HI/FN, INC. 2001 NONSTATUTORY STOCK OPTION PLAN

1.       Purposes of the Plan .  The purposes of this Nonstatutory Stock Option Plan are:

Options granted under the Plan will be Nonstatutory Stock Options.

2.       Definitions .  As used herein, the following definitions shall apply:

(a)      “ Administrator ” means the Board or any of its Committees as shall be administering the Plan, in accordance with Section 4 of the Plan.

(b)      “ Applicable Laws ” means the requirements relating to the administration of stock option plans under U.S. state corporate laws, U.S. federal and state securities laws, the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws of any foreign country or jurisdiction where Options are, or will be, granted under the Plan.

(c)      “ Board ” means the Board of Directors of the Company.

(d)      “ Code ” means the Internal Revenue Code of 1986, as amended.

(e)      “ Committee ”  means a committee of Directors appointed by the Board in accordance with Section 4 of the Plan.

(f)       “ Common Stock ” means the Common Stock of the Company.

(g)       “ Company ” means hi/fn, Inc. a Delaware   corporation.

(h)    “ Consultant ” means any person, including an advisor, engaged by the Company or a Parent or Subsidiary to render services to such entity.

(i)        “ Director ” means a member of the Board.

(j)       “ Disability ” means total and permanent disability as defined in Section 22(e)(3) of the Code.

(k)       “ Employee ” means any person, excluding Officers, employed by the Company or any Parent or Subsidiary of the Company.  A Service Provider shall not cease to be an Employee in the case of (i) any leave of absence approved by the Company or (ii) transfers between locations of the Company or between the Company, its Parent, any Subsidiary, or any successor.  Neither service as a Director nor payment of a director’s fee by the Company shall be sufficient to constitute “employment” by the Company.

(l)        “ Exchange Act ” means the Securities Exchange Act of 1934, as amended.

(m)      “ Fair Market Value ” means, as of any date, the value of Common Stock determined as follows:

(i)      If the Common Stock is listed on any established stock exchange, including without limitation the NASDAQ Global Market, the NASDAQ Global Select Market or the NASDAQ Capital Market of The NASDAQ Stock Market, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system on the date of grant, or if such exchange is not open on the date of grant, on the last market trading day prior to the date of grant, as reported in The Wall Street Journal or such other source as the Administrator deems reliable;

(ii)     If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, the Fair Market Value of a Share of Common Stock shall be the mean between the high bid and low asked prices for the Common Stock on the date of grant, or if the date of grant falls on a non-market trading day, then on the last market trading day prior to the date of grant, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; or

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

(n)      “ Notice of Grant ” means a written or electronic notice evidencing certain terms and conditions of an individual Option grant.  The Notice of Grant is part of the Option Agreement.

(o)       “ Officer ” means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder.

(p)        “ Option ” means a nonstatutory stock option granted pursuant to the Plan, that is not intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder.

(q)       “ Option Agreement ” means an agreement between the Company and an Optionee evidencing the terms and conditions of an individual Option grant.  The Option Agreement is subject to the terms and conditions of the Plan.

(r)       “ Option Exchange Program ” means a program whereby outstanding options are surrendered in exchange for options with a lower exercise price.

(s)       “ Optioned Stock ” means the Common Stock subject to an Option.

(t)        “ Optionee ” means the holder of an outstanding Option granted under the Plan.

(u)       “ Parent ” means a “parent corporation,” whether now or hereafter existing, as defined in Section 424(e) of the Code.

(v)       “ Plan ” means this 2001 Nonstatutory Stock Option Plan.

(w)        “ Service Provider ” means an Employee including an Officer, Consultant or Director.

(x)        “ Share ” means a share of the Common Stock, as adjusted in accordance with Section 12 of the Plan.

(y)       “ Subsidiary ” means a “subsidiary corporation,” whether now or hereafter existing, as defined in Section 424(f) of the Code.

3.       Stock Subject to the Plan .  Subject to the provisions of Section 12 of the Plan, the maximum aggregate number of Shares which may be optioned and sold under the Plan is one million five hundred thousand (1,500,000) Shares.  The Shares may be authorized, but unissued, or reacquired Common Stock.

4.       Administration of the Plan .

(a)       Administration .  The Plan shall be administered by (i) the Board or (ii) a Committee, which committee shall be constituted to satisfy Applicable Laws.

