EXHIBIT 10.4

NANOMETRICS INCORPORATED

2005 EQUITY INCENTIVE PLAN

(as amended and restated on March 7, 2007)

1.    Purposes of the Plan. The purposes of this Plan are:

 

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to attract and retain the best available personnel for positions of substantial
responsibility,

 

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to provide additional incentive to Service Providers, and

 

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to promote the success of the Company’s business.

Awards granted under the Plan may be Incentive Stock Options, Nonstatutory Stock
Options, Restricted Stock, Stock Appreciation Rights, Performance Shares and
Restricted Stock Units, as determined by the Administrator at the time of grant.

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)    “Annual Revenue” means the Company’s or a business unit’s net sales for
the Fiscal Year, determined in accordance with generally accepted accounting
principles.

(c)    “Applicable Laws” means the requirements relating to the administration
of equity compensation 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 other
country or jurisdiction where Awards are, or will be, granted under the Plan.

(d)    “Award” means, individually or collectively, a grant under the Plan of
Options, Restricted Stock, Stock Appreciation Rights, Performance Shares or
Restricted Stock Units.

(e)    “Award Agreement” means the written or electronic agreement setting forth
the terms and provisions applicable to each Award granted under the Plan. The
Award Agreement is subject to the terms and conditions of the Plan.

(f)    “Awarded Stock” means the Common Stock subject to an Award.

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

(h)    “Cash Position” means the Company’s level of cash and cash equivalents.

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(i)    “Change in Control” means the occurrence of any of the following events,
in one or a series of related transactions:

(i)    any “person,” as such term is used in Sections 13(d) and 14(d) of the
Exchange Act, other than the Company, a subsidiary of the Company or a Company
employee benefit plan, including any trustee of such plan acting as trustee, is
or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company representing fifty
percent (50%) or more of the combined voting power of the Company’s then
outstanding securities entitled to vote generally in the election of directors;
or

(ii)    the consummation of a merger or consolidation of the Company or any
direct or indirect subsidiary of the Company with any other corporation, other
than a merger or consolidation which would result in the voting securities of
the Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting securities of
the surviving entity) at least fifty percent (50%) of the total voting power
represented by the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation; or

(iii)    the sale or disposition by the Company of all or substantially all the
Company’s assets; or

(iv)    a change in the composition of the Board, as a result of which fewer
than a majority of the directors are Incumbent Directors. “Incumbent Directors”
shall mean directors who either (A) are Directors as of the date this Plan is
approved by the Board, or (B) are elected, or nominated for election, to the
Board with the affirmative votes of at least a majority of the Incumbent
Directors and whose election or nomination was not in connection with any
transaction described in (i) or (ii) above or in connection with an actual or
threatened proxy contest relating to the election of directors of the Company.

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

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

(l)    “Common Stock” means the common stock of the Company.

(m)    “Company” means Nanometrics Incorporated, a Delaware corporation.

(n)    “Consultant” means any person, including an advisor, engaged by the
Company or a Parent or Subsidiary to render services and who is compensated for
such services.

(o)    “Continuous Status as a Service Provider” means the absence of any
interruption or termination of the employment or service relationship with the
Company or any Subsidiary. Continuous Status as a Service Provider shall not be
considered interrupted in the case of (i) medical leave, military leave, family
leave, or any other leave of absence approved by the Administrator, provided, in
each case, that such leave does not result in termination of the employment and
service relationship with the Company or any Subsidiary, as the case may be,
under

 

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the terms of the respective Company policy for such leave; however, vesting may
be tolled while a Service Provider is on an approved leave of absence under the
terms of the respective Company policy for such leave; or (ii) in the case of
transfers between locations of the Company or between the Company, its Parent or
any Subsidiary, or any successor. For purposes of Incentive Stock Options, no
such leave may exceed ninety days, unless reemployment upon expiration of such
leave is guaranteed by statute or contract. If reemployment upon expiration of a
leave of absence approved by the Company is not so guaranteed, then three
(3) months following the 91st day of such leave any Incentive Stock Option held
by the Participant shall cease to be treated as an Incentive Stock Option and
shall be treated for tax purposes as a Nonstatutory Stock Option.

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

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

(r)    “Dividend Equivalent” means a credit, payable in cash, made at the
discretion of the Administrator, to the account of a Participant in an amount
equal to the cash dividends paid on one Share for each Share represented by an
Award held by such Participant.

(s)    “Earnings Per Share” means as to any Performance Period, the Company’s or
a business unit’s Net Income, divided by a weighted average number of common
shares outstanding and dilutive common equivalent shares deemed outstanding,
determined in accordance with generally accepted accounting principles.

(t)    “Employee” means any person, including Officers and Directors, employed
by the Company or any Parent or Subsidiary of the Company. Neither service as a
Chairman nor as a Director nor payment of a director’s fee by the Company shall
be sufficient to constitute “employment” by the Company.

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

(v)    “Exchange Program” means a program under which (i) outstanding Awards are
surrendered or cancelled in exchange for Awards of the same type (which may have
lower exercise prices and different terms), Awards of a different type, and/or
cash, and/or (ii) the exercise price of an outstanding Award is reduced. The
terms and conditions of any Exchange Program will be determined by the
Administrator in its sole discretion.

(w)    “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 or a
national market system, including without limitation the Nasdaq National Market
or The Nasdaq SmallCap 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
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable;

 

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(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 determination; 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.

