Exhibit 10.1

CELL THERAPEUTICS, INC.

2007 EQUITY INCENTIVE PLAN

Effective as of June 20, 2003 and amended and restated as of October 4, 2011

SECTION 1

BACKGROUND AND PURPOSE

1.1 Background. The Plan permits the grant of Nonqualified Stock Options,
Incentive Stock Options, SARs, Restricted Stock, Restricted Stock Units and Cash
Awards.

1.2 Purpose of the Plan. The Plan is intended to attract, motivate, and retain
(a) employees of the Company and its Affiliates, (b) consultants who provide
significant services to the Company and its Affiliates, and (c) directors of the
Company who are employees of neither the Company nor any Affiliate. The Plan
also is designed to encourage stock ownership by Participants, thereby aligning
their interests with those of the Company’s shareholders.

SECTION 2

DEFINITIONS

The following words and phrases shall have the following meanings unless a
different meaning is plainly required by the context:

2.1 “1934 Act” means the Securities Exchange Act of 1934, as amended. Reference
to a specific section of the 1934 Act or regulation thereunder shall include
such section or regulation, any valid regulation promulgated under such section,
and any comparable provision of any future legislation or regulation amending,
supplementing or superseding such section or regulation.

2.2 “Affiliate” means any corporation or any other entity (including, but not
limited to, partnerships and joint ventures) controlling, controlled by, or
under common control with the Company.

2.3 “Affiliated SAR” means an SAR that is granted in connection with a related
Option, and which automatically will be deemed to be exercised at the same time
that the related Option is exercised.

2.4 “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; provided, however, that prior to the Fiscal Year, the Committee
shall determine whether any significant item(s) shall be excluded or included
from the calculation of Annual Revenue with respect to one or more Participants.

2.5 “Award” means, individually or collectively, a grant under the Plan of
Nonqualified Stock Options, Incentive Stock Options, SARs, Restricted Stock,
Restricted Stock Units or Cash Awards.

2.6 “Award Agreement” means the written agreement setting forth the terms and
provisions applicable to each Award granted under the Plan.

2.7 “Board” or “Board of Directors” means the Board of Directors of the Company.

2.8 “Cash Award” means the right to receive cash as described in Section 8.

2.9 “Cash Position” means the Company’s level of cash, cash equivalents and
securities available-for-sale.

2.10 “Change in Control” means the occurrence of any of the following events:

(a) Any “person” (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act) becomes the “beneficial owner” (as defined in Rule 13d 3 of the
Exchange Act), directly or indirectly, of securities of the Company representing
fifty percent (50%) or more of the total voting power represented by the
Company’s then outstanding voting securities;

(b) The consummation of the sale or disposition by the Company of all or
substantially all of the Company’s assets;

 

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(c) A change in the composition of the Board occurring within a two-year period,
as a result of which fewer than a majority of the directors are Incumbent
Directors. “Incumbent Directors” means directors who either (A) are Directors as
of the effective date of the Plan, or (B) are elected, or nominated for
election, to the Board with the affirmative votes of at least a majority of the
Directors at the time of such election or nomination (but will not include an
individual whose election or nomination is in connection with an actual or
threatened proxy contest relating to the election of directors to the Company);
or

(d) The consummation of a merger or consolidation 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 or its parent) at least fifty
percent (50%) of the total voting power represented by the voting securities of
the Company or such surviving entity or its parent outstanding immediately after
such merger or consolidation.

2.11 “Code” means the Internal Revenue Code of 1986, as amended. Reference to a
specific section of the Code or regulation thereunder shall include such section
or regulation, any valid regulation promulgated under such section, and any
comparable provision of any future legislation or regulation amending,
supplementing or superseding such section or regulation.

2.12 “Committee” means the Board or a committee appointed by the Board (pursuant
to Section 3.1) to administer the Plan.

2.13 “Company” means Cell Therapeutics, Inc., a Washington corporation, or any
successor thereto. With respect to the definitions of the Performance Goals, the
Committee may determine that “Company” means Cell Therapeutics, Inc. and its
consolidated subsidiaries.

2.14 “Consultant” means any consultant, independent contractor, or other person
who provides significant services to the Company or its Affiliates, but who is
neither an Employee nor a Director.

2.15 “Director” means any individual who is a member of the Board of Directors
of the Company.

2.16 “Disability” means a permanent and total disability within the meaning of
Section 22(e)(3) of the Code, provided that in the case of Awards other than
Incentive Stock Options, the Committee in its discretion may determine whether a
permanent and total disability exists in accordance with uniform and
non-discriminatory standards adopted by the Committee from time to time.

2.17 “Earnings Per Share” means as to any Fiscal Year, 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.

2.18 “Employee” means any employee of the Company or of an Affiliate, whether
such employee is so employed at the time the Plan is adopted or becomes so
employed subsequent to the adoption of the Plan.

2.19 “Exercise Price” means the price at which a Share may be purchased by a
Participant pursuant to the exercise of an Option.

2.20 “Fair Market Value” means the last quoted per share selling price for
Shares on The NASDAQ Capital Market on the relevant date, or if there were no
sales on such date, the closing bid on the relevant date. If there are neither
bids nor sales on the relevant date, then the Fair Market Value shall mean the
arithmetic mean of the highest and lowest quoted selling prices on the last
market trading day before the relevant date, as determined by the Committee. In
any instance where the relevant date falls on a weekend day, a date The NASDAQ
Capital Market is closed for trading or any other non-trading day, Fair Market
Value shall mean the last quoted per share selling price on the last market
trading day before the relevant date. If there are neither bids nor sales on the
last market trading day before the relevant date, then the Fair Market Value
shall mean the arithmetic mean of the highest and lowest quoted selling prices
on the most recent market trading day before the relevant date. Notwithstanding
the preceding, for federal, state, and local income tax reporting purposes, Fair
Market Value shall be determined by the Committee (or its

 

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delegate) in accordance with uniform and nondiscriminatory standards adopted by
it from time to time. If Shares are not traded on any established stock exchange
or quoted on a national market system and are not quoted by a recognized
securities dealer, the Committee (following guidelines established by the Board
or Committee) will determine Fair Market Value in good faith.

