The California Stock Option Plan of Sunrise Assisted Living, Inc. is a comprehensive program designed to provide Incentive Stock Options (SOS) and Nonqualified Stock Options (Nests) to employees, consultants, and advisers working within the company. This plan aims to incentivize these individuals by granting them the opportunity to purchase company stocks at a predetermined price, thereby aligning their interests with the company's success. Under the California Stock Option Plan, Sunrise Assisted Living, Inc. offers two types of stock options: Incentive Stock Options and Nonqualified Stock Options. 1. Incentive Stock Options (SOS): SOS are stock options that qualify for preferential tax treatment under the Internal Revenue Code (IRC). Employees who are granted SOS have certain tax advantages, as the appreciation in stock value may be subject to the less burdensome long-term capital gains tax rate. These options typically have specific requirements such as being granted at fair market value, a maximum exercise period of 10 years, and a holding period of at least one year before selling the stock. 2. Nonqualified Stock Options (Nests): Nests do not meet the requirements outlined by the IRC to qualify for preferential tax treatment. These options are more flexible and can be granted to a broader range of recipients, including consultants and advisers. Nests allow individuals to purchase company stock at a predetermined exercise price, typically the fair market value at the time of grant. The appreciation in stock value upon exercise is considered ordinary income and subject to applicable income tax, with the employer responsible for withholding taxes. The California Stock Option Plan of Sunrise Assisted Living, Inc. aims to provide attractive and competitive stock option opportunities to attract, motivate, and retain talented individuals. The plan ensures that employees, consultants, and advisers have the opportunity to share in the company's growth through stock ownership, fostering a sense of ownership and dedication to the company's performance. By offering both Incentive Stock Options and Nonqualified Stock Options, Sunrise Assisted Living, Inc. caters to different types of recipients while adhering to relevant tax regulations and maximizing the benefits for participants.