(x)    “Fiscal Year” means a fiscal year of the Company.

(y)    “Individual Performance Objective” means as to a Participant, the
objective and measurable goals set by a “management by objectives” process and
approved by the Committee (in its discretion).

(z)    “Incentive Stock Option” means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder and is expressly designated by the
Administrator at the time of grant as an incentive stock option.

(aa)    “Marketing and Sales Expenses as a Percentage of Sales” means as to any
Performance Period, the Company’s or a business unit’s marketing and sales
expenses stated as a percentage of sales, determined in accordance with
generally accepted accounting principles.

(bb)    “Net Income as a Percentage of Sales” means as to any Performance
Period, the Company’s or a business unit’s Net Income stated as a percentage of
sales, determined in accordance with generally accepted accounting principles.

(cc)    “Net Income” means as to any Performance Period, the income after taxes
of the Company or a business unit determined in accordance with generally
accepted accounting principles, provided that prior to the beginning of the
Performance Period, the Committee shall determine whether any significant
item(s) shall be included or excluded from the calculation of Net Income with
respect to one or more Participants.

(dd)    “Nonstatutory Stock Option” means an Option that by its terms does not
qualify or is not intended to qualify as an Incentive Stock Option.

(ee)    “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.

(ff)    “Operating Cash Flow” means the Company’s or a business unit’s sum of
Net Income plus depreciation and amortization less capital expenditures plus
changes in working capital comprised of accounts receivable, inventories, other
current assets, trade accounts payable, accrued expenses, product warranty,
advance payments from customers and long-term accrued expenses, determined in
accordance with generally acceptable accounting principles.

(gg)    “Operating Income” means the Company’s or a business unit’s income from
operations determined in accordance with generally accepted accounting
principles.

 

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(hh)    “Outside Director” means a Director who is not an Employee.

(ii)    “Option” means a stock option granted pursuant to the Plan.

(jj)    “Participant” means the holder of an outstanding Award granted under the
Plan.

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

(ll)    “Performance Goals” means the goal(s) (or combined goal(s)) determined
by the Committee (in its discretion) to be applicable to a Participant with
respect to an Award. As determined by the Committee, the Performance Goals
applicable to an Award may provide for a targeted level or levels of achievement
using one or more of the following measures: (a) Annual Revenue, (b) Cash
Position, (c) Earnings Per Share, (d) Individual Performance Objectives,
(e) Marketing and Sales Expenses as a Percentage of Sales, (f) Net Income as a
Percentage of Sales, (g) Net Income, (h) Operating Cash Flow, (i) Operating
Income, (j) Return on Assets, (k) Return on Equity, (l) Return on Sales, and
(m) Total Shareholder Return. The Performance Goals may differ from Participant
to Participant and from Award to Award. The Committee shall appropriately adjust
any evaluation of performance under a Performance Goal to exclude (i) any
extraordinary non-recurring items as described in Accounting Principles Board
Opinion No. 30 and/or in management’s discussion and analysis of financial
conditions and results of operations appearing in the Company’s annual report to
shareholders for the applicable year, or (ii) the effect of any changes in
accounting principles affecting the Company’s or a business units’ reported
results. Any criteria used may be measured, as applicable, (i) in absolute
terms, (ii) in relative terms (including, but not limited to, passage of time
and/or against another company or companies), (iii) on a per-share basis,
(iv) against the performance of the Company as a whole or of a business unit of
the Company, and/or (v) to the extent not otherwise specified by the definition
of the Performance Goal, on a pre-tax or after-tax basis.

(mm)    “Performance Period” means the time period of any Fiscal Year or such
longer period as determined by the Committee in its sole discretion during which
the performance objectives must be met.

(nn)    “Performance Share” means a performance share Award granted to a
Participant pursuant to Section 14.

(oo)    “Period of Restriction” means the period during which the transfer of
Shares of Restricted Stock are subject to restrictions and therefore, the Shares
are subject to a substantial risk of forfeiture. Such restrictions may be based
on the passage of time (including the continuation of employment or service),
the achievement of target levels of performance, or the occurrence of other
events as determined by the Administrator.

(pp)    “Plan” means this 2005 Equity Incentive Plan.

(qq)    “Restricted Stock” means shares of Common Stock granted pursuant to
Section 12 of the Plan, as evidenced by an Award Agreement.

 

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(rr)    “Restricted Stock Unit” means a bookkeeping entry representing an amount
equal to the Fair Market Value of one Share, granted pursuant to Section 13.
Each Restricted Stock Unit represents an unfunded and unsecured obligation of
the Company.

(ss)    “Return on Assets” means the percentage equal to the Company’s or a
business unit’s Operating Income before incentive compensation, divided by
average net Company or business unit, as applicable, assets, determined in
accordance with generally accepted accounting principles.

(tt)    “Return on Equity” means the percentage equal to the Company’s Net
Income divided by average shareholder’s equity, determined in accordance with
generally accepted accounting principles.

(uu)    “Return on Sales” means the percentage equal to the Company’s or a
business unit’s Operating Income before incentive compensation, divided by the
Company’s or the business unit’s, as applicable, revenue, determined in
accordance with generally accepted accounting principles.

(vv)    “Rule 16b-3” means Rule 16b-3 of the Exchange Act or any successor to
Rule 16b-3, as in effect when discretion is being exercised with respect to the
Plan.

(ww)    “Section 16(b)” means Section 16(b) of the Exchange Act.