2.21 “Fiscal Year” means the fiscal year of the Company.

2.22 “Freestanding SAR” means a SAR that is granted independently of any Option.

2.23 “Grant Date” means, with respect to an Award, the date that the Award was
granted.

2.24 “Incentive Stock Option” means an Option to purchase Shares which is
designated as an Incentive Stock Option and is intended to meet the requirements
of Section 422 of the Code.

2.25 “Individual Objectives” 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).

2.26 “Misconduct” means, at any time within (a) the term of an Option granted
hereunder, (b) within one (1) year after a Participant’s Termination of Service,
or (c) within one (1) year after exercise of any portion of an Option granted
hereunder, whichever is the latest, the commission of any act in competition
with any activity of the Company (or any Affiliate) or any act contrary or
harmful to the interests of the Company (or any Affiliate), including, but not
limited to: (a) conviction of a felony or crime involving moral turpitude or
dishonesty, (b) violation of Company (or any Affiliate) policies, (c) accepting
employment with or serving as a consultant, advisor or in any other capacity to
an entity that is in competition with or acting against the interests of the
Company (or any Affiliate), including employing or recruiting any present,
former or future employee of the Company (or any Affiliate), (d) misuse of any
trade or business secrets or confidential, secret, privileged, or non-public
information relating to the Company’s (or any Affiliate’s) business or breach of
the Company’s Confidentiality Agreement, or (e) participating in a hostile
takeover attempt of the Company. The foregoing definition shall not be deemed to
be inclusive of all acts or omissions that the Company (or any Affiliate) may
consider as Misconduct for purposes of the Plan.

2.27 “Net Income” means as to any Fiscal Year, the income after taxes of the
Company for the Fiscal Year determined in accordance with generally accepted
accounting principles, provided that prior to the Fiscal Year, 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.

2.28 “Nonemployee Director” means a Director who is an employee of neither the
Company nor of any Affiliate.

2.29 “Nonqualified Stock Option” means an option to purchase Shares which is not
intended to be an Incentive Stock Option.

2.30 “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.

2.31 “Operating Income” means the Company’s or a business unit’s income from
operations but excluding any unusual items, determined in accordance with
generally accepted accounting principles.

2.32 “Option” means an Incentive Stock Option or a Nonqualified Stock Option.

2.33 “Participant” means an Employee, Consultant, or Nonemployee Director who
has an outstanding Award.

2.34 “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: Annual Revenue, Cash Position, Earnings Per

 

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Share, Individual Objectives, Net Income, Operating Cash Flow, Operating Income,
Regulatory Approval, Return on Assets, Return on Equity, Return on Sales, Stock
Price and Total Shareholder Return. The Performance Goals may differ from
Participant to Participant and from Award to Award.

2.35 “Period of Restriction” means the period during which the transfer of
Restricted Stock is subject to restrictions and therefore, the Shares subject to
the Restricted Stock grant are subject to a substantial risk of forfeiture. With
respect to Restricted Stock granted pursuant to Section 7, such restrictions may
be based on the passage of time, the achievement of target levels of
performance, or the occurrence of other events as determined by the Committee,
in its discretion.

2.36 “Plan” means the Cell Therapeutics, Inc. 2007 Equity Incentive Plan, as set
forth in this instrument and as hereafter amended from time to time.

2.37 “Regulatory Approval” means the approval, or recommendation to approve, of
regulatory agencies in the United States or Europe for such drug candidates as
specified by the Plan Administrator for purposes of the Award.

2.38 “Restricted Stock” means an Award granted to a Participant pursuant to
Section 7.

2.39 “Restricted Stock Units” means a bookkeeping entry representing an amount
equivalent to the Fair Market Value of one Share (or a fraction or multiple of
such value), payable in cash, property or Shares. Restricted Stock Units
represent an unfunded and unsecured obligation of the Company, except as
otherwise provided for by the Committee. Each Award of Restricted Stock Units
shall be evidenced by an Award Agreement that shall specify such vesting,
payment and other terms and conditions as the Committee, in its sole discretion,
shall determine.

2.40 “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.

2.41 “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.

2.42 “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.

2.43 “Rule 16b-3” means Rule 16b-3 promulgated under the 1934 Act, and any
future regulation amending, supplementing or superseding such regulation.

2.44 “Section 16 Person” means a person who, with respect to the Shares, is
subject to Section 16 of the 1934 Act.

2.45 “Shares” means the shares of common stock of the Company.

2.46 “Stock Appreciation Right” or “SAR” means an Award, granted alone or in
connection with a related Option, that pursuant to Section 6 is designated as an
SAR.

2.47 “Stock Price” means the stock price or market value of a share of the
Company’s common stock and any amount determined by reference to such stock
price or market value.

2.48 “Subsidiary” means any corporation in an unbroken chain of corporations
beginning with the Company if each of the corporations other than the last
corporation in the unbroken chain then owns stock possessing fifty percent
(50%) or more of the total combined voting power of all classes of stock in one
of the other corporations in such chain.

2.49 “Tandem SAR” means an SAR that is granted in connection with a related
Option, the exercise of which shall require forfeiture of the right to purchase
an equal number of Shares under the related Option (and when a Share is
purchased under the Option, the SAR shall be canceled to the same extent).

 

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2.50 “Termination of Service” means (a) in the case of an Employee, a cessation
of the employee-employer relationship between the Employee and the Company or an
Affiliate for any reason, including, but not by way of limitation, a termination
by resignation, discharge, death, Disability or the disaffiliation of an
Affiliate, but excluding any such termination where there is a simultaneous
reemployment by the Company or an Affiliate; (b) in the case of a Consultant, a
cessation of the service relationship between the Consultant and the Company or
an Affiliate for any reason, including, but not by way of limitation, a
termination by resignation, discharge, death, Disability, or the disaffiliation
of an Affiliate, but excluding any such termination where there is a
simultaneous re-engagement of the consultant by the Company or an Affiliate; and
(c) in the case of a Nonemployee Director, a cessation of the Director’s service
on the Board for any reason, including, but not by way of limitation, a
termination by resignation, death, Disability or non-reelection to the Board.

