhibit may be amended by the Committee from time to time and no person
shall be granted an Incentive Option under this Plan unless such person is an
employee of the Corporation, or a Parent or Subsidiary, on the date of grant. No
person shall be granted more than 300,000 options in any one year period.
3.2 Termination of Eligibility. If an optionee ceases to be
employed by the Corporation, or its Parent or Subsidiary, is no longer an
officer or member of the Board of Directors of the Corporation or no longer
performs services for the Corporation, or its Parent or Subsidiary for any
reason (other than such optionee's death), any option granted hereunder to such
optionee shall expire three months after the date the occurrence giving rise to
such termination of eligibility (or 1 year in the event an optionee is
"disabled," as defined in Section 22(e)(3) of the Code) or upon the date it
expires by its terms, whichever is earlier. Any option that has not vested in
the optionee as of the date of such termination shall immediately expire and
shall be null and void. The Committee shall, in its sole and absolute
discretion, decide, utilizing the provisions set forth in Treasury Regulations
Section 1.421-7(h), whether an authorized leave of absence or absence for
military or governmental service, or absence for any other reason, shall
constitute termination of eligibility for purposes of this Section.
3.3 Death of Optionee and Transfer of Option. In the event an
optionee shall die, an option may be exercised (subject to the condition that no
option shall be exercisable after its expiration and only to the extent that the
optionee's right to exercise such option had accrued at the time of the
optionee's death) at any time within six months after the optionee's death by
the executors or administrators of the optionee or by any person or persons who
shall have acquired the option directly from the optionee by bequest or
inheritance. Any option that has not vested in the optionee as of the date of
death or termination of employment, whichever is earlier, shall immediately
expire and shall be null and void. No option shall be transferable by the
optionee other than by will or the laws of intestate succession.
3.4 Limitation on Incentive Options. No person shall be granted
any Incentive Option to the extent that the aggregate fair market value of the
Stock (as defined below) to which such options are exercisable for the first
time by the optionee during any calendar year (under all plans of the
Corporation as determined under Section 422(d) of the Code) exceeds $100,000.
4. IDENTIFICATION OF STOCK. The Stock, as defined herein, subject to the
options shall be shares of the Corporation's authorized but unissued or acquired
or reacquired common stock (the "Stock"). The aggregate number of shares subject
to outstanding options shall not exceed three million shares of Stock (subject
to adjustment as provided in Section 6). If any option granted hereunder shall
expire or terminate for any reason without having been exercised in full, the
unpurchased shares subject thereto shall again be available for purposes of this
Plan. Notwithstanding the above, at no time shall the total number of shares of
Stock issuable upon exercise of all outstanding options and the total number of
shares of Stock provided for under any stock bonus or similar plan of the
Corporation exceed 30% as calculated in accordance with the conditions and
exclusions of Section 260.140.45 of Title 10, California Code of Regulations,
based on the shares of the issuer which are outstanding at the time the
calculation is made.
5. TERMS AND CONDITIONS OF OPTIONS. Any option granted pursuant to the
Plan shall be evidenced by an agreement ("Stock Option Agreement") in such form
as the Committee shall from time to time determine, which agreement shall comply
with and be subject to the following terms and conditions:
5.1 Number of Shares. Each option shall state the number of
shares of Stock to which it pertains.
5.2 Option Exercise Price. Each option shall state the option
exercise price, which shall be determined by the Committee; provided, however,
that (i) the exercise price of any Incentive Option shall not be less than the
fair market value of the Stock, as determined by the Committee, on the date of
grant of such option, (ii) the exercise price of any option granted to any
person who owns more than 10% of the total combined voting power of all classes
of the Corporation's stock, as determined for purposes of Section 422 of the
Code, shall not be less than 110% of the fair market value of the Stock, as
determined by the Committee, on the date of grant of such option, and (iii) the
exercise price of any
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Non-Qualified Option shall not be less than 85% of the fair market value of the
Stock, as determined by the Committee, on the date of grant of such option.