(xx)    “Service Provider” means an Employee, Director or Consultant.

(yy)    “Share” means a share of the Common Stock, as adjusted in accordance
with Section 17 of the Plan.

(zz)    “Stock Appreciation Right” or “SAR” means a stock appreciation right
granted pursuant to Section 10 below.

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

(bbb)    “Total Shareholder Return” means the total return (change in share
price plus reinvestment of any dividends) of a share of the Company’s common
stock.

3.    Stock Subject to the Plan. Subject to the provisions of Section 17 of the
Plan, the maximum aggregate number of Shares which may issued under the Plan is
1,200,000 Shares, plus an annual increase to be added on the first day of the
Company’s Fiscal Year for three years beginning in 2006 and ending after the
2008 annual increase equal to the least of (i) 3% of the outstanding Shares on
such date or (ii) an amount determined by the Board. The Shares may be
authorized, but unissued, or reacquired Common Stock.

Any Shares subject to Options or SARs shall be counted against the numerical
limits of this Section 3 as one Share for every Share subject thereto. Any
Shares of Restricted Stock or Shares subject to Performance Shares or Restricted
Stock Units with a per share or unit purchase price

 

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lower than 100% of Fair Market Value on the date of grant shall be counted
against the numerical limits of this Section 3 as two Shares for every one Share
subject thereto. To the extent that a Share that was subject to an Award that
counted as two Shares against the Plan reserve pursuant to the preceding
sentence is recycled back into the Plan under the next paragraph of this
Section 3, the Plan shall be credited with two Shares.

If an Award expires or becomes unexercisable without having been exercised in
full or is surrendered pursuant to an Exchange Program, or, with respect to
Options, Restricted Stock, Performance Shares or Restricted Stock Units, is
forfeited to or repurchased by the Company, the unpurchased Shares (or for
Awards other than Options and SARs, the forfeited or repurchased shares) which
were subject thereto shall become available for future grant or sale under the
Plan (unless the Plan has terminated). With respect to SARs, Shares actually
issued pursuant to an SAR as well as the Shares withheld to pay the exercise
price shall cease to be available under the Plan. Shares that have actually been
issued under the Plan under any Award shall not be returned to the Plan and
shall not become available for future distribution under the Plan; provided,
however, that if Shares of Restricted Stock, Performance Shares or Restricted
Stock Units are repurchased by the Company at their original purchase price or
are forfeited to the Company, such Shares shall become available for future
grant under the Plan. Shares used to pay the exercise price of an Option or the
purchase price of Restricted Stock shall not become available for future grant
or sale under the Plan. Shares used to satisfy tax withholding obligations shall
not become available for future grant or sale under the Plan. To the extent an
Award under the Plan is paid out in cash rather than stock, such cash payment
shall not reduce the number of Shares available for issuance under the Plan. Any
payout of Dividend Equivalents, because they are payable only in cash, shall not
reduce the number of Shares available for issuance under the Plan. Conversely,
any forfeiture of Dividend Equivalents shall not increase the number of Shares
available for issuance under the Plan.

4.    Administration of the Plan.

(a)    Procedure.

(i)    Multiple Administrative Bodies. The Board or different Committees with
respect to different groups of Service Providers may administer the Plan.

(ii)    Section 162(m). To the extent that the Administrator determines it to be
desirable to qualify Awards granted hereunder as “performance-based
compensation” within the meaning of Section 162(m) of the Code, the Plan shall
be administered by a Committee of two or more “outside directors” within the
meaning of Section 162(m) of the Code.

(iii)    Rule 16b-3. To the extent desirable to qualify transactions hereunder
as exempt under Rule 16b-3, the transactions contemplated hereunder shall be
structured to satisfy the requirements for exemption under Rule 16b-3.

(iv)    Other Administration. Other than as provided above, the Plan shall be
administered by (a) the Board or (b) a Committee, which committee shall be
constituted to satisfy Applicable Laws.

 

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(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;

(ii)    to select the Service Providers to whom Awards may be granted hereunder;

(iii)    to determine the number of shares of Common Stock or equivalent units
to be covered by each Award granted hereunder;

(iv)    to approve forms of Award Agreement for use under the Plan;

(v)    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 date of grant, the time or times
when Awards may be exercised (or are earned) (which may be based on performance
criteria), any vesting acceleration or waiver of forfeiture restrictions, and
any restriction or limitation regarding any Award or the Shares relating
thereto, based in each case on such factors as the Administrator, in its sole
discretion, shall determine;

(vi)    to institute an Exchange Program; however, the Administrator may not
institute an Exchange Program without shareholder approval.

(vii)    to construe and interpret the terms of the Plan and Awards granted
pursuant to the Plan;

(viii)    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 satisfying applicable foreign laws and/or qualifying for preferred
tax treatment under foreign tax laws;

(ix)    to modify or amend each Award (subject to Section 19(c) of the Plan),
including the discretionary authority to extend the post-termination
exercisability period of Options and SARs longer than is otherwise provided for
in the Plan;

(x)    to allow Participants to satisfy withholding tax obligations by electing
to have the Company withhold from the Shares or cash to be issued upon exercise
of an Option, SAR or right to purchase Restricted Stock or upon vesting or
payout of another Award, that number of Shares or cash having a Fair Market
Value equal to the minimum 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 a Participant to have
Shares or cash withheld for this purpose shall be made in such form and under
such conditions as the Administrator may deem necessary or advisable;

(xi)    to determine whether Awards will be adjusted for Dividend Equivalents;

 

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

(xiii)    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
Participants and any other holders of Awards.