2.51 “Total Shareholder Return” means the total return (change in share price
plus reinvestment of any dividends) of a Share.

SECTION 3

ADMINISTRATION

3.1 The Committee. The Plan shall be administered by the Committee. If the
Committee is not the Board then the Committee shall consist of not less than two
(2) Directors who shall be appointed from time to time by, and shall serve at
the pleasure of, the Board of Directors. If the Committee is not the Board, then
the Committee shall be comprised solely of Directors who both are
(a) “non-employee directors” under Rule 16b-3, and (b) “outside directors” under
Section 162(m) of the Code.

3.2 Authority of the Committee. It shall be the duty of the Committee to
administer the Plan in accordance with the Plan’s provisions. The Committee
shall have all powers and discretion necessary or appropriate to administer the
Plan and to control its operation, including, but not limited to, the power to
(a) determine which Employees, Consultants and Directors shall be granted
Awards, (b) prescribe the terms and conditions of the Awards, (c) interpret the
Plan and the Awards, (d) adopt such procedures and subplans as are necessary or
appropriate to permit participation in the Plan by Employees and Directors who
are foreign nationals or employed outside of the United States, (e) adopt rules
for the administration, interpretation and application of the Plan as are
consistent therewith, and (f) interpret, amend or revoke any such rules.

3.3 Delegation by the Committee. The Committee, in its sole discretion and on
such terms and conditions as it may provide, may delegate (a) all or any part of
its authority and powers under the Plan to one or more Directors, and (b) more
limited authority and powers under the Plan to one or more officers of the
Company; provided, however, that the Committee may not delegate its authority
and powers (a) with respect to Section 16 Persons, or (b) in any way which would
jeopardize the Plan’s qualification under Section 162(m) of the Code or Rule
16b-3.

3.4 Decisions Binding. All determinations and decisions made by the Committee,
the Board, and any delegate of the Committee pursuant to the provisions of the
Plan shall be final, conclusive, and binding on all persons, and shall be given
the maximum deference permitted by law.

SECTION 4

SHARES SUBJECT TO THE PLAN

4.1 Number of Shares. Subject to adjustment as provided in Section 4.3, the
total number of Shares available for issuance under the Plan shall not exceed
32,610,180 Shares. Shares issued under the Plan may be either authorized but
unissued Shares or treasury Shares. In addition, (a) the maximum number of
Shares subject to those Options and SARs that are granted during any calendar
year to any individual under this Plan shall be 13,500,000 Shares and (b) the
maximum number of Shares which may be subject to Awards (other than Options and
SARs) intended to qualify as “performance-based compensation” under
Section 162(m) of the Code (including Awards payable in Shares and Awards
payable in cash where the amount of cash payable upon or following vesting of
the Award is determined with reference to the Fair Market Value of a Share at
such time) that are granted to any one individual in any one calendar year shall
13,500,000 Shares.

 

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4.2 Awards Settled in Cash, Reissue of Awards and Shares. If an Award is settled
in cash, or is cancelled, terminates, expires, or lapses for any reason (with
the exception of the termination of a Tandem SAR upon exercise of the related
Option, or the termination of a related Option upon exercise of the
corresponding Tandem SAR), any Shares subject to such Award again shall be
available for subsequent Awards under the Plan. Shares that are exchanged by a
Participant or withheld by the Company as full or partial payment in connection
with any Award under the Plan, as well as any Shares exchanged by a Participant
or withheld by the Company or one of its Affiliates to satisfy the tax
withholding obligations related to any Award, shall not be available for
subsequent Awards under the Plan. To the extent that Shares are delivered
pursuant to the exercise of a SAR or Option granted under the Plan, the number
of underlying Shares as to which the exercise related shall be counted against
the applicable share limits under Section 4.1, as opposed to only counting the
Shares issued. (For purposes of clarity, if a SAR relates to 100,000 Shares and
is exercised at a time when the payment due to the Participant is 15,000 Shares,
100,000 Shares shall be charged against the applicable Share limits under
Section 4.1 with respect to such exercise.)

4.3 Adjustments in Awards and Authorized Shares. In the event that 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 occurs
such that an adjustment is determined by the Committee (in its sole discretion)
to be appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan, then the
Committee shall in such manner as it may deem equitable, (a) adjust the number
and class of Shares (or other securities) that may be delivered under the Plan
under Section 4.1, and the number, class, and price of Shares (or other
securities) subject to outstanding Awards or (b) make provision for a cash
payment or for the assumption, substitution or exchange of any or all
outstanding Awards or the cash, securities or property deliverable to the holder
of any or all outstanding Awards, based upon the distribution or consideration
payable to holders of the Shares upon or in respect of such event. The specific
adjustments shall be determined by the Committee. Notwithstanding the preceding,
the number of Shares subject to any Award always shall be a whole number.

SECTION 5

STOCK OPTIONS

5.1 Grant of Options. Subject to the terms and provisions of the Plan, Options
may be granted to Employees, Consultants and Directors at any time and from time
to time as determined by the Committee in its sole discretion. The Committee may
grant Incentive Stock Options, Nonqualified Stock Options, or a combination
thereof, and the Committee, in its sole discretion, shall determine the number
of Shares subject to each Option.

5.2 Award Agreement. Each Option shall be evidenced by an Award Agreement that
shall specify the Exercise Price, the expiration date of the Option, the number
of Shares to which the Option pertains, any conditions to exercise the Option,
and such other terms and conditions as the Committee, in its discretion, shall
determine. The Award Agreement shall also specify whether the Option is intended
to be an Incentive Stock Option or a Nonqualified Stock Option.