5.3 Term of Option. The term of an option granted hereunder
shall be determined by the Committee at the time of grant, but shall not exceed
five years from the date of the grant. The term of any Incentive Option granted
to an employee who owns more than 10% of the total combined voting power of all
classes of the Corporation's stock, as determined for purposes of Section 422 of
the Code, shall in no event exceed five years from the date of grant. All
options shall be subject to early termination as set forth in this Plan. In no
event shall any option be exercisable after the expiration of its term.
5.4 Method of Exercise. An option shall be exercised by written
notice to the Corporation by the optionee (or successor in the event of death)
and execution by the optionee of an exercise representation letter in the form
set forth on Exhibit "B," as such Exhibit may be amended by the Committee from
time to time. Such written notice shall state the number of shares with respect
to which the option is being exercised and designate a time, during normal
business hours of the Corporation, for the delivery thereof ("Exercise Date"),
which time shall be at least 30 days after the giving of such notice unless an
earlier date shall have been mutually agreed upon. At the time specified in the
written notice, the Corporation shall deliver to the optionee at the principal
office of the Corporation, or such other appropriate place as may be determined
by the Committee, a certificate or certificates for such shares. Notwithstanding
the foregoing, the Corporation may postpone delivery of any certificate or
certificates after notice of exercise for such reasonable period as may be
required to comply with any applicable listing requirements of any securities
exchange. In the event an option shall be exercisable by any person other than
the optionee, the required notice under this Section shall be accompanied by
appropriate proof of the right of such person to exercise the option.
5.5 Medium and Time of Payment. The option exercise price shall
be payable in full on or before the option Exercise Date in any one of the
following alternative forms:
5.5.1 Full payment in cash or certified bank or
cashier's check;
5.5.2 Full payment in shares of Common Stock of the
Corporation owned by the participant at the time of exercise for a period of at
least six months and having a fair market value on the Exercise Date in the
amount equal to the option exercise price;
5.5.3 Through a special sale and remittance procedure
pursuant to which the optionee shall concurrently provide irrevocable written
instruction to (a) a Corporation-designated brokerage firm to effect the
immediate sale of the purchased shares and remit to the Corporation, out of the
sale proceeds available on the settlement date, sufficient funds to cover the
aggregate exercise price payable for the purchased shares plus all applicable
Federal, state and local income and employment taxes required to be withheld by
the Corporation by reason of such exercise and (b) the Corporation to deliver
the certificates for the purchased shares directly to such brokerage firm in
order to complete the sale; or
5.5.4 A combination of the consideration set forth in
Sections 5.5.1, 5.5.2, or 5.5.3 equal to the option exercise price.
5.6 Fair Market Value. The fair market value of a share of Stock
or other security of the Corporation on any relevant date shall be determined in
accordance with the following provisions:
5.6.1 If the Stock or other security of the Corporation
at the time is neither listed nor admitted to trading on any stock exchange nor
traded in the over-the-counter market, then the fair market value shall be
determined by the Committee after taking into account the factors found in
Section 260.140.45 of Title 10, California Code of Regulations and such other
factors as the Committee shall deem appropriate.
5.6.2 If the Stock or other security of the Corporation
is not at the time listed or admitted to trading on any stock exchange but is
traded in the over-the-counter market, the fair market value shall be the mean
between the closing bid and closing asked prices (or, if such information is
available, the closing selling price) of one share of Stock
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or other security of the Corporation on the date in question in the
over-the-counter market, as such prices are reported by the National Association
of Securities Dealers through its NASDAQ system or any successor system. If
there are no reported bid and asked prices (or closing selling price) for the
Stock or other security of the Corporation on the date in question, then the
mean between the closing bid price and closing asked price (or the closing
selling price) on the last preceding date for which such quotations exist shall
be determinative of fair market value.
5.6.3 If the Stock or other security of the Corporation
is at the time listed or admitted to trading on any stock exchange, then the
fair market value shall be the closing selling price of one share of Stock or
other security of the Corporation on the date in question on the stock exchange
determined by the Committee to be the primary market for the Stock or other
security of the Corporation, as such price is officially quoted in the composite
tape of transactions on such exchange. If there is no reported sale of Stock or
other security of the Corporation on such exchange on the date in question, then
the fair market value shall be the closing selling price on the exchange on the
last preceding date for which such quotation exists.