5.    Eligibility. Awards may be granted to Service Providers; provided,
however, that Incentive Stock Options may be granted only to Employees.

6.    No Employment Rights. Neither the Plan nor any Award shall confer upon a
Participant any right with respect to continuing the Participant’s relationship
as an Employee or other Service Provider with the Company or its Subsidiaries,
nor shall they interfere in any way with the Participant’s right or the
Company’s or Subsidiary’s right, as the case may be, to terminate such
relationship at any time, with or without cause.

7.    Code Section 162(m) Provisions.

(a)    Option and SAR Annual Share Limit. No Participant shall be granted, in
any Fiscal Year, Options and Stock Appreciation Rights to purchase more than
500,000 Shares; provided, however, that such limit shall be 250,000 Shares in
the Participant’s first Fiscal Year of Company service.

(b)    Restricted Stock, Performance Share and Restricted Stock Unit Annual
Limit. No Participant shall be granted, in any Fiscal Year, more than 250,000
Shares in the aggregate of the following: (i) Restricted Stock, (ii) Performance
Shares, or (iii) Restricted Stock Units; provided, however, that such limit
shall be 125,000 Shares in the Participant’s first Fiscal Year of Company
service.

(c)    Section 162(m) Performance Restrictions. For purposes of qualifying
grants of Restricted Stock, Performance Shares or Restricted Stock Units as
“performance-based compensation” under Section 162(m) of the Code, the
Administrator, in its discretion, may set restrictions based upon the
achievement of Performance Goals. The Performance Goals shall be set by the
Administrator on or before the latest date permissible to enable the Restricted
Stock, Performance Shares or Restricted Stock Units to qualify as
“performance-based compensation” under Section 162(m) of the Code. In granting
Restricted Stock, Performance Shares or Restricted Stock Units which are
intended to qualify under Section 162(m) of the Code, the Administrator shall
follow any procedures determined by it from time to time to be necessary or
appropriate to ensure qualification of the Award under Section 162(m) of the
Code (e.g., in determining the Performance Goals).

(d)    Changes in Capitalization. The numerical limitations in Sections 7(a) and
(b) shall be adjusted proportionately in connection with any change in the
Company’s capitalization as described in Section 17(a).

 

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(e)    If an Award is cancelled in the same Fiscal Year in which it was granted
(other than in connection with a transaction described in Section 17 of the
Plan), the cancelled Award will be counted against the limits set forth in
subsections (a) and (b) above. For this purpose, if the exercise price of an
Option is reduced, the transaction will be treated as a cancellation of the
Option and the grant of a new Option.

8.    Term of Plan. Subject to Section 23 of the Plan, the Plan will become
effective upon its adoption by the Board. It will continue in effect for a term
of ten (10) years unless terminated earlier under Section 19 of the Plan.

9.    Stock Options.

(a)    Type of Option. Each Option shall be designated in the Award Agreement as
either an Incentive Stock Option or a Nonstatutory Stock Option. However, not
withstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Participant during any calendar year
(under all plans of the Company and any Parent or Subsidiary) exceeds $100,000,
such Options shall be treated as Nonstatutory Stock Options. For purposes of
this Section 9(a), Incentive Stock Options shall be taken into account in the
order in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.

(b)    Term. The term of each Option shall be stated in the Award Agreement. In
the case of an Incentive Stock Option, the term shall be ten (10) years from the
date of grant or such shorter term as may be provided in the Award Agreement.
Moreover, in the case of an Incentive Stock Option granted to a Participant who,
at the time the Incentive Stock Option is granted, owns stock representing more
than ten percent (10%) of the total combined voting power of all classes of
stock of the Company or any Parent or Subsidiary, the term of the Incentive
Stock Option shall be five (5) years from the date of grant or such shorter term
as may be provided in the Award Agreement.

(c)    Option Exercise Price and Consideration.

(i)    Exercise Price. The per Share exercise price for the Shares to be issued
pursuant to exercise of an Option will be determined by the Administrator,
subject to the following:

(1)    In the case of an Incentive Stock Option granted to an Employee who, at
the time the Incentive Stock Option is granted, owns stock representing more
than ten percent (10%) of the voting power of all classes of stock of the
Company or any Parent or Subsidiary, the per Share exercise price will be no
less than 110% of the Fair Market Value per Share on the date of grant.

(2)    In the case of all other Options, the per Share exercise price will be no
less than 100% of the Fair Market Value per Share on the date of grant.

 

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(3)    Notwithstanding the foregoing, Options may be granted with a per Share
exercise price of less than 100% of the Fair Market Value per Share on the date
of grant pursuant to a merger or other corporate transaction.

(ii)    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.

(iii)    Form of Consideration. The Administrator shall determine the acceptable
form of consideration for exercising an Option, including the method of payment.
In the case of an Incentive Stock Option, the Administrator shall determine the
acceptable form of consideration at the time of grant. Subject to Applicable
Laws, such consideration may consist entirely of:

(1)    cash;

(2)    check;

(3)    promissory note;

(4)    other Shares which 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 and which meet the conditions established by the
Administrator to avoid adverse accounting consequences (as determined by the
Administrator);

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

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

(7)    any combination of the foregoing methods of payment;

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

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

10.    Stock Appreciation Rights.

(a)    Grant of SARs. Subject to the terms and conditions of the Plan, a SAR may
be granted to Service Providers at any time and from time to time as will be
determined by the Administrator, in its sole discretion.