5.3 Exercise Price. Subject to the provisions of this Section 5.3, the Exercise
Price for each Option shall be determined by the Committee in its sole
discretion.

5.3.1 Nonqualified Stock Options. In the case of a Nonqualified Stock Option,
the Exercise Price shall be not less than one hundred percent (100%) of the Fair
Market Value of a Share on the Grant Date.

5.3.2 Incentive Stock Options. In the case of an Incentive Stock Option, the
Exercise Price shall be not less than one hundred percent (100%) of the Fair
Market Value of a Share on the Grant Date; provided, however, that if on the
Grant Date, the Employee (together with persons whose stock ownership is
attributed to the Employee pursuant to Section 424(d) of the Code) owns stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company

 

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or any of its Subsidiaries, the Exercise Price shall be not less than one
hundred and ten percent (110%) of the Fair Market Value of a Share on the Grant
Date.

5.3.3 Substitute Options. Notwithstanding the provisions of Sections 5.3.1 and
5.3.2, in the event that the Company or an Affiliate consummates a transaction
described in Section 424(a) of the Code (e.g., the acquisition of property or
stock from an unrelated corporation), persons who become Employees, Directors or
Consultants on account of such transaction may be granted Options in
substitution for options granted by their former employer. If such substitute
Options are granted, the Committee, in its sole discretion and consistent with
Section 424(a) of the Code, may determine that such substitute Options shall
have an exercise price less than one hundred percent (100%) of the Fair Market
Value of the Shares on the Grant Date.

5.4 Expiration of Options.

5.4.1 Expiration Dates. Each Option shall terminate no later than the first to
occur of the following events:

(a) The date for termination of the Option set forth in the written Award
Agreement, or

(b) If no date for the termination of the Option is set forth in the written
Award Agreement (other than reference to Section 5.4.1(c)), (a) the expiration
of twelve (12) months from the date of the Participant’s Termination of Service
if such Termination of Service is a result of death or Disability, or (b) three
(3) months from the date of the Participant’s Termination of Service for any
other reason; or

(c) The expiration of ten (10) years from the Grant Date.

5.4.2 Committee Discretion. Subject to the limits of Section 5.4.1, the
Committee, in its sole discretion, (a) shall provide in each Award Agreement
when each Option expires and becomes unexercisable, and (b) may, after an Option
is granted, extend the maximum term of the Option (subject to Section 5.8.4
regarding Incentive Stock Options).

5.5 Exercisability of Options. Options granted under the Plan shall be
exercisable at such times and be subject to such restrictions and conditions as
the Committee shall determine in its sole discretion. After an Option is
granted, the Committee, in its sole discretion, may accelerate the
exercisability of the Option.

5.6 Payment. Options shall be exercised by the Participant’s delivery of a
written notice of exercise to the Secretary of the Company (or its designee),
setting forth the number of Shares with respect to which the Option is to be
exercised, accompanied by full payment for the Shares, including satisfaction of
any applicable withholding taxes.

Upon the exercise of any Option, the Exercise Price shall be payable to the
Company in full in cash or its equivalent. The Committee, in its sole
discretion, also may permit exercise (a) by tendering previously acquired Shares
having an aggregate Fair Market Value at the time of exercise equal to the total
Exercise Price (such previously acquired Shares must have been held for the
requisite period necessary to avoid a charge to the Company’s earnings for the
financial reporting purposes, unless otherwise determined by the Committee), or
(b) by any other means which the Committee, in its sole discretion, determines
to both provide legal consideration for the Shares, and to be consistent with
the purposes of the Plan.

As soon as practicable after receipt of a written notification of exercise and
full payment for the Shares purchased, including satisfaction of any applicable
withholding taxes, the Company shall deliver to the Participant (or the
Participant’s designated broker), Share certificates (which may be in book entry
form) representing such Shares.

5.7 Restrictions on Share Transferability. The Committee may impose such
restrictions on any Shares acquired pursuant to the exercise of an Option as it
may deem advisable, including, but not limited to, restrictions related to
applicable federal securities laws, the requirements of any national securities
exchange or system upon which Shares are then listed or traded, or any blue sky
or state securities laws.

5.8 Certain Additional Provisions for Incentive Stock Options.

 

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5.8.1 Exercisability. The aggregate Fair Market Value (determined on the Grant
Date(s)) of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by any Employee during any calendar year (under
all plans of the Company and its Subsidiaries) shall not exceed $100,000. To the
extent that the aggregate Fair Market Value exceeds such $100,000 limit, such
options shall be treated as nonqualified stock options. In reducing the number
of options treated as Incentive Stock Options to meet the $100,000 limit, the
most recently granted Options shall be reduced first. To the extent a reduction
of simultaneously granted options is necessary to meet the $100,000 limit, the
Committee may, in the manner and to the extent permitted by law, designate which
Shares are to be treated as shares acquired pursuant to the exercise of an
Incentive Stock Option.

5.8.2 Termination of Service. No Incentive Stock Option may be exercised more
than three (3) months after the Participant’s Termination of Service for any
reason other than Disability or death, unless (a) the Participant dies during
such three-month period, and/or (b) the Award Agreement or the Committee permits
later exercise. No Incentive Stock Option may be exercised more than one
(1) year after the Participant’s Termination of Service on account of death or
Disability, unless the Award Agreement or the Committee permit later exercise.
Notwithstanding the foregoing, to the extent that the post-termination exercise
period exceeds the limitations under Section 422 of the Code, the Option will
cease to be treated as an Incentive Stock Option and shall be treated as a
Nonqualified Stock Option at such time that the applicable time limit is
exceeded.

5.8.3 Company and Subsidiaries Only. Incentive Stock Options may be granted only
to persons who are employees of the Company or a Subsidiary on the Grant Date.