5.7 Rights as a Shareholder. An optionee or successor shall have
no rights as a shareholder with respect to any Stock underlying any option until
the date of the issuance to such optionee of a certificate for such Stock. No
adjustment shall be made for dividends (ordinary or extraordinary, whether in
cash, securities or other property) or distributions or other rights for which
the record date is prior to the date such Stock certificate is issued, except as
provided in Section 6.
5.8 Modification, Extension and Renewal of Options. Subject to
the terms and conditions of the Plan, the Committee may modify, extend or renew
outstanding options granted under the Plan, or accept the surrender of
outstanding options (to the extent not exercised) and authorize the granting of
new options in substitution therefor.
5.9 Vesting and Restrictions. The Committee shall have complete
authority and discretion to set the terms, conditions, restrictions, vesting
schedules and other provisions of any option in the applicable Stock Option
Agreement and shall have complete authority to require conditions and
restrictions on any Stock issued pursuant to this Plan; provided, however, that,
except with respect to options granted to officers or directors of the
Corporation, options granted pursuant to this Plan shall be exercisable or
"vest" at the rate of at least 20% per year over the 5-year period beginning on
the date the option is granted. Options granted to officers and directors shall
become exercisable or "vest," subject to the condition of continued employment
and/or combined service on the Board of Directors, as appropriate. The maximum
vesting period for options granted to officers or directors will be five years
from the date of grant.
5.10 Other Provisions. The Stock Option Agreements shall contain
such other provisions, including without limitation, restrictions or conditions
upon the exercise of options, as the Committee shall deem advisable.
6. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
6.1 Subdivision or Consolidation. Subject to any required action
by shareholders of the Corporation, the number of shares of Stock covered by
each outstanding option, and the exercise price thereof, shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Stock of the Corporation resulting from a subdivision or consolidation
of shares, including, but not limited to, a stock split, reverse stock split,
recapitalization, continuation or reclassification, or the payment of a stock
dividend (but only on the Stock) or any other increase or decrease in the number
of such shares effected without receipt of consideration by the Corporation. Any
fraction of a share subject to option that would otherwise result from an
adjustment pursuant to this Section shall be rounded downward to the next full
number of shares without other compensation or consideration to the holder of
such option.
6.2 Capital Transactions. Upon a sale or exchange of all or
substantially all of the assets of the Corporation, a merger or consolidation in
which the Corporation is not the surviving corporation, a merger, reorganization
or consolidation in which the Corporation is the surviving corporation and
shareholders of the Corporation exchange their stock for securities or property,
a liquidation of the Corporation or similar transaction ("Capital Transaction"),
this Plan and each option issued under this Plan, whether vested or unvested,
shall terminate, unless such options are assumed by a successor
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corporation in a merger or consolidation, immediately prior to such Capital
Transaction; provided, however, that unless the outstanding options are assumed
by a successor corporation in a merger or consolidation, subject to terms
approved by the Committee, all optionees will have the right, during the 30 days
prior to such Capital Transaction, to exercise all vested options.
Notwithstanding the foregoing, in the event there is a merger or consolidation
where the Corporation is not the surviving corporation, all options granted
under this Plan shall vest 30 days prior to such merger or consolidation unless
such options are assumed by the successor corporation in such merger or
consolidation. The Committee may (but shall not be obligated to) (i) accelerate
the vesting of any option or (ii) apply the foregoing provisions, including but
not limited to termination of this Plan and any options granted pursuant to the
Plan, in the event there is a sale of 51% or more of the stock of the
Corporation in any one year period or a Capital Transaction.
6.3 Adjustments. To the extent that the foregoing adjustments
relate to stock or securities of the Corporation, such adjustments shall be made
by the Committee, whose determination in that respect shall be final, binding
and conclusive.
6.4 Ability to Adjust. The grant of an option pursuant to the
Plan shall not affect in any way the right or power of the Corporation to make
adjustments, reclassifications, reorganizations or changes of its capital or
business structure or to merge, consolidate, dissolve, liquidate, sell or
transfer all or any part of its business or assets.
6.5 Notice of Adjustment. Whenever the Corporation shall take
any action resulting in any adjustment provided for in this Section, the
Corporation shall forthwith deliver notice of such action to each optionee,
which notice shall set forth the number of shares subject to the option and the
exercise price thereof resulting from such adjustment.
6.6 Limitation on Adjustments. Any adjustment, assumption or
substitution of an Incentive Option shall comply with Section 425 of the Code,
if applicable.
7. NONASSIGNABILITY. Options granted under this Plan may not be sold,
pledged, assigned or transferred in any manner other than by will or by the laws
of intestate succession, and may be exercised during the lifetime of an optionee
only by such optionee. Any transfer in violation of this Section shall void such
option and any Stock Option Agreement entered into by the optionee and the
Corporation regarding such transferred option shall be void and have no further
force or effect. No option shall be pledged or hypothecated in any way, nor
shall any option be subject to execution, attachment or similar process.
8. NO RIGHT OF EMPLOYMENT. Neither the grant nor exercise of any option
nor anything in this Plan shall impose upon the Corporation or any other
corporation any obligation to employ or continue to employ any optionee. The
right of the Corporation and any other corporation to terminate any employee
shall not be diminished or affected because an option has been granted to such
employee.
9. TERM OF PLAN. This Plan is effective on the date the Plan is adopted
by the Board of Directors and options may be granted pursuant to the Plan from
time to time within a period of ten (10) years from such date, or the date of
any required shareholder approval required under the Plan, if earlier.
Termination of the Plan shall not affect any option theretofore granted.
10. AMENDMENT OF THE PLAN. The Board of Directors of the Corporation
may, subject to any required shareholder approval, suspend, discontinue or
terminate the Plan, or revise or amend it in any respect whatsoever with respect
to any shares of Stock at that time not subject to options.
11. APPLICATION OF FUNDS. The proceeds received by the Corporation from
the sale of Stock pursuant to options may be used for general corporate
purposes.
12. RESERVATION OF SHARES. The Corporation, during the term of this
Plan, shall at all times reserve and keep available such number of shares of
Stock as shall be sufficient to satisfy the requirements of the Plan.
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13. NO OBLIGATION TO EXERCISE OPTION. The granting of an option shall
not impose any obligation upon the optionee to exercise such option.
14. APPROVAL OF BOARD OF DIRECTORS AND SHAREHOLDERS. The Plan shall not
take effect until approved by the Board of Directors of the Corporation. This
Plan shall be approved by a vote of the shareholders within 12 months from the
date of approval by the Board of Directors. In the event such shareholder vote
is not obtained, all options granted hereunder, whether vested or unvested,
shall be null and void. Further, any stock acquired pursuant to the exercise of
any options under this Agreement may not count for purposes of determining
whether shareholder approval has been obtained.
15. WITHHOLDING TAXES. Notwithstanding anything else to the contrary in
this Plan or any Stock Option Agreement, the exercise of any option shall be
conditioned upon payment by such optionee in cash, or other provisions
satisfactory to the Committee, of all local, state, federal or other withholding
taxes applicable, in the Committee's judgment, to the exercise or to later
disposition of shares acquired upon exercise of an option.
16. PARACHUTE PAYMENTS. Any outstanding option under the Plan may not be
accelerated to the extent any such acceleration of such option would, when added
to the present value of other payments in the nature of compensation which
becomes due and payable to the optionee would result in the payment to such
optionee of an excess parachute payment under Section 280G of the Code. The
existence of any such excess parachute payment shall be determined in the sole
and absolute discretion of the Committee.
17. SECURITIES LAWS COMPLIANCE. Notwithstanding anything contained
herein, the Corporation shall not be obligated to grant any option under this
Plan or to sell, issue or effect any transfer of any Stock unless such grant,
sale, issuance or transfer is at such time effectively (i) registered or exempt
from registration under the Securities Act of 1933, as amended (the "Act") and
(ii) qualified or exempt from qualification under the California Corporate
Securities Law of 1968 and any other applicable state securities laws. As a
condition to exercise of any option, each optionee shall make such
representations as may be deemed appropriate by counsel to the Corporation for
the Corporation to use any available exemption from registration under the Act
or qualification under any applicable state securities law.