 

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(b)    Number of Shares. The Administrator will have complete discretion to
determine the number of SARs granted to any Service Provider, subject to the
limits set forth in Section 7.

(c)    Exercise Price and Other Terms. The Administrator, subject to the
provisions of the Plan, will have complete discretion to determine the terms and
conditions of SARs granted under the Plan.

(d)    Exercise of SARs. SARs will be exercisable on such terms and conditions
as the Administrator, in its sole discretion, will determine.

(e)    SAR Agreement. Each SAR grant will be evidenced by an Award Agreement
that will specify the exercise price, the term of the SAR, the conditions of
exercise, and such other terms and conditions as the Administrator, in its sole
discretion, will determine.

(f)    Expiration of SARs. An SAR granted under the Plan will expire upon the
date determined by the Administrator, in its sole discretion, and set forth in
the Award Agreement; provided, however, that no SAR will have a term of more
than ten (10) years from the date of grant.

(g)    Payment of SAR Amount. Upon exercise of an SAR, a Participant will be
entitled to receive payment from the Company in an amount determined by
multiplying:

(i)    The difference between the Fair Market Value of a Share on the date of
exercise over the exercise price; times

(ii)    The number of Shares with respect to which the SAR is exercised.

(h)    Form of Payment. The Company’s obligation arising upon the exercise of a
SAR may be paid in Common Stock or in cash, or in any combination of Common
Stock and cash, as the Administrator, in its sole discretion, may determine.
Shares issued upon the exercise of a SAR shall be valued at their Fair Market
Value as of the date of exercise.

11.    Exercise of Option or SAR.

(a)    Procedure for Exercise; Rights as a Shareholder. Any Option or SAR
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 Award Agreement. An Option may not be exercised for a fraction of a
Share.

An Option or SAR shall be deemed exercised when the Company receives:
(i) written or electronic notice of exercise (in accordance with the terms of
the Option or SAR) from the person entitled to exercise the Option or SAR, 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 Award Agreement and the Plan. Shares
issued upon exercise of an Option or SAR shall be issued in the name of the
Participant or, if requested by the Participant, in the name of the Participant
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

 

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agent of the Company), no right to vote or receive dividends or any other rights
as a shareholder shall exist with respect to the Awarded Stock, notwithstanding
the exercise of the Option. The Company shall issue or cause to be issued (and
which issuance may be in electronic entry form) 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 17 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. Exercise of
a SAR in any manner shall, to the extent the SAR is exercised, result in a
decrease in the number of Shares which thereafter shall be available for
purposes of the Plan, and the SAR shall cease to be exercisable to the extent it
has been exercised.

(b)    Termination of Continuous Status as a Service Provider. Upon termination
of a Participant’s Continuous Status as a Service Provider (other than
termination by reason of the Participant’s death or Disability), the Participant
may exercise his or her Option or SAR within such period of time as is specified
in the Award Agreement to the extent that the Award is vested on the date of
termination (but in no event later than the expiration of the term of such Award
as set forth in the Award Agreement). In the absence of a specified time in the
Option Agreement, the Option shall remain exercisable for three (3) months
following the Participant’s termination. If the Option or SAR is not so
exercised within the time specified herein, the Option or SAR shall terminate,
and the Shares covered by such Option or SAR shall revert to the Plan. Unless
otherwise provided by the Administrator, if on the date of termination the
Participant is not vested as to his or her entire Option or SAR, the Shares
covered by the unvested portion of the Option or SAR will revert to the Plan on
the date one (1) month following the Participant’s termination. Notwithstanding
the foregoing, in no event shall an Option or SAR be exercisable after the
expiration of the term of the Award as provided in the Award Agreement.

(c)    Disability of Participant. If a Participant terminates his or her
Continuous Status as a Service Provider as a result of his or her Disability,
the Participant may exercise his or her Option or SAR within such period of time
as is specified in the Award Agreement to the extent the Option or SAR is vested
on the date of termination (but in no event later than the expiration of the
term of such Option or SAR as set forth in the Award Agreement). In the absence
of a specified time in the Award Agreement, the Option or SAR shall remain
exercisable for twelve (12) months following the Participant’s termination. If,
after termination, the Participant does not exercise his or her Option or SAR
within the time specified herein, the Option or SAR shall terminate, and the
Shares covered by such Option or SAR shall revert to the Plan. Unless otherwise
provided by the Administrator, if on the date of termination the Participant is
not vested as to his or her entire Option or SAR, the Shares covered by the
unvested portion of the Option or SAR will revert to the Plan on the date one
(1) month following the Participant’s termination. Notwithstanding the
foregoing, in no event shall an Option or SAR be exercisable after the
expiration of the term of the Award as provided in the Award Agreement.