5.8.4 Expiration; Other Terms. No Incentive Stock Option may be exercised after
the expiration of ten (10) years from the Grant Date; provided, however, that if
the Option is granted to an Employee who, together with persons whose stock
ownership is attributed to the Employee pursuant to Section 424(d) of the Code,
owns stock possessing more than 10% of the total combined voting power of all
classes of the stock of the Company or any of its Subsidiaries, the Option may
not be exercised after the expiration of five (5) years from the Grant Date.
There shall be imposed in any Award Agreement relating to Incentive Stock
Options such other terms and conditions as from time to time are required in
order that the option be an “incentive stock option” as that term is defined in
Section 422 of the Code.

SECTION 6

STOCK APPRECIATION RIGHTS

6.1 Grant of SARs. Subject to the terms and conditions of the Plan, an SAR may
be granted to Employees, Directors and Consultants at any time and from time to
time as shall be determined by the Committee, in its sole discretion. The
Committee may grant Affiliated SARs, Freestanding SARs, Tandem SARs, or any
combination thereof.

6.1.1 Number of Shares. The Committee shall have complete discretion to
determine the number of SARs granted to any Participant.

6.1.2 Exercise Price and Other Terms. The Committee, subject to the provisions
of the Plan, shall have complete discretion to determine the terms and
conditions of SARs granted under the Plan. However, the exercise price of a
Freestanding SAR shall be not less than one hundred percent (100%) of the Fair
Market Value of a Share on the Grant Date. The exercise price of Tandem or
Affiliated SARs shall equal the Exercise Price of the related Option.

6.2 Exercise of Tandem SARs. Tandem SARs may be exercised for all or part of the
Shares subject to the related Option upon the surrender of the right to exercise
the equivalent portion of the related Option. A Tandem SAR may be exercised only
with respect to the Shares for which its related Option is then exercisable.
With respect to a Tandem SAR granted in connection with an Incentive Stock
Option: (a) the Tandem SAR shall expire no later than the expiration of the
underlying Incentive Stock Option; (b) the value of the payout with respect to
the Tandem SAR shall be for no more than one hundred percent (100%) of the
difference between the Exercise Price of the underlying Incentive Stock Option
and the Fair Market Value of the Shares subject to the underlying Incentive
Stock Option at the time the Tandem SAR

 

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is exercised; and (c) the Tandem SAR shall be exercisable only when the Fair
Market Value of the Shares subject to the Incentive Stock Option exceeds the
Exercise Price of the Incentive Stock Option.

6.3 Exercise of Affiliated SARs. An Affiliated SAR shall be deemed to be
exercised upon the exercise of the related Option. The deemed exercise of an
Affiliated SAR shall not necessitate a reduction in the number of Shares subject
to the related Option.

6.4 Exercise of Freestanding SARs. Freestanding SARs shall be exercisable on
such terms and conditions as the Committee, in its sole discretion, shall
determine.

6.5 SAR Agreement. Each SAR grant shall be evidenced by an Award Agreement that
shall specify the exercise price, the term of the SAR, the conditions of
exercise, and such other terms and conditions as the Committee, in its sole
discretion, shall determine.

6.6 Expiration of SARs. An SAR granted under the Plan shall expire upon the date
determined by the Committee, in its sole discretion, and set forth in the Award
Agreement. Notwithstanding the foregoing, the rules of Section 5.4 also shall
apply to SARs.

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

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

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

6.8 At the discretion of the Committee, the payment upon SAR exercise may be in
cash, in Shares of equivalent value, or in some combination thereof.

SECTION 7

RESTRICTED STOCK

7.1 Grant of Restricted Stock. Subject to the terms and provisions of the Plan,
the Committee, at any time and from time to time, may grant Restricted Stock to
Employees, Directors and Consultants in such amounts as the Committee, in its
sole discretion, shall determine. The Committee, in its sole discretion shall
determine the number of Shares to be granted to each Participant.

7.2 Restricted Stock Agreement. Each Award of Restricted Stock shall be
evidenced by an Award Agreement that shall specify the Period of Restriction,
the number of Shares granted, purchase price, if any, and such other terms and
conditions as the Committee, in its sole discretion, shall determine. Unless the
Committee determines otherwise, Restricted Stock shall be held by the Company as
escrow agent until the restrictions on such Restricted Stock have lapsed.

7.3 Transferability. Except as provided in this Section 7, Restricted Stock may
not be sold, transferred, pledged, assigned, or otherwise alienated or
hypothecated until the end of the applicable Period of Restriction.

7.4 Other Restrictions. The Committee, in its sole discretion, may impose such
other restrictions on Restricted Stock as it may deem advisable or appropriate,
in accordance with this Section 7.4.

7.4.1 General Restrictions. The Committee may set restrictions based upon the
achievement of specific performance objectives (Company-wide, divisional, or
individual), applicable federal or state securities laws, or any other basis
determined by the Committee in its discretion.

7.4.2 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 must be established and
approved by the Committee during the first 90 days of the performance period
(and, in the case of performance periods of less than one year, in no event
after 25% or more of the performance period has elapsed) and while performance
relating to such target(s) remains substantially uncertain within the meaning of
Section 162(m) of the Code. Performance Goals shall be adjusted to mitigate the
unbudgeted impact of material, unusual or

 

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nonrecurring gains and losses, accounting changes or other extraordinary events
not foreseen at the time the targets were set unless the Committee provides
otherwise at the time of establishing the targets. In granting Restricted Stock
which is intended to qualify under Section 162(m) of the Code, the Committee
shall follow such 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 and
certifying that the Performance Goals were satisfied). In addition, the
Committee will have the discretion to determine the restrictions or other
limitations of the individual awards granted under this Section 7.4.2 including
the authority to reduce or eliminate Awards, in its sole discretion, if the
Committee preserves such authority at the time of grant by language to this
effect in its authorizing resolutions or otherwise.

7.4.3 Legend on Certificates. The Committee, in its discretion, may legend the
certificates representing Restricted Stock to give appropriate notice of such
restrictions.

7.5 Dividends and Other Distributions. During the Period of Restriction,
Participants holding Restricted Stock shall 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 shall be subject to the same restrictions on
transferability and forfeitability as the Restricted Stock with respect to which
they were paid. In addition, any dividends as to the unvested portion of a
Restricted Stock award that is subject to performance-based vesting requirements
(or any dividend equivalents as to the unvested portion of a Restricted Stock
Unit award that is subject to performance-based vesting requirements) will be
subject to termination and forfeiture to the same extent as the corresponding
portion of the Award to which they relate.

7.6 Voting Rights. During the Period of Restriction, Participants holding Shares
of Restricted Stock granted hereunder may exercise full voting rights with
respect to those Shares, unless the Committee determines otherwise.

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

SECTION 8

CASH AWARDS

Cash Awards may be granted either alone, in addition to, or in tandem with other
Awards granted under the Plan. After the Administrator determines that it will
offer a Cash Award, it shall advise the Participant, by means of an Award
Agreement, of the terms, conditions and restrictions related to the Cash Award.
The grant or vesting of a Cash Award may be made contingent on the achievement
of Performance Goals in accordance with the terms of Section 7.4.2.

SECTION 9

MISCELLANEOUS

9.1 Change in Control.

9.1.1 Generally. In the event of a Change in Control, and except as the
Committee (as constituted immediately prior to such Change in Control) may
otherwise determine in its sole discretion, (i) all Awards granted hereunder
shall become fully exercisable as of the date of the Change in Control, whether
or not then exercisable; and (ii) all restrictions and conditions on any Award
then outstanding shall lapse as of the date of the Change in Control.

9.1.2 Options and SARs. Notwithstanding Section 9.1.1, the Committee may provide
for Options and SARs to be assumed or an equivalent option or right substituted
by the successor corporation or a parent or Subsidiary of the successor
corporation. In such case:

(a) Options and SARs, to the extent assumed or substituted, shall not become
fully exercisable as of the date of the Change in Control. However, in the event
that the successor corporation refuses to assume or substitute for the Option or
SAR, then the Options and SARs

 

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held by such Participant shall become one hundred percent (100%) exercisable. If
an Option or SAR becomes fully vested and exercisable in lieu of assumption or
substitution in the event of a Change in Control, the Company shall notify the
Participant in writing or electronically that the Option or SAR shall be fully
vested and exercisable (subject to the consummation of the Change in Control)
for a period of fifteen (15) days from the date of such notice, and the Option
or SAR shall terminate upon the expiration of such period.

(b) For the purposes of this Section 9.1.2, the Option or SAR shall be
considered assumed if, following the Change in Control, the option or right
confers the right to purchase or receive, for each Share subject to the Option
or SAR immediately prior to the Change in Control, the consideration (whether
stock, cash, or other securities or property) received in the Change in Control
by holders of Shares for each Share held on the effective date of the
transaction (and if holders were offered a choice of consideration, the type of
consideration chosen by the holders of a majority of the outstanding Shares);
provided, however, that if such consideration received in the Change in Control
is not solely common stock of the successor corporation or its parent, the
Committee or the Board may, with the consent of the successor corporation,
provide for the consideration to be received upon the exercise of the Option or
SAR, for each Share subject to the Option or SAR, 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 Shares in the Change in Control, as
determined on the date of the Change in Control.

(c) With respect to Options and SARs that are assumed or substituted for, if
within twelve (12) months following the Change in Control the Participant incurs
a Termination of Service due to involuntary termination by the successor
corporation or one of its affiliates for a reason other than Misconduct, then
the Options and SARs held by such Participant shall become one hundred percent
(100%) exercisable.

9.1.3 Restricted Stock. Notwithstanding Section 9.1.1, the Committee may provide
for any vesting conditions or Company repurchase or reacquisition right with
respect to outstanding Restricted Stock held by the Participant to be assigned
to the successor corporation or a parent or Subsidiary of the successor
corporation. In such case:

(a) All vesting conditions and Company repurchase or reacquisition rights with
respect to outstanding Restricted Stock held by the Participant, to the extent
so assigned, shall not lapse as of the date of the Change in Control. However,
in the event that the successor corporation or a parent or Subsidiary of the
successor corporation refuses to accept the assignment of any such vesting
conditions or Company repurchase or reacquisition right, any such vesting
conditions and Company repurchase or reacquisition right will lapse and the
Participant will become one hundred percent (100%) vested in such Restricted
Stock immediately prior to the Change in Control.

(b) If the vesting conditions and Company repurchase or reacquisition right with
respect to Restricted Stock is assigned to the successor corporation and, within
twelve (12) months following the Change in Control, the Participant incurs a
Termination of Service due to involuntary termination by the successor
corporation or one of its affiliates for a reason other than Misconduct, then
such Participant’s Restricted Stock (or the property for which the Restricted
Stock was converted upon the Change in Control) will immediately vest and any
Company repurchase or reacquisition right will lapse and the Participant will
become one hundred percent (100%) vested in such Restricted Stock (or the
property for which the Restricted Stock was converted upon the Change in
Control).

9.1.4 Cash Awards. Notwithstanding Section 9.1.1, the Committee may provide for
Cash Awards to be assumed or an equivalent cash award substituted by the
successor corporation or a parent or Subsidiary of the successor corporation. In
such case:

(a) All Company restrictions with respect to outstanding Cash Awards held by the
Participant, to the extent so assigned, shall not lapse as of the date of the
Change in Control. However, in the event that the successor corporation or a
parent or Subsidiary of the successor corporation refuses to accept the
assignment of any such Company restrictions, such Company restrictions will
lapse and the Participant will become one hundred percent (100%) vested in such
Cash Awards immediately prior to the Change in Control.

 

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(b) If the Company restrictions with respect to a Cash Award are assigned to the
successor corporation and, within twelve (12) months following the Change in
Control, the Participant incurs a Termination of Service due to involuntary
termination by the successor corporation or one of its affiliates for a reason
other than Misconduct, then such Participant’s Cash Awards will immediately have
any Company restrictions lapse and the Participant will become one hundred
percent (100%) vested in such Cash Award.

9.2 Deferrals. The Committee, in its sole discretion, may permit a Participant
to defer receipt of the payment of cash or the delivery of Shares that would
otherwise be due to such Participant under an Award. Any such deferral elections
shall be subject to such rules and procedures as shall be determined by the
Committee in its sole discretion, including rules and procedures that comply
with Code Section 409A and the Guidance (as defined below).

9.3 No Effect on Employment or Service. Nothing in the Plan shall interfere with
or limit in any way the right of the Company to terminate any Participant’s
employment or service at any time, with or without cause. For purposes of the
Plan, transfer of employment of a Participant between the Company and any one of
its Affiliates (or between Affiliates) shall not be deemed a Termination of
Service. Employment with the Company and its Affiliates is on an at-will basis
only.

9.4 Participation. No Employee or Consultant shall have the right to be selected
to receive an Award under this Plan, or, having been so selected, to be selected
to receive a future Award.

9.5 Limitations on Awards. Subject to the provisions of this Section 9.5, no
Participant may be granted Cash Awards intended to qualify as “qualified
performance-based compensation” under Code Section 162(m) in any one fiscal year
in an aggregate amount of more than $650,000, considered without regard to any
Options, SARs or Restricted Stock that may have been granted or awarded to such
Participant during the applicable fiscal year. Nothing in this Section 9.5 shall
prevent the Committee from making any type of Award authorized for grant under
the Plan outside of the Plan. In addition, nothing in this Section 9.5 shall
prevent the Committee from granting Awards under the Plan that are not intended
to qualify as “qualified performance-based compensation” under Code
Section 162(m).

9.6 Indemnification. Each person who is or shall have been a member of the
Committee, or of the Board, shall be indemnified and held harmless by the
Company against and from (a) any loss, cost, liability, or expense that may be
imposed upon or reasonably incurred by him or her in connection with or
resulting from any claim, action, suit, or proceeding to which he or she may be
a party or in which he or she may be involved by reason of any action taken or
failure to act under the Plan or any Award Agreement, and (b) from any and all
amounts paid by him or her in settlement thereof, with the Company’s approval,
or paid by him or her in satisfaction of any judgment in any such claim, action,
suit, or proceeding against him or her, provided he or she shall give the
Company an opportunity, at its own expense, to handle and defend the same before
he or she undertakes to handle and defend it on his or her own behalf. The
foregoing right of indemnification shall not be exclusive of any other rights of
indemnification to which such persons may be entitled under the Company’s
Certificate of Incorporation or Second Amended and Restated Bylaws, by contract,
as a matter of law, or otherwise, or under any power that the Company may have
to indemnify them or hold them harmless.

9.7 Successors. All obligations of the Company under the Plan, with respect to
Awards granted hereunder, shall be binding on any successor to the Company,
whether the existence of such successor is the result of a direct or indirect
purchase, merger, consolidation, or otherwise, of all or substantially all of
the business or assets of the Company.

9.8 Beneficiary Designations. If permitted by the Committee, a Participant under
the Plan may name a beneficiary or beneficiaries to whom any vested but unpaid
Award shall be paid in the event of the Participant’s death. Each such
designation shall revoke all prior designations by the Participant and shall be
effective only if given in a form and manner acceptable to the Committee. In the
absence of any such designation, any vested benefits remaining unpaid at the
Participant’s death shall be paid to the Participant’s estate and, subject to
the terms of the Plan and of the applicable Award Agreement, any unexercised
vested Award may be exercised by the administrator or executor of the
Participant’s estate.

 

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9.9 Limited Transferability of Awards. Subject to Section 7.3, no Award granted
under the Plan may be sold, transferred, pledged, assigned, or otherwise
alienated or hypothecated, other than by will, by the laws of descent and
distribution, or to the limited extent provided in Section 9.8. All rights with
respect to an Award granted to a Participant shall be available during his or
her lifetime only to the Participant. Notwithstanding the foregoing, the
Participant may, in a manner specified by the Committee, (a) transfer a
Nonqualified Stock Option to a Participant’s spouse, former spouse or dependent
pursuant to a court-approved domestic relations order which relates to the
provision of child support, alimony payments or marital property rights, and
(b) transfer a Nonqualified Stock Option by bona fide gift and not for any
consideration, to (i) a member or members of the Participant’s immediate family,
(ii) a trust established for the exclusive benefit of the Participant and/or
member(s) of the Participant’s immediate family, (iii) a partnership, limited
liability company of other entity whose only partners or members are the
Participant and/or member(s) of the Participant’s immediate family, or (iv) a
foundation in which the Participant an/or member(s) of the Participant’s
immediate family control the management of the foundation’s assets.

9.10 No Rights as Shareholder. Except to the limited extent provided in Sections
7.6 and 7.7 no Participant (nor any beneficiary) shall have any of the rights or
privileges of a shareholder of the Company with respect to any Shares issuable
pursuant to an Award (or exercise thereof), unless and until certificates
representing such Shares shall have been issued, recorded on the records of the
Company or its transfer agents or registrars, and delivered to the Participant
(or beneficiary).

9.11 Tax Matters. Notwithstanding anything to the contrary contained herein, to
the extent that the Committee determines that any Award granted under the Plan
is subject to Code Section 409A and unless otherwise specified in the applicable
Award Agreement, the Award Agreement evidencing such Award shall incorporate the
terms and conditions necessary for such Award to avoid the consequences
described in Code Section 409A(a)(1), and to the maximum extent permitted under
applicable law (and unless otherwise stated in the applicable Award Agreement),
the Plan and the Award Agreements shall be interpreted in a manner that results
in their conforming to the requirements of Code Section 409A(a)(2), (3) and
(4) and any Department of Treasury or Internal Revenue Service regulations or
other interpretive guidance issued under Section 409A (whenever issued, the
“Guidance”).

SECTION 10

AMENDMENT, TERMINATION, AND DURATION

10.1 Amendment, Suspension, or Termination. The Board, in its sole discretion,
may amend, suspend or terminate the Plan, or any part thereof, at any time and
for any reason. The amendment, suspension, or termination of the Plan shall not,
without the consent of the Participant, alter or impair any rights or
obligations under any Award already granted to such Participant; provided that
such consent shall not be required if the Board determines, in its sole and
absolute discretion, that the amendment, suspension or termination: (a) is
required or advisable in order for the Company, the Plan or the Award to satisfy
applicable law, to meet the requirements of any accounting standard or to avoid
any adverse accounting treatment, or (b) in connection with any transaction or
event described in Section 9.1, is in the best interests of the Company or its
shareholders. The Board may, but need not, take the tax or accounting
consequences to affected Participants into consideration in acting under the
preceding sentence. No Award may be granted during any period of suspension or
after termination of the Plan. The Company shall obtain shareholder approval if
necessary or desirable to comply with applicable laws, rules and regulations,
including of any governmental agencies and national securities exchanges.
Decisions of the Board shall be final, binding and conclusive. For Awards to
continue to be eligible to qualify as “performance-based compensation” under
Code Section 162(m), the Company’s shareholders must re-approve the material
terms of the Performance Goals included in the Plan by the date of the first
shareholder meeting that occurs in the fifth year following the year in which
the shareholders most recently approved the Plan under Code Section 162(m).

10.2 Duration of the Plan. The Plan shall be effective as of June 20, 2003, and
subject to Section 10.1 (regarding the Board’s right to amend or terminate the
Plan), shall remain in effect thereafter. However, no Incentive Stock Option may
be granted under the Plan after ten years from the latest date the Company’s
shareholders approve the Plan, including any subsequent amendment or restatement
of the Plan approved by the Company’s shareholders.

 

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10.3 Prohibition on Repricing. Notwithstanding the foregoing and except for an
adjustment pursuant to Section 4.3 or a repricing approved by shareholders, in
no case may the Committee (1) amend an outstanding Option or SAR to reduce the
exercise price of the Award, (2) cancel, exchange, or surrender an outstanding
Option or SAR in exchange for cash or other Awards for the purpose of repricing
the Award, or (3) cancel, exchange, or surrender an outstanding Option or SAR in
exchange for an option or SAR with an exercise that is less than the exercise of
the original Award.

SECTION 11

TAX WITHHOLDING

11.1 Withholding Requirements. Prior to the delivery of any Shares or cash
pursuant to an Award (or exercise thereof), the Company shall have the power and
the right to deduct or withhold, or require a Participant to remit to the
Company, an amount sufficient to satisfy federal, state, and local taxes
(including the Participant’s FICA obligation) required to be withheld with
respect to such Award (or exercise thereof).

11.2 Withholding Arrangements. The Committee, in its sole discretion and
pursuant to such procedures as it may specify from time to time, may permit a
Participant to satisfy such tax withholding obligation, in whole or in part by
(a) electing to have the Company withhold otherwise deliverable Shares, or
(b) delivering to the Company already-owned Shares having a Fair Market Value
equal to the minimum amount required to be withheld. If the Committee permits
Award Shares to be withheld from the Award to satisfy applicable withholding
obligations, the Fair Market Value of the Award Shares withheld, as determined
as of the date of withholding, shall not exceed the amount determined by the
applicable minimum statutory withholding rates to the extent the Committee
determines such limit is necessary or advisable in light of generally accepted
accounting principles.

11.3 Liability for Applicable Taxes. Regardless of any action the Company or the
Participant’s employer (the “Employer”) takes with respect to any or all income
tax, social security, payroll tax, payment on account, other tax-related
withholding or information reporting (“Tax-Related Items”), the Participant
acknowledges and agrees that the ultimate liability for all Tax-Related Items
legally due by Participant is and remains the Participant’s responsibility and
that the Company and or the Employer (a) make no representations nor
undertakings regarding the treatment of any Tax-Related Items in connection with
any aspect of an Award; and (b) do not commit to structure the terms or any
aspect of any Award granted hereunder to reduce or eliminate the Participant’s
liability for Tax-Related Items. The Participant shall pay the Company or the
Employer any amount of Tax-Related Items that the Company or the Employer may be
required to withhold as a result of the Participant’s participation in the Plan
that cannot be satisfied by the means previously described. The Company may
refuse to deliver any benefit under the Plan if the Participant fails to comply
with his or her obligations in connection with the Tax-Related Items.

SECTION 12

LEGAL CONSTRUCTION

12.1 Gender and Number. Except where otherwise indicated by the context, any
masculine term used herein also shall include the feminine; the plural shall
include the singular and the singular shall include the plural.

12.2 Severability. In the event any provision of the Plan shall be held illegal
or invalid for any reason, the illegality or invalidity shall not affect the
remaining parts of the Plan, and the Plan shall be construed and enforced as if
the illegal or invalid provision had not been included.

12.3 Requirements of Law. The granting of Awards and the issuance of Shares
under the Plan shall be subject to all applicable laws, rules, and regulations,
and to such approvals by any governmental agencies or national securities
exchanges as may be required.

12.4 Securities Law Compliance. With respect to Section 16 Persons, transactions
under this Plan are intended to comply with all applicable conditions of Rule
16b 3. To the extent any provision of the Plan, Award Agreement or action by the
Committee fails to so comply, it shall be deemed null and void, to the extent
permitted by law and deemed advisable by the Committee.

 

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12.5 Governing Law. The Plan and all Award Agreements shall be construed in
accordance with and governed by the laws of the State of Washington.

12.6 Captions. Captions are provided herein for convenience only, and shall not
serve as a basis for interpretation or construction of the Plan.

 

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