18. RESTRICTIVE LEGENDS. The certificates representing the Stock issued
upon exercise of options granted pursuant to this Plan will bear any legends
required by applicable securities law as determined by the Committee.
19. NOTICES. Any notice to be given under the terms of the Plan shall be
addressed to the Corporation in care of its Secretary at its principal office,
and any notice to be given to an optionee shall be addressed to such optionee at
the address maintained by the Corporation for such person or at such other
address as the optionee may specify in writing to the Corporation.
20. INFORMATION TO PARTICIPANTS. The Corporation shall make available to
all holders of options the information required pursuant to Section 260.140.46
of the California Code of Regulations. As adopted by the Board of Directors as
of February 21, 2001.
PATRIOT SCIENTIFIC CORPORATION, a Delaware corporation
By: /s/ Lowell W. Giffhorn
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LOWELL W. GIFFHORN
Its: Exec. V.P. and CFO
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EXHIBIT A
____________, 2001
Patriot Scientific Corporation
10989 Via Frontera
San Diego, CA 92127
Re: 2001 Stock Option Plan
To Whom It May Concern:
This letter is delivered to Patriot Scientific Corporation, a Delaware
corporation (the "Corporation"), in connection with the grant to __________ (the
"Optionee") of an option (the "Option") to purchase _____ shares of common stock
of the Corporation (the "Stock") pursuant to the Patriot Scientific Corporation
2001 Stock Option Plan dated ______________ (the "Plan"). The Optionee
understands that the Corporation's receipt of this letter executed by the
Optionee is a condition to the Corporation's willingness to grant the Option to
the Optionee.
In addition, the Optionee makes the following representations and
warranties with the understanding that the Corporation will rely upon them.
1. The Optionee acknowledges receipt of a copy of the Plan and
Agreement. The Optionee has carefully reviewed the Plan and Agreement.
2. The Optionee acknowledges receipt of a prospectus regarding the Plan
which includes the information required by Section (a)(1) of Rule 428 under the
Securities Act of 1933.
3. The Optionee understands and acknowledges that the Option and the
Stock are subject to the terms and conditions of the Plan.
4. The Optionee understands and agrees that, at the time of exercise of
any part of the Option for Stock, the Optionee may be required to provide the
Corporation with additional representations, warranties and/or covenants similar
to those contained in this letter.
5. The Optionee is a resident of the State of __________.
6. The Optionee will notify the Corporation immediately of any change in
the above information which occurs before the Option is exercised in full by the
Optionee.
The foregoing representations and warranties are given on
______________, 2001 at ________________.
OPTIONEE:
_______________________________
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EXHIBIT B
____________, 2001
Patriot Scientific Corporation
10989 Via Frontera
San Diego, CA 92127
Re: 2001 Stock Option Plan
To Whom It May Concern:
I (the "Optionee") hereby exercise my right to purchase ________ shares
of common stock (the "Stock") of Patriot Scientific Corporation, a Delaware
corporation (the "Corporation"), pursuant to, and in accordance with, the
Patriot Scientific Corporation 2001 Stock Option Plan dated _______________
(the "Plan") and Stock Option Agreement (the "Agreement") dated
________________, 2001. As provided in such Plan, I deliver herewith payment as
set forth in the Plan in the amount of the aggregate option exercise price.
Please deliver to me at my address as set forth above stock certificates
representing the subject shares registered in my name (and (spouse) , as (style
of vesting)).
The Optionee hereby represents and agrees as follows:
1. The Optionee acknowledges receipt of a copy of the Plan and
Agreement. The Optionee has carefully reviewed the Plan and Agreement.
2. The Optionee is a resident of the State of __________.
3. The Optionee represents and agrees that if the Optionee is an
"affiliate" (as defined in Rule 144 under the Securities Act of 1933) of the
Corporation at the time the Optionee desires to sell any of the Stock, the
Optionee will be subject to certain restrictions under, and will comply with all
of the requirements of, applicable federal and state securities laws.
The foregoing representations and warranties are given on
___________________ at _____________________.
OPTIONEE:
_____________________________
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