(d)    Death of Participant. If a Participant dies while a Service Provider, the
Option or SAR may be exercised following the Participant’s death within such
period of time as is specified in the Award Agreement (but in no event may the
option be exercised later than the expiration of the

 

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term of such Option or SAR as set forth in the Award Agreement), by the
Participant’s designated beneficiary, provided such beneficiary has been
designated prior to Participant’s death in a form acceptable to the
Administrator. If no such beneficiary has been designated by the Participant,
then such Option may be exercised by the personal representative of the
Participant’s estate or by the person(s) to whom the Option or SAR is
transferred pursuant to the Participant’s will or in accordance with the laws of
descent and distribution. In the absence of a specified time in the Award
Agreement, the Option or SAR shall remain exercisable for twelve (12) months
following Participant’s death. If the Option or SAR is not so exercised within
the time specified herein, the Option or SAR shall terminate, and the Shares
covered by such Option or SAR shall revert to the Plan. Unless otherwise
provided by the Administrator, if on the date of termination the Participant is
not vested as to his or her entire Option or SAR, the Shares covered by the
unvested portion of the Option or SAR will revert to the Plan on the date one
(1) month following the Participant’s termination. Notwithstanding the
foregoing, in no event shall an Option or SAR be exercisable after the
expiration of the term of the Award as provided in the Award Agreement.

12.    Restricted Stock.

(a)    Grant of Restricted Stock. Subject to the terms and provisions of the
Plan (including the limits set forth in Section 7), the Administrator, at any
time and from time to time, may grant Shares of Restricted Stock to Service
Providers in such amounts as the Administrator, in its sole discretion, will
determine.

(b)    Restricted Stock Agreement. Each Award of Restricted Stock will be
evidenced by an Award Agreement that will specify the Period of Restriction, the
number of Shares granted, and such other terms and conditions as the
Administrator, in its sole discretion, will determine. Unless the Administrator
determines otherwise, Shares of Restricted Stock will be held by the Company as
escrow agent until the restrictions on such Shares have lapsed.

(c)    Transferability. Unless determined otherwise by the Administrator, Shares
of Restricted Stock may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution until the end of the applicable Period of Restriction.

(d)    Other Restrictions. The Administrator, in its sole discretion, may impose
such other restrictions on Shares of Restricted Stock as it may deem advisable
or appropriate.

(i)    General Restrictions. The Administrator may set restrictions based upon
the achievement of Company-wide, departmental, business unit, or individual
goals (including, but not limited to, continued employment or service),
applicable federal or state securities laws, or any other basis determined by
the Administrator in its discretion.

(ii)    Section 162(m) Performance Restrictions. For purposes of qualifying
grants of Restricted Stock as “performance-based compensation” under
Section 162(m) of the Code, the Committee, in its discretion, may set
restrictions based upon the achievement of Performance Goals. The Performance
Goals shall be set by the Committee on or before the latest date permissible to
enable the Restricted Stock to qualify as “performance-based compensation” under

 

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Section 162(m) of the Code. In granting Restricted Stock which is intended to
qualify under Section 162(m) of the Code, the Committee shall follow any
procedures determined by it from time to time to be necessary or appropriate to
ensure qualification of the Restricted Stock under Section 162(m) of the Code
(e.g., in determining the Performance Goals).

(e)    Removal of Restrictions. Except as otherwise provided in this Section 12,
Shares of Restricted Stock covered by each Restricted Stock grant made under the
Plan will be released from escrow as soon as practicable after the last day of
the Period of Restriction. The Administrator, in its discretion, may accelerate
the time at which any restrictions will lapse or be removed.

(f)    Voting Rights. During the Period of Restriction, Service Providers
holding Shares of Restricted Stock granted hereunder may exercise full voting
rights with respect to those Shares, unless the Administrator determines
otherwise.

(g)    Dividends and Other Distributions. During the Period of Restriction,
Service Providers holding Shares of Restricted Stock will be entitled to receive
all dividends and other distributions paid with respect to such Shares unless
otherwise provided in the Award Agreement. If any such dividends or
distributions are paid in Shares, the Shares will be subject to the same
restrictions on transferability and forfeitability as the Shares of Restricted
Stock with respect to which they were paid.

(h)    Return of Restricted Stock to Company. On the date set forth in the Award
Agreement, the Restricted Stock for which restrictions have not lapsed will
revert to the Company and again will become available for grant under the Plan.

13.    Restricted Stock Units.

(a)    Grant. Restricted Stock Units may be granted at any time and from time to
time as determined by the Administrator. Each Restricted Stock Unit grant shall
be evidenced by an Award Agreement that shall specify such other terms and
conditions as the Administrator, in its sole discretion, shall determine,
including all terms, conditions, and restrictions related to the grant, the
number of Restricted Stock Units (subject to the limitations set forth in
Section 7) and the form of payout, which, subject to Section 13(d), may be left
to the discretion of the Administrator.

(b)    Vesting Criteria and Other Terms. The Administrator shall set vesting
criteria in its discretion, which, depending on the extent to which the criteria
are met, will determine the number of Restricted Stock Units that will be paid
out to the Participant.

(i)    General Restrictions. The Administrator may set vesting criteria based
upon the achievement of Company-wide, departmental, business unit, or individual
goals (including, but not limited to, continued employment or service),
applicable federal or state securities laws, or any other basis determined by
the Administrator in its discretion.

(ii)    Section 162(m) Performance Restrictions. For purposes of qualifying
grants of Restricted Stock Units as “performance-based compensation” under
Section 162(m) of the Code, the Committee, in its discretion, may set
performance objectives based upon the achievement

 

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of Performance Goals. The Performance Goals shall be set by the Committee on or
before the latest date permissible to enable the Restricted Stock Units to
qualify as “performance-based compensation” under Section 162(m) of the Code. In
granting Restricted Stock Units that are intended to qualify under
Section 162(m) of the Code, the Committee shall follow any procedures determined
by it from time to time to be necessary or appropriate to ensure qualification
of the Restricted Stock Units under Section 162(m) of the Code (e.g., in
determining the Performance Goals).

(c)    Earning Restricted Stock Units. Upon meeting the applicable vesting
criteria, the Participant shall be entitled to receive a payout as specified in
the Award Agreement. Notwithstanding the foregoing, at any time after the grant
of Restricted Stock Units, the Administrator, in its sole discretion, may reduce
or waive any vesting criteria that must be met to receive a payout.

(d)    Form and Timing of Payment. Payment of earned Restricted Stock Units
shall be made as soon as practicable after the date(s) set forth in the Award
Agreement. The Administrator, in its sole discretion, may pay earned Restricted
Stock Units in cash, Shares, or a combination thereof. Shares represented by
Restricted Stock Units that are fully paid in cash again shall be available for
grant under the Plan.

(e)    Cancellation. On the date set forth in the Award Agreement, all unearned
Restricted Stock Units shall be forfeited to the Company.

14.    Performance Shares.

(a)    Grant of Performance Shares. Subject to the terms and conditions of the
Plan, Performance Shares may be granted to Service Providers at any time as
shall be determined by the Administrator, in its sole discretion. Subject to
Section 7 hereof, the Administrator shall have complete discretion to determine
the number of Shares subject to a Performance Share Award granted to any Service
Provider.

(b)    Value of Performance Shares. Each Performance Share will have an initial
value equal to the Fair Market Value of a Share on the date of grant.

(c)    Performance Objectives and Other Terms. The Administrator will set
performance objectives in its discretion which, depending on the extent to which
they are met, will determine the number or value of Performance Shares that will
be paid out to the Service Providers. Each Award of Performance Shares will be
evidenced by an Award Agreement that will specify the performance period during
which the applicable objectives must be met, and such other terms and conditions
as the Administrator, in its sole discretion, will determine.

(i)    General Restrictions. The Administrator may set performance objective
based upon the achievement of Company-wide, departmental, business unit, or
individual goals (including, but not limited to, continued employment or
service), applicable federal or state securities laws, or any other basis
determined by the Administrator in its discretion.

 

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(ii)    Section 162(m) Performance Restrictions. For purposes of qualifying
grants of Performance Shares as “performance-based compensation” under
Section 162(m) of the Code, the Committee, in its discretion, may set
performance objectives based upon the achievement of Performance Goals. The
Performance Goals shall be set by the Committee on or before the latest date
permissible to enable the Performance Shares to qualify as “performance-based
compensation” under Section 162(m) of the Code. In granting Performance Shares
that are intended to qualify under Section 162(m) of the Code, the Committee
shall follow any procedures determined by it from time to time to be necessary
or appropriate to ensure qualification of the Performance Shares under
Section 162(m) of the Code (e.g., in determining the Performance Goals).

(d)    Earning of Performance Shares. After the applicable Performance Period
has ended, the holder of Performance Shares will be entitled to receive a payout
of the number of Performance Shares earned by the Participant over the
Performance Period, to be determined as a function of the extent to which the
corresponding performance objectives have been achieved. After the grant of a
Performance Share, the Administrator, in its sole discretion, may reduce or
waive any performance objectives for such Performance Share.

(e)    Form and Timing of Payment of Performance Shares. Payment of earned
Performance Shares will be made as soon as practicable after the expiration of
the applicable Performance Period. The Administrator, in its sole discretion,
may pay earned Performance Shares in the form of cash, in Shares (which have an
aggregate Fair Market Value equal to the value of the earned Performance Shares
at the close of the applicable performance period) or in a combination thereof.

(f)    Cancellation of Performance Shares. On the date set forth in the Award
Agreement, all unearned or unvested Performance Shares will be forfeited to the
Company, and again will be available for grant under the Plan.

15.    Leaves of Absence. Unless the Administrator provides otherwise or except
as otherwise required by Applicable Laws, vesting of Awards granted hereunder
shall cease commencing on the first day of any unpaid leave of absence and shall
only recommence upon return to active service.

16.    Transferability of Awards. Unless determined otherwise by the
Administrator or as otherwise provided in the Plan, an Award may not be sold,
pledged, assigned, hypothecated, transferred, or disposed of in any manner other
than by will or by the laws of descent or distribution, and may be exercised,
during the lifetime of the Participant, only by the Participant. If the
Administrator makes an Award transferable, such Award shall contain such
additional terms and conditions as the Administrator deems appropriate.

17.    Adjustments Upon Changes in Capitalization, Dissolution, Merger or Change
in Control.

(a)    Changes in Capitalization. Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Award and the number of shares of Common Stock which have been
authorized for issuance under the Plan but

 

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as to which no Awards have yet been granted or which have been returned to the
Plan upon cancellation or expiration of an Award, as well as the price per
share, if any, of Common Stock covered by each such outstanding Award and the
162(m) fiscal year share issuance limits under Sections 7(a) and (b) hereof
shall, shall be proportionately adjusted for any dividend or other distribution
(whether in the form of cash, Shares, other securities, or other property),
recapitalization, stock split, reverse stock split, reorganization, merger,
consolidation, split-up, spin-off, combination, repurchase, or exchange of
Shares or other securities of the Company, or other change in the corporate
structure of the Company affecting the Shares should the Committee (in its sole
discretion) determine such an adjustment to be appropriate in order to prevent
dilution or enlargement of the benefits or potential benefits intended to be
made available under the Plan. Such adjustment shall be made by the Board or the
Committee, whose determination in that respect shall be final, binding and
conclusive. 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 of Common Stock subject to an Award.

(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 Administrator. The Administrator in its discretion may provide for a
Participant to have the right to exercise his or her Option, SAR or right to
purchase Restricted Stock until ten (10) days prior to such transaction as to
all of the Awarded Stock covered thereby, including Shares as to which the Award
would not otherwise be exercisable. In addition, the Administrator may provide
that any Company repurchase option or forfeiture rights applicable to any Award
shall lapse 100%, and that any Award vesting shall accelerate 100%, provided the
proposed dissolution or liquidation takes place at the time and in the manner
contemplated. To the extent it has not been previously exercised (with respect
to Options, SARs and right to purchase Restricted Stock) or vested (with respect
to other Awards), an Award will terminate immediately prior to the consummation
of such proposed action.

(c)    Merger or Change in Control. In the event of a merger or Change in
Control, each outstanding Award shall be assumed or an equivalent award
substituted by the successor corporation or a Parent or Subsidiary of the
successor corporation. In the event that the successor corporation refuses to
assume or substitute for the Award, the Participant shall (i) fully vest in and
have the right to exercise the Option, SAR or right to purchase Restricted Stock
as to all of the Awarded Stock, including Shares as to which it would not
otherwise be vested or exercisable, and (ii) fully earn and receive a payout
with respect to other Awards. If an Award is not assumed or substituted for in
the event of a merger or Change in Control, the Administrator shall notify the
Participant in writing or electronically that (i) the Option, SAR or right to
purchase Restricted Stock shall be fully vested and exercisable for a period of
fifteen (15) days from the date of such notice, and (ii) all outstanding
Options, SARs and rights to purchase Restricted Stock shall terminate upon the
expiration of such period and (iii) all other outstanding Awards shall be paid
out immediately prior to the merger or Change in Control. For the purposes of
this paragraph, the Award shall be considered assumed if, following the merger
or Change in Control, the assumed Award confers the right to purchase or
receive, for each Share of Awarded Stock subject to the Award immediately prior
to the merger or Change in Control, the consideration (whether stock, cash, or
other securities or property) received in the merger or Change in Control by
holders of Common Stock for each

 

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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 Change in Control is not solely common
stock of the successor corporation or its Parent, the Administrator may, with
the consent of the successor corporation, provide for the consideration to be
received upon the exercise (or payout or vesting, as applicable) of the Award,
for each Share of Awarded Stock subject to the Award, 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 Change
in Control.

18.    Date of Grant. The date of grant of an Award shall be, for all purposes,
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 provided to each Participant within a reasonable time
after the date of such grant.

19.    Amendment and Termination of the Plan.

(a)    Amendment and Termination. The Board may at any time amend, alter,
suspend or terminate the Plan.

(b)    Shareholder Approval. The Plan will be subject to approval by the
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval will be obtained in the manner and to the
degree required under Applicable Laws. The Company shall obtain shareholder
approval of any Plan amendment to the extent necessary and desirable to comply
with Applicable Laws.

(c)    Effect of Amendment or Termination. No amendment, alteration, suspension
or termination of the Plan shall impair the rights of any Participant, unless
mutually agreed otherwise between the Participant and the Administrator, which
agreement must be in writing (or electronic format) and signed by the
Participant and the Company. Termination of the Plan shall not affect the
Administrator’s ability to exercise the powers granted to it hereunder with
respect to Awards granted under the Plan prior to the date of such termination.

20.    Conditions Upon Issuance of Shares.

(a)    Legal Compliance. Shares shall not be issued pursuant to the exercise or
payout, as applicable, of an Award unless the exercise or payout, as applicable,
of such Award and the issuance and delivery of such Shares shall comply with
Applicable Laws and shall be further subject to the approval of counsel for the
Company with respect to such compliance.

(b)    Investment Representations. As a condition to the exercise or payout, as
applicable, of an Award, the Company may require the person exercising such
Option, SAR or right to purchase Restricted Stock, or in the case of another
Award, the person receiving the payout, 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.

 

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21.    Inability to Obtain Authority. The 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 failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.

22.    Severability. Notwithstanding any contrary provision of the Plan or an
Award to the contrary, if any one or more of the provisions (or any part
thereof) of this Plan or the Awards shall be held invalid, illegal or
unenforceable in any respect, such provision shall be modified so as to make it
valid, legal and enforceable, and the validity, legality and enforceability of
the remaining provisions (or any part thereof) of the Plan or Award, as
applicable, shall not in any way be affected or impaired thereby.

23.    Shareholder Approval. Subject to Section 19 of the Plan, the Plan will
become effective upon its adoption by the Board. It will continue in effect for
a term of five (5) years from the date of approval by the shareholders of the
Company unless terminated earlier under Section 19 of the Plan.

24.    Non-U.S. Employees. Notwithstanding anything in the Plan to the contrary,
with respect to any employee who is resident outside of the United States, the
Administrator may, in its sole discretion, amend the terms of the Plan in order
to conform such terms to the requirements of local law or to meet the objectives
of the Plan. The Administrator may, where appropriate, establish one or more
sub-plans for this purpose.

 

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