(b)       Powers of the Administrator .  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;

(ii)      to select the Service Providers to whom Options may 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 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.  Such terms and conditions include, but are not limited to, the exercise price, the time or times when Options may be exercised (which may be based on performance criteria), any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any Option  or the shares of Common Stock relating thereto, based in each case on such factors as the Administrator, in its sole discretion, shall determine;

(vii)     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;

(vii)    to institute an Option Exchange Program;

(ix)       to construe and interpret the terms of the Plan and awards granted pursuant to the Plan;

(x)        to prescribe, amend and rescind rules and regulations relating to the Plan, including rules and regulations relating to sub-plans established for the purpose of qualifying for preferred tax treatment under foreign tax laws;

(xi)       to modify or amend each Option (subject to Section 14(b) of the Plan), including the discretionary authority to extend the post-termination exercisability period of Options longer than is otherwise provided for in the Plan;

(xii)      to authorize any person to execute on behalf of the Company any instrument required to effect the grant of an Option previously granted by the Administrator;

(xiii)     to determine the terms and restrictions applicable to Options;

(xiv)     to allow Optionees to satisfy withholding tax obligations by electing to have the Company withhold from the Shares to be issued upon exercise of an 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.  All elections by an Optionee to have Shares withheld for this purpose

shall be made in such form and under such conditions as the Administrator may deem necessary or advisable; and

(xv)     to make all other determinations deemed necessary or advisable for administering the Plan.

(c)      Effect of Administrator’s Decision .  The Administrator’s decisions, determinations and interpretations shall be final and binding on all Optionees and any other holders of Options.

5.       Eligibility .  Options may be granted to Service Providers; provided, however, that notwithstanding anything to the contrary contained in the Plan, Options may not be granted to Officers and Directors.

6.       Limitation .  Neither the Plan nor any Option shall confer upon an Optionee any right with respect to continuing the Optionee’s relationship as a Service Provider with the Company, nor shall they interfere in any way with the Optionee’s right or the Company’s right to terminate such relationship at any time, with or without cause.

7.        Term of Plan .  The Plan shall become effective upon its adoption by the Board.  It shall continue in effect for ten (10) years, unless sooner terminated under Section 14 of the Plan.

8.        Term of Option .  The term of each Option shall be stated in the Option Agreement.

9.        Option Exercise Price and Consideration .

(a)       Exercise Price .  The per share exercise price for the Shares to be issued pursuant to exercise of an Option shall be determined by the Administrator.

(b)        Waiting Period and Exercise Dates .  At the time an Option is granted, the Administrator shall fix the period within which the Option may be exer­cised and shall determine any con­ditions which must be satisfied before the Option may be exercised.

(c)        Form of Consideration .  The Administrator shall determine the acceptable form of consideration for exercising an Option, including the method of payment.  Such consideration may consist entirely of:

(i)       cash;

(ii)       check;

(iii)      promissory note;

(iv)    other Shares which (A) 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

(B) 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;

(v)     consideration received by the Company under a cashless exercise program implemented by the Company in connection with the Plan;

(vi)    a reduction in the amount of any Company liability to the Optionee, including any liability attributable to the Optionee’s participation in any Company-sponsored deferred compensation program or arrangement;

(vii)   such other considera­tion and method of payment for the issuance of Shares to the extent permitted by Applicable Laws; or

(viii)  any combination of the foregoing methods of payment.

10.       Exercise of Option .

(a)        Procedure for Exercise; Rights as a Shareholder . Any Option granted hereunder shall be exercisable according to the terms of the Plan and at such times and under such conditions as determined by the Administrator and set forth in the Option Agreement.  An Option may not be exercised for a fraction of a Share.

     An Option shall be deemed exercised when the Company receives: (i) written or electronic notice of exercise (in accordance with the Option Agreement) 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 authorized by the Administrator and permitted by the Option Agreement and the Plan.  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 Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option.  The Company shall issue (or cause to be issued) such Shares promptly after the Option is exercised.  No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 12 of the Plan.

                        Exercising an Option in any manner shall decrease the number of Shares thereafter 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.

(b)       Termination of Relationship as a Service Provider .  If an Optionee ceases to be a Service Provider, other than upon the Optionee’s death or Disability, the Optionee may exercise his or her Option, but only within such period of time as is specified in the Option Agreement, and only to the extent that the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement).  In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for three (3) months

following the Optionee’s termination.  If, on the date of termination, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall