Exhibit 10.21
PetSmart, Inc.
2006 Equity Incentive Plan
Adopted by the Board of Directors: December 15, 2005
Approved by the Stockholders: June 22, 2006
Amended by the Board of Directors: December 12, 2006
Termination Date: December 31, 2011
Introduction
     This Plan was adopted by the Board on the Adoption Date to be effective as
provided in Section 16 on the Effective Date. This Plan is a complete amendment
and restatement into one plan of the Company’s 1997 Equity Incentive Plan that
was originally adopted by the Board on May 22, 1997, and has been subsequent
amended, and the Company’s 2003 Equity Incentive Plan that was originally
adopted by the Board on March 25, 2003 (the “Prior Plans”). All outstanding
options granted under the Prior Plans prior to the Effective Date shall remain
subject to the terms of the Prior Plans. All Stock Awards granted subsequent to
the Effective Date shall be subject to the terms of this Plan. On December 12,
2006, the Board amended the definition of “Fair Market Value,” with such
amendment to become effective on January 29, 2007, the first day of the
Company’s 2007 fiscal year.
1. Purposes.
     (a) The purpose of the Plan is to provide a means by which selected
Employees and Directors of and Consultants to the Company and its Affiliates may
be given an opportunity to benefit from increases in value of the stock of the
Company through the granting of Stock Awards.
     (b) The Company, by means of the Plan, seeks to retain the services of
persons who are now Employees or Directors of or Consultants to the Company or
its Affiliates, to secure and retain the services of new Employees, Directors
and Consultants, and to provide incentives for such persons to exert maximum
efforts for the success of the Company and its Affiliates.
     (c) The Company intends that the type and amount of any Stock Awards issued
under the Plan shall be in the discretion of the Board or any Committee to which
responsibility for administration of the Plan has been delegated pursuant to
subsection 3(c).
2. Definitions.
     (a) “Adoption Date” means December 15, 2005, the date the Plan was adopted
by the Board.
     (b) “Affiliate” means, at the time of determination, any “parent” or
“subsidiary” as such terms are defined in Rule 405 of the Securities Act. The
Board shall have the authority to determine the time or times at which “parent”
or “subsidiary” status is determined within the foregoing definition.

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     (c) “Board” means the Board of Directors of the Company.
     (d) “Code” means the Internal Revenue Code of 1986, as amended.
     (e) “Committee” means a committee appointed by the Board in accordance with
subsection 3(c) of the Plan.
     (f) “Company” means PetSmart, Inc., a Delaware corporation.
     (g) “Concurrent Stock Appreciation Right” means a right granted pursuant to
subsection 8(b)(2) of the Plan.
     (h) “Consultant” means any person, including an advisor, engaged by the
Company or an Affiliate to render consulting services and who is compensated for
such services, provided that the term “Consultant” shall not include Directors
who are paid only a director’s fee by the Company or who are not compensated by
the Company for their services as Directors.
     (i) “Continuous Status as an Employee, Director, or Consultant” means the
employment or relationship as an Employee, Director or Consultant is not
interrupted or terminated. The Board (or, in the case of Participants other than
Officers or Directors, by the designee of the Board), in its sole discretion,
may determine whether Continuous Status as an Employee, Director, or Consultant
shall be considered interrupted in the case of: (i) any leave of absence
approved by the Board (or such designee), including sick leave, military leave,
or any other personal leave; or (ii) transfers between locations of the Company
or between the Company, Affiliates, or their successors.
     (j) “Covered Employee” means the chief executive officer and the four
(4) other highest compensated officers of the Company for whom total
compensation is required to be reported to stockholders under the Exchange Act,
as determined for purposes of Section 162(m) of the Code.
     (k) “Director” means a member of the Board.
     (l) “Disability” means the inability of a Participant to engage in any
substantially gainful activity by reason of any medically determinable physical
or mental impairment which can be expected to result in death or which has
lasted or can be expected to last for a continuous period of not less than
twelve (12) months, and shall be determined by the Board (or, in the case of
Participants other than Officers or Directors, by the designee of the Board) on
the basis of such medical evidence as the Board (or such designee) deems
warranted under the circumstances.
     (m) “Effective Date” means the original effective date of this Plan
document, which is June 22, 2006, the date that the Company’s stockholders
approved this Plan at the 2006 Annual Meeting of Stockholders.
     (n) “Employee” means any person, including Officers and Directors, employed
by the Company or any Affiliate of the Company. Neither service as a Director
nor payment of a director’s fee by the Company shall be sufficient to constitute
“employment” by the Company.

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     (o) “Exchange Act” means the Securities Exchange Act of 1934, as amended.
     (p) “Fair Market Value” means, as of any date, the value of the common
stock of the Company determined as follows:
          (1) If the common stock is listed on any established stock exchange or
a national market system, the Fair Market Value of a share of common stock shall
be the closing sales price for such stock as quoted on such system or exchange
(or the exchange with the greatest volume of trading in common stock) on the day
of determination, as reported in the Wall Street Journal or such other source as
the Board deems reliable;
          (2) If there is no closing sales price for the common stock on the day
of determination, then the Fair Market Value shall be the closing sales price on
the last preceding day for which such quotation exists; or
          (3) In the absence of an established market for the common stock, the
Fair Market Value shall be determined in good faith by the Board.
     (q) “Incentive Stock Option” means an Option that qualifies as an incentive
stock option within the meaning of Section 422 of the Code and the regulations
promulgated thereunder.
     (r) “Independent Stock Appreciation Right” means a right granted pursuant
to subsection 8(b)(3) of the Plan.
     (s) “Non-Employee Director” means a Director who satisfies the requirements
of Rule 16b-3(b)(3) of the Exchange Act or any other applicable rules,
regulations or interpretations of the Securities and Exchange Commission.
     (t) “Nonstatutory Stock Option” means an Option that does not qualify as an
Incentive Stock Option.
     (u) “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.
     (v) “Option” means a stock option granted pursuant to the Plan.
     (w) “Option Agreement” means a written agreement between the Company and an
Optionee evidencing the terms and conditions of an individual Option grant. Each
Option Agreement shall be subject to the terms and conditions of the Plan.
References in the Plan to an Option Agreement shall include the agreements
issued in connection with the Plan as well as the relevant provisions, if any,
of any individually negotiated employment contract, agreement, or any other
written plan covering the Participant.
     (x) “Optionee” means an Employee, Director, or Consultant who holds an
outstanding Option or, if applicable, such other person who holds an outstanding
Option.

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     (y) “Outside Director” means a Director who is considered an “outside
director” for purposes of Section 162(m) of the Code and the regulations
promulgated thereunder.
     (z) “Participant” means a person to whom a Stock Award is granted pursuant
to the Plan or, if applicable, such other person who holds an outstanding Stock
Award.
     (aa) “Plan” means this PetSmart, Inc. 2006 Equity Incentive Plan.
     (bb) “Prior Plans” mean the Company’s 1997 Equity Incentive Plan and the
Company’s 2003 Equity Incentive Plan in effect immediately prior to the
Effective Date.
     (cc) “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.
     (dd) “Securities Act” means the Securities Act of 1933, as amended.
     (ee) “Stock Appreciation Right” means any of the various types of rights
which may be granted under Section 8 of the Plan.
     (ff) “Stock Award” means any right granted under the Plan, including any
Option, any stock bonus, any right to purchase restricted stock, and any Stock
Appreciation Right.
     (gg) “Stock Award Agreement” means a written agreement between the Company
and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to the
terms and conditions of the Plan. References in the Plan to a Stock Award
Agreement shall include the agreements issued in connection with the Plan as
well as the relevant provisions, if any, of any individually negotiated
employment contract, agreement, or any other written plan covering the
Participant.
     (hh) “Tandem Stock Appreciation Right” means a right granted pursuant to
subsection 8(b)(1) of the Plan.
3. Administration.
     (a) The Plan shall be administered by the Board unless and until the Board
delegates administration to a Committee, as provided in subsection 3(c).
     (b) The Board shall have the power, subject to, and within the limitations
of, the express provisions of the Plan:
          (1) To determine from time to time which of the persons eligible under
the Plan shall be granted Stock Awards; when and how each Stock Award shall be
granted; which form of Stock Award shall be granted; the provisions of each
Stock Award granted (which need not be identical), including the time or times
when a person shall be permitted to receive stock pursuant to a Stock Award;
whether a person shall be permitted to receive stock upon exercise of a Stock
Appreciation Right; and the number of shares with respect to which a Stock Award
shall be granted to each such person;

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          (2) To construe and interpret the Plan and Stock Awards granted under
it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award Agreement,
in a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective;
          (3) To amend the Plan or a Stock Award as provided in Section 14; and
          (4) Generally, to exercise such powers and to perform such acts as the
Board deems necessary or expedient to promote the best interests of the Company.
     (c) The Board may delegate administration of the Plan to a committee
composed of not fewer than two (2) members, all of the members of which
Committee shall be Non-Employee Directors and may also be, in the discretion of
the Board, Outside Directors. If administration is delegated to a Committee, the
Committee shall have, in connection with the administration of the Plan, the
powers theretofore possessed by the Board (and references in this Plan to the
Board shall thereafter be to the Committee), subject, however, to such
resolutions, not inconsistent with the provisions of the Plan, as may be adopted
from time to time by the Board. The Board may abolish the Committee at any time
and revest in the Board the administration of the Plan. To the extent permitted
by applicable law, the Board may delegate to one or more Officers the authority
to do one or both of the following: (i) designate Employees who are not Officers
to be recipients of Stock Awards and the terms thereof, and (ii) determine the
number of shares of the Company’s common stock to be subject to such Stock
Awards granted to such Employees; provided, however, that the Board resolutions
regarding such delegation shall specify the total number of shares of the
Company’s common stock that may be subject to the Stock Awards granted by such
Officer and that such Officer may not grant a Stock Award to himself or herself.
Furthermore, the Board may not delegate to an Officer authority to determine the
Fair Market Value of the Company’s common stock pursuant to subsection 2(p)(3).
     (d) Any requirement that an administrator of the Plan be a Non-Employee
Director shall not apply if the Board or the Committee expressly declares that
such requirement shall not apply.
4. Shares Subject to the Plan.
     (a) Subject to the provisions of Section 13 relating to adjustments upon
changes in stock, the aggregate number of shares of common stock of the Company
that may be issued pursuant to Stock Awards after the Effective Date shall not
exceed twenty million two hundred forty-two thousand eight hundred eighty
(20,242,880) shares. For clarity, the limitation in this subsection 4(a) is a
limitation in the number of shares of the Company’s common stock that may be
issued pursuant to the Plan. Accordingly, this subsection 4(a) does not limit
the granting of Stock Awards except as provided in subsection 10(a).
Furthermore, if a Stock Award (i) expires or otherwise terminates without having
been exercised in full or (ii) is settled in cash (i.e., the holder of the Stock
Award receives cash rather than stock), such expiration, termination or
settlement shall not reduce (or otherwise offset) the number of shares of the
Company’s common stock that may be issued pursuant to the Plan.

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     (b) If any shares of common stock issued pursuant to a Stock Award are
forfeited back to the Company because of the failure to meet a contingency or
condition required to vest such shares in the Participant, then the shares which
are forfeited shall revert to and again become available for issuance under the
Plan. Also, any shares reacquired by the Company pursuant to subsection 12(e) or
as consideration for the exercise of an Option shall again become available for
issuance under the Plan. Notwithstanding the provisions of this subsection 4(b),
any such shares shall not be subsequently issued pursuant to the exercise of
Incentive Stock Options.
     (c) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
5. Eligibility.
     (a) Incentive Stock Options (with or without Stock Appreciation Rights
appurtenant thereto) may be granted only to Employees. Stock Awards other than
Incentive Stock Options may be granted only to Employees, Directors, or
Consultants.
     (b) A Director shall in no event be eligible for the benefits of the Plan
unless at the time discretion is exercised in the selection of the Director as a
person to whom Stock Awards may be granted, or in the determination of the
number of shares which may be covered by Stock Awards granted to the Director:
(i) the Board has delegated its discretionary authority over the Plan to a
Committee which consists solely of Non-Employee Directors and the manner of the
exercise of such discretion and the terms of the Plan comply with Rule 16b-3; or
(ii) the Plan otherwise complies with the requirements of Rule 16b-3. This
subsection 5(b) shall not apply if the Board or Committee expressly declares
that it shall not apply.
     (c) No person shall be eligible for the grant of an Option if, at the time
of grant, such person owns (or is deemed to own pursuant to Section 424(d) of
the Code) stock possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company, or of any of its Affiliates
unless the exercise price of such Option is at least one hundred ten percent
(110%) of the Fair Market Value of such stock at the date of grant and the
Option is not exercisable after the expiration of five (5) years from the date
of grant.
     (d) Subject to the provisions of Section 13 relating to adjustments upon
changes in stock, no person shall be eligible to be granted Options and Stock
Appreciation Rights covering more than one million nine hundred fifty thousand
(1,950,000) shares of the Company’s common stock in any calendar year.
6. Option Provisions.
     Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The provisions of separate
Options need not be identical, but each Option shall include (through
incorporation of provisions hereof by reference in the Option or otherwise) the
substance of each of the following provisions:
     (a) Term. No Option shall be exercisable after the expiration of ten
(10) years from the date it was granted.

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     (b) Price. The exercise price of each Option shall be not less than one
hundred percent (100%) of the Fair Market Value of the stock subject to the
Option on the date the Option is granted other than for an Option granted in a
manner consistent with the provisions of Section 424(a) of the Code (whether or
not such an Option is an Incentive Stock Option).
     (c) Consideration. The purchase price of stock acquired pursuant to an
Option shall be paid, to the extent permitted by applicable law and as
determined by the Board in its sole discretion, by any combination of the
methods of payment set forth below. The Board shall have the authority to grant
Options that do not permit all of the following methods of payment (or otherwise
restrict the ability to use certain methods) and to grant Options that require
the consent of the Company to utilize a particular method of payment. The
methods of payment permitted by this subsection 6(c) are:
          (1) by cash or check;
          (2) bank draft or money order payable to the Company;
          (3) pursuant to a program developed under Regulation T as promulgated
by the Federal Reserve Board that, prior to the issuance of the stock subject to
the Option, results in either the receipt of cash (or check) by the Company or
the receipt of irrevocable instructions to pay the aggregate exercise price to
the Company from the sales proceeds;
          (4) by delivery to the Company (either by actual delivery or
attestation) of shares of the Company’s common stock; or
          (5) in any other form of legal consideration that may be acceptable to
the Board.
     (d) Transferability. An Incentive Stock Option shall not be transferable
except by will or by the laws of descent and distribution and shall be
exercisable during the lifetime of the Optionee only by the Optionee. A
Nonstatutory Stock Option shall be transferable to the extent provided in the
Option Agreement. If the Option Agreement does not provide for transferability,
then the Nonstatutory Stock Option shall not be transferable except by will or
by the laws of descent and distribution and shall be exercisable during the
lifetime of the Optionee only by the Optionee. Notwithstanding the foregoing,
the Optionee may, by delivering written notice to the Company, in a form
satisfactory to the Company, designate a third party who, in the event of the
death of the Optionee, shall thereafter be entitled to exercise the Option.
     (e) Vesting. The total number of shares of stock subject to an Option may,
but need not, be allotted in periodic installments (which may, but need not, be
equal). The Option Agreement may provide that from time to time during each of
such installment periods, the Option may become exercisable (“vest”) with
respect to some or all of the shares allotted to that period, and may be
exercised with respect to some or all of the shares allotted to such period
and/or any prior period as to which the Option became vested but was not fully
exercised. The Option may be subject to such other terms and conditions on the
time or times when it may be exercised (which may be based on performance or
other criteria) as the Board may deem appropriate. The vesting provisions of
individual Options may vary.

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     (f) Termination of Employment or Relationship as a Director or Consultant.
In the event an Optionee’s Continuous Status as an Employee, Director, or
Consultant terminates (other than upon the Optionee’s death or Disability), the
Optionee may exercise his or her Option (to the extent that the Optionee was
entitled to exercise it at the date of termination) but only within such period
of time ending on the earlier of: (i) the date three (3) months after the
termination of the Optionee’s Continuous Status as an Employee, Director or
Consultant (or such longer or shorter period specified in the Option Agreement);
or (ii) the expiration of the term of the Option as set forth in the Option
Agreement. If, after termination, the Optionee does not exercise his or her
Option within the time specified in the Option Agreement, the Option shall
terminate, and the shares covered by such Option shall revert to and again
become available for issuance under the Plan.
     (g) Extension of Termination Date. In the event that exercise of an Option
following termination of an Optionee’s Continuous Status as an Employee,
Director, or Consultant would be prohibited solely because the issuance of
shares of the Company’s common stock would violate the registration requirements
under the Securities Act, then the Option shall terminate on the earlier of:
(i) the expiration of the period that commences on the termination of the
Optionee’s Continuous Status as an Employee, Director or Consultant and ends
when there have been at least ninety-one (91) days (or such greater or lesser
number of days specified in the Option Agreement), whether or not such days are
consecutive, on which the exercise of the Option would not be in violation of
such registration requirements; or (ii) the expiration of the term of the Option
as set forth in the Option Agreement.
     (h) Disability of Optionee. In the event an Optionee’s Continuous Status as
an Employee, Director or Consultant terminates as a result of the Optionee’s
Disability, the Optionee may exercise his or her Option (to the extent that the
Optionee was entitled to exercise it at the date of termination), but only
within such period of time ending on the earlier of: (i) the date twelve
(12) months following such termination (or such longer or shorter period
specified in the Option Agreement); or (ii) the expiration of the term of the
Option as set forth in the Option Agreement. If, at the date of termination, the
Optionee is not entitled to exercise his or her entire Option, the shares
covered by the unexercisable portion of the Option shall revert to and again
become available for issuance under the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time specified herein,
the Option shall terminate, and the shares covered by such Option shall revert
to and again become available for issuance under the Plan.
     (i) Death of Optionee. In the event of the death of an Optionee during, or
within a period, if any, specified in the Option after the termination of, the
Optionee’s Continuous Status as an Employee, Director, or Consultant, the Option
may be exercised (to the extent the Optionee was entitled to exercise the Option
at the date of death) by the Optionee’s estate, by a person who acquired the
right to exercise the Option by bequest or inheritance, or by a person
designated to exercise the option upon the Optionee’s death pursuant to
subsection 6(d), but only within the period ending on the earlier of: (i) the
date eighteen (18) months following the date of death (or such longer or shorter
period specified in the Option Agreement); or (ii) the expiration of the term of
such Option as set forth in the Option Agreement. If, at the time of death, the
Optionee was not entitled to exercise his or her entire Option, the shares
covered by the unexercisable portion of the Option shall revert to and again
become available for issuance under

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the Plan. If, after death, the Option is not exercised within the time specified
herein, the Option shall terminate, and the shares covered by such Option shall
revert to and again become available for issuance under the Plan.
     (j) Early Exercise. The Option may, but need not, include a provision
whereby the Optionee may elect at any time while an Employee, Director, or
Consultant to exercise the Option as to any part or all of the shares subject to
the Option prior to the full vesting of the Option. Any unvested shares so
purchased may be subject to a repurchase right in favor of the Company or to any
other restriction the Board determines to be appropriate.
7. Terms of Stock Bonuses and Acquisitions of Restricted Stock.
     Each stock bonus agreement or restricted stock agreement shall be in such
form and shall contain such terms and conditions as the Board shall deem
appropriate. Stock issued pursuant to this Section 7 may be issued in
conjunction with other plans or programs adopted by the Company. For example,
except as otherwise determined by the Board, common stock of the Company issued
in conjunction with the PetSmart, Inc. Executive Short-Term Incentive Plan shall
be deemed issued pursuant to this Plan. For clarity, this Section 7 permits the
issuance of common stock of the Company subject to vesting conditions (commonly
referred to as “restricted stock”) and the issuance of rights to a delayed
issuance of common stock of the Company where such rights are subject to vesting
conditions (commonly referred to as “restricted stock units”). The terms and
conditions of stock bonus agreements or restricted stock agreements may change
from time to time, and the terms and conditions of separate agreements need not
be identical, but each stock bonus agreement or restricted stock agreement shall
include (through incorporation of provisions hereof by reference in the
agreement or otherwise) the substance of each of the following provisions as
appropriate:
     (a) Purchase Price. The purchase price, if any, under each stock bonus
agreement or restricted stock agreement shall be such amount as the Board shall
determine and designate in such agreement.
     (b) Transferability. Rights to acquire shares under Stock Awards granted
pursuant to this Section 7 shall be transferable only upon such terms and
conditions as are set forth in the applicable Stock Award Agreement, as the
Board shall determine in its discretion, so long as such Stock Award remains
subject to the terms of such Stock Award Agreement.
     (c) Consideration. The purchase price, if any, of stock acquired pursuant
to a stock bonus agreement or restricted stock agreement shall be paid either:
(i) in cash at the time of purchase; (ii) at the discretion of the Board,
according to a deferred payment or other arrangement with the person to whom the
stock is sold; or (iii) in any other form of legal consideration, including past
or future services actually or to be rendered to the Company or for its benefit,
that may be acceptable to the Board in its discretion.
     (d) Vesting. Shares of stock sold or awarded under this Section 7 may, but
need not, be subject to a forfeiture provision or a reacquisition or repurchase
option in favor of the Company in accordance with a vesting schedule to be
determined by the Board.

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     (e) Termination of Employment or Relationship as a Director or Consultant.
In the event a Participant’s Continuous Status as an Employee, Director, or
Consultant terminates, the Company may repurchase or otherwise reacquire any or
all of the shares of stock held by that person which have not vested as of the
date of termination under the terms of the stock bonus agreement or restricted
stock agreement between the Company and such person.
8. Stock Appreciation Rights.
     (a) The Board shall have full power and authority, exercisable in its sole
discretion, to grant Stock Appreciation Rights under the Plan to Employees or
Directors of or Consultants to, the Company or its Affiliates. To exercise any
outstanding Stock Appreciation Right, the holder must provide written notice of
exercise to the Company in compliance with the provisions of the Stock Award
Agreement evidencing such right. If a Stock Appreciation Right is granted to an
individual who is at the time subject to Section 16(b) of the Exchange Act (a
“Section 16(b) Insider”), the Stock Award Agreement of grant shall incorporate
all the terms and conditions at the time necessary to assure that the subsequent
exercise of such right shall qualify for the safe-harbor exemption from
short-swing profit liability provided by Rule 16b-3 (or any successor rule or
regulation). Except as provided in subsection 5(d), no limitation shall exist on
the aggregate amount of cash payments the Company may make under the Plan in
connection with the exercise of Stock Appreciation Rights.
     (b) Three types of Stock Appreciation Rights shall be authorized for
issuance under the Plan:
          (1) Tandem Stock Appreciation Rights. Tandem Stock Appreciation Rights
may be granted appurtenant to an Option, and shall, except as specifically set
forth in this Section 8, be subject to the same terms and conditions applicable
to the particular Option grant to which it pertains. Tandem Stock Appreciation
Rights will require the holder to elect between (i) the exercise of the
underlying Option for shares of stock, and (ii) the surrender, in whole or in
part, of such Option for an appreciation distribution.
          (2) Concurrent Stock Appreciation Rights. Concurrent Stock
Appreciation Rights may be granted appurtenant to an Option and may apply to all
or any portion of the shares of stock subject to the underlying Option and
shall, except as specifically set forth in this Section 8, be subject to the
same terms and conditions applicable to the particular Option grant to which it
pertains. A Concurrent Stock Appreciation Right shall be exercised automatically
at the same time the underlying Option is exercised with respect to the
particular shares of stock to which the Concurrent Stock Appreciation Right
pertains.
          (3) Independent Stock Appreciation Rights. Independent Stock
Appreciation Rights may be granted independently of any Option.
     (c) General. Stock Appreciation Rights shall be denominated in Company
common stock equivalents. The appreciation distribution payable upon the
exercise of a Stock Appreciation Right shall not be greater than an amount equal
to the excess of (i) the aggregate Fair Market Value determined on the date of
the exercise of the Stock Appreciation Right of a number of shares of Company
common stock equivalents in which the Participant is vested

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under such Stock Appreciation Right, and with respect to which the Participant
is exercising the Stock Appreciation Right on such date, over (ii) the aggregate
strike price in effect for those shares determined by the Board on the date of
grant of the Stock Appreciation Right. The strike price per share of a Stock
Appreciation Right shall not be less than the Fair Market Value on the date of
the grant of the Stock Appreciation Right; provided, however, that the foregoing
limitation shall not apply to a Stock Appreciation Right granted in a manner
that would be consistent with Section 424(a) of the Code if the Stock
Appreciation Right were an Option. The appreciation distribution in respect of a
Stock Appreciation Right may be paid in cash, shares of stock, or any
combination thereof, as determined by the Board and set forth in the Stock Award
Agreement evidencing such Stock Appreciation Right. Except as otherwise provided
in this Section 8, Stock Appreciation Rights shall be subject to the same terms
and conditions applicable to Nonstatutory Stock Options as set forth in
Section 6.
     (d) Vesting. At the time of the grant of a Stock Appreciation Right, the
Board may impose such restrictions or conditions to the vesting of such Stock
Appreciation Right as the Board, in its sole discretion, deems appropriate.
9. Cancellation and Re-Grant of Options.
     (a) The Board shall have the authority to effect, at any time and from time
to time: (i) the repricing of any outstanding Options and/or any Stock
Appreciation Rights under the Plan; and/or (ii) with the consent of the affected
holders of Options and/or Stock Appreciation Rights, the cancellation of any
outstanding Options and/or any Stock Appreciation Rights under the Plan and the
grant in substitution therefor of new Options and/or Stock Appreciation Rights
under the Plan covering the same or different numbers of shares of stock, but
having an exercise price per share not less than one hundred percent (100%) of
the Fair Market Value on the new grant date; provided however, that neither the
Board nor any committee appointed by the Board shall have the authority to
(i) reprice any outstanding Options and/or Stock Appreciation Rights under the
Plan or (ii) cancel and re-grant any outstanding Options and/or Stock
Appreciation Rights under the Plan, unless the stockholders of the Company have
approved such an action within a twelve (12) month period preceding or following
such an event.
     (b) Shares subject to an Option or Stock Appreciation Right canceled under
this Section 9 shall continue to be counted against the maximum award of Options
and Stock Appreciation Rights permitted to be granted pursuant to subsection
5(d) of the Plan. The repricing of an Option and/or Stock Appreciation Right
under this Section 9, resulting in a reduction of the exercise price, shall be
deemed to be a cancellation of the original Option and/or Stock Appreciation
Right and the grant of a substitute Option and/or Stock Appreciation Right; in
the event of such repricing, both the original and the substituted Options and
Stock Appreciation Rights shall be counted against the maximum awards of Options
and Stock Appreciation Rights permitted to be granted pursuant to subsection
5(d) of the Plan. The provisions of this subsection 9(b) shall be applicable
only to the extent required to enable the repriced Options to qualify as
“performance-based compensation” for the purposes of Section 162(m) of the Code.

11.

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10. Covenants of the Company.
     (a) The Company shall keep available at all times the number of shares of
stock reasonably required to satisfy outstanding Stock Awards.
     (b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock upon exercise of the Stock Award; provided,
however, that this undertaking shall not require the Company to register under
the Securities Act either the Plan, any Stock Award or any stock issued or
issuable pursuant to any such Stock Award. If, after reasonable efforts, the
Company is unable to obtain from any such regulatory commission or agency the
authority which counsel for the Company deems necessary for the lawful issuance
and sale of stock under the Plan, the Company shall be relieved from any
liability for failure to issue and sell stock upon exercise of such Stock Awards
unless and until such authority is obtained.
     (c) The Company shall have no duty or obligation to any holder of a Stock
Award to advise such holder as to the time or manner of exercising such Stock
Award. Furthermore, the Company shall have no duty or obligation to warn or
otherwise advise such a holder of a pending termination or expiration of a Stock
Award or a possible period in which the Stock Award may not be exercised.
Notwithstanding the foregoing, the Board may, in its sole discretion, grant
Options or Stock Appreciation Rights that provide that in the event of a pending
or other expiration or termination of an Option or Stock Appreciation Right, the
Participant may receive (in shares of common stock or cash), either
automatically or in the discretion of the Company, the excess of (i) the
aggregate Fair Market Value of the shares of common stock that the Participant
would have received upon exercise of such Option or Stock Appreciation Right,
over (ii) the aggregate exercise or strike price in effect for those shares. The
Company has no duty or obligation to minimize the tax consequences of a Stock
Award to the holder of such Stock Award.
11. Use of Proceeds from Stock.
     Proceeds from the sale of stock pursuant to Stock Awards shall constitute
general funds of the Company.
12. Miscellaneous.
     (a) No Participant shall be deemed to be the holder of, or to have any of
the rights of a holder with respect to, any shares subject to a Stock Award
unless and until such person has exercised the Stock Award pursuant to its terms
and such person shall not be deemed a stockholder of record until the issuance
of the Company’s common stock pursuant to such exercise has been entered into
the books and records of the Company.
     (b) Nothing in the Plan or any instrument executed or Stock Award granted
pursuant thereto shall confer upon any Participant any right to continue in the
employ of the Company or any Affiliate (or to continue acting as a Director or
Consultant), or shall affect the right of the Company or any Affiliate to
terminate the employment or relationship as a Director or Consultant of any
Employee, Director, Consultant, or other holder of Stock Awards with or without
cause.

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     (c) To the extent that the aggregate Fair Market Value (determined at the
time of grant) of stock with respect to which Incentive Stock Options are
exercisable for the first time by any Optionee during any calendar year under
all plans of the Company and its Affiliates exceeds one hundred thousand dollars
($100,000), the Options or portions thereof which exceed such limit (according
to the order in which they were granted) shall be treated as Nonstatutory Stock
Options.
     (d) The Company may require any Participant, as a condition of exercising
or acquiring stock under any Stock Award; (1) to give written assurances
satisfactory to the Company as to such person’s knowledge and experience in
financial and business matters and/or to employ a purchaser representative
reasonably satisfactory to the Company who is knowledgeable and experienced in
financial and business matters, and that he or she is capable of evaluating,
alone or together with the purchaser representative, the merits and risks of
exercising the Stock Award; and (2) to give written assurances satisfactory to
the Company stating that such person is acquiring the stock subject to the Stock
Award for such person’s own account and not with any present intention of
selling or otherwise distributing the stock. The foregoing requirements, and any
assurances given pursuant to such requirements, shall be inoperative if: (i) the
issuance of the shares upon the exercise or acquisition of stock under the Stock
Award has been registered under a then currently effective registration
statement under the Securities Act; or (ii) as to any particular requirement, a
determination is made by counsel for the Company that such requirement need not
be met in the circumstances under the then applicable securities laws. The
Company may, upon advice of counsel to the Company, place legends on stock
certificates issued under the Plan as such counsel deems necessary or
appropriate in order to comply with applicable securities laws, including, but
not limited to, legends restricting the transfer of the stock.
     (e) To the extent provided by the terms of a Stock Award Agreement, the
Company may, in its sole discretion, require or permit a Participant to satisfy
any federal, state, local, or foreign tax withholding obligation relating to a
Stock Award by any of the following means or by a combination of such means:
(1) causing the Participant to tender a cash payment; (2) withholding amounts
from payroll or any amounts otherwise payable to the Participant;
(3) withholding shares from the shares of the common stock otherwise issuable to
the Participant as a result of the exercise or acquisition of stock under the
Stock Award; or (4) by accepting delivery to the Company of other unencumbered
shares of the common stock of the Company owned by the Participant.
     (f) Notwithstanding the provisions set forth in subsection 7(d), in the
case of Stock Awards granted after the Effective Date and for which the purchase
price is less than the Fair Market Value of the Company’s common stock subject
to the Stock Award on the date the Stock Award is granted (“Below Market
Awards”), the cumulative weighted average vesting period for Below Market
Awards, when combined with the cumulative weighted average vesting period for
similar awards after January 31, 2003 and before the Effective Date pursuant to
the Company’s 2003 Equity Incentive Plan or the Company’s 1997 Equity Incentive
Plan, shall be at least three (3) years from the date the Stock Award is
granted. Stock Awards granted in connection with or vesting pursuant to
performance criteria and any acceleration of vesting in connection with a Change
in Control (as defined in subsection 13(c)) pursuant to the Company’s Executive
Change in Control and Severance Benefit Plan or pursuant to subsection 13(b)
below shall not be taken

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into account for purposes of this subsection 12(f). In the event a Participant
may potentially receive acceleration of vesting (other than as described in the
preceding sentence), such potential acceleration of vesting shall not be taken
into account for the purposes of this subsection 12(f), until such time, if
ever, that such potential acceleration of vesting occurs.
     (g) Notwithstanding any limitation on the transferability of a Stock Award
set forth in the Plan, except as otherwise set forth in the applicable Stock
Award Agreement, a Stock Award shall be transferable to the extent ordered by a
court of competent jurisdiction pursuant to a domestic relations or similar
order.
13. Adjustments upon Changes in Stock.
     (a) If any change is made in the stock subject to the Plan, or subject to
any Stock Award (through merger, consolidation, reorganization,
recapitalization, stock dividend, dividend in property other than cash, stock
split, liquidating dividend, combination of shares, exchange of shares, change
in corporate structure, or otherwise), the Plan will be appropriately adjusted
in the class(es) and maximum number of shares subject to the Plan pursuant to
subsection 4(a), the classes and maximum number of shares with respect to which
Incentive Stock Options may be awarded pursuant to subsection 4(b), and the
maximum number of shares subject to award to any person during any calendar year
pursuant to subsection 5(d), and the outstanding Stock Awards will be
appropriately adjusted in the class(es) and number of shares and price per share
of stock subject to such outstanding Stock Awards.
     (b) Except as otherwise provided in the Stock Award Agreement, in the event
of: (1) a dissolution, liquidation, or sale of substantially all of the assets
of the Company; (2) a merger or consolidation in which the Company is not the
surviving corporation; or (3) a reverse merger in which the Company is the
surviving corporation but the shares of the Company’s common stock outstanding
immediately preceding the merger are converted by virtue of the merger into
other property, whether in the form of securities, cash or otherwise, then to
the extent permitted by applicable law: (i) any surviving corporation may assume
any Stock Awards outstanding under the Plan or may substitute similar Stock
Awards for those outstanding under the Plan, and (ii) such Stock Awards shall
continue in full force and effect as so assumed or in such substituted form as
may be determined by the Board in its sole discretion prior to the applicable
event. In the event any surviving corporation does not assume or continue such
Stock Awards, and does not substitute similar options for those outstanding
under the Plan, then, with respect to Stock Awards held by persons then
performing services as Employees, Directors, or Consultants, the time during
which such Stock Awards may be exercised shall be accelerated and the Stock
Awards terminated if not exercised prior to such event.
     (c) Notwithstanding any other provision of this Plan, with respect to any
Covered Service Provider, if such Covered Service Provider’s continuous service
with the Company or an Affiliate is terminated by a Covered Termination within
eighteen (18) months following the date of the Change in Control, then any Stock
Awards held by such Covered Service Provider shall immediately become fully
vested and exercisable, and any repurchase right by the Company or any Affiliate
with respect to any shares of stock covered by such Stock Awards shall
immediately lapse.

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          For purposes of this subsection 13(c), “Change in Control” means:
(i) a sale of all or substantially all of the assets of the Company, other than
a sale to an Affiliate; (ii) a merger or consolidation in which the Company is
not the surviving corporation and in which beneficial ownership of securities of
the Company representing at least fifty percent (50%) of the combined voting
power entitled to vote in the election of directors has changed; (iii) a reverse
merger in which the Company is the surviving corporation but the shares of
common stock outstanding immediately preceding the merger are converted by
virtue of the merger into other property, whether in the form of securities,
cash, or otherwise, and in which beneficial ownership of securities of the
Company representing at least fifty percent (50%) of the combined voting power
entitled to vote in the election of directors has changed; (iv) an acquisition
by any person, entity or group within the meaning of Section 13(d) or 14(d) of
the Exchange Act, or any comparable successor provisions (excluding any employee
benefit plan, or related trust, sponsored or maintained by the Company or
subsidiary of the Company or other entity controlled by the Company) of the
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act, or comparable successor rule) of securities of the Company
representing at least fifty percent (50%) of the combined voting power entitled
to vote in the election of directors, or; (v) in the event that the individuals
who, as of the Effective Date, are members of the Board (the “Incumbent Board”),
cease for any reason to constitute at least fifty percent (50%) of the Board;
provided, however, if the appointment or election (or nomination for election)
of any new Board member was approved or recommended by at least fifty percent
(50%) of the members of the Incumbent Board then still in office, such new Board
member shall be considered as a member of the Incumbent Board.
          For purposes of this subsection 13(c), “Covered Service Provider”
means all employees of the Company or an Affiliate, members of the board of
directors of the Company or an Affiliate, and selected consultants providing
significant services to the Company or an Affiliate as of the occurrence of a
transaction or event constituting a Change in Control.
          For purposes of this subsection 13(c), “Covered Termination” means
either a termination by the Company of the Participant’s services for the
Company and its Affiliates without “Cause” or a “Constructive Termination.”
          For purposes of this subsection 13(c), “Cause” means the occurrence of
any of the following (and only the following): (i) conviction of the Covered
Service Provider of any felony involving fraud or act of dishonesty against the
Company or any Affiliate; (ii) conduct by the Covered Service Provider which,
based upon good faith and reasonable factual investigation and determination of
the Company (or, if the Covered Service Provider is a named executive officer as
defined in Item 402(a)(3) of Regulation S-K promulgated by the Securities and
Exchange Commission), demonstrates gross unfitness to serve; or,
(iii) intentional, material violation by the Covered Service Provider of any
contractual, statutory, or fiduciary duty owed by the Covered Service Provider
to the Company or any Affiliate, provided that in the event that any of the
foregoing events is capable of being cured, the Company shall provide written
notice to the Covered Service Provider describing the nature of such event and
the Covered Service Provider shall thereafter have thirty (30) days to cure such
event. In addition, if the Covered Service Provider is not a corporate officer
of the Company (i.e., an Employee not holding the title of Vice President or
higher), “Cause” shall also include poor performance of the Covered Service
Provider’s services for the Company or any Affiliate as determined by the
Company following:

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(A) written notice to the Covered Service Provider describing the nature of such
deficiency; and (B) the Covered Service Provider’s failure to cure such
deficiency within thirty (30) days following receipt of such written notice.
          For purposes of this subsection 13(c), “Constructive Termination”
means that a Covered Service Provider who is a corporate officer of the Company
(i.e., an Employee holding the title of Vice President or higher) terminates his
or her service after any of the following are undertaken without the Covered
Service Provider’s express written consent: (i) the assignment to the Covered
Service Provider of any duties or responsibilities which result in any
diminution or adverse change of the Covered Service Provider’s position,
responsibility, authority, status, circumstances, or scope of service as in
effect immediately prior to a Change in Control, or a change in the Covered
Service Provider’s titles or offices as in effect immediately prior to a Change
in Control, or any removal of the Covered Service Provider from or any failure
to re-elect the Covered Service Provider to any of such positions, except in
connection with the termination of the Covered Service Provider’s service on
account of death, disability, retirement, for Cause, or any voluntary
termination of service by the Covered Service Provider other than Constructive
Termination; (ii) a reduction by the Company in the Covered Service Provider’s
annual base compensation; (iii) any failure by the Company to continue in effect
any benefit plan or arrangement, including incentive plans or plans to receive
securities of the Company, in which the Covered Service Provider is
participating at the time of a Change in Control (hereinafter referred to as
“Benefit Plans”), or the taking of any action by the Company which would
adversely affect the Covered Service Provider’s participation in or reduce the
Covered Service Provider’s benefits under any Benefit Plans or deprive the
Covered Service Provider of any fringe benefit enjoyed by the Covered Service
Provider at the time of a Change in Control, provided, however, that the Covered
Service Provider may not incur a Constructive Termination following a Change in
Control if the Company offers a range of benefit plans and programs which, taken
as a whole, are comparable to the Benefit Plans; (iv) a relocation of the
Covered Service Provider or the Company’s offices to a location more than
twenty-five (25) miles from the location at which the Covered Service Provider
performed his or her duties prior to a Change in Control, except for required
travel by the Covered Service Provider on the Company’s or any Affiliate’s
business to an extent substantially consistent with the Covered Service
Provider’s business travel obligations at the time of a Change in Control;
(v) any breach by the Company of any provision of a Stock Award Agreement; or,
(vi) any failure by the Company to obtain the assumption of a Stock Award
Agreement by any successor or assign of the Company.
14. Amendment of the Plan and Stock Awards.
     (a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in Section 13 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the stockholders of
the Company within twelve (12) months before or after the adoption of the
amendment, if such approval is required pursuant to the applicable listing
requirements of any stock exchange or national market system on which the
Company has listed the stock subject to this Plan for trading. For clarity, but
not by way of limitation, except as may otherwise be permitted by such listing
requirements, the following amendments will require such approval by the
stockholders of the Company:

16.

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          (1) An amendment which materially increases the number of shares
reserved for Stock Awards under the Plan;
          (2) An amendment which materially expands the class of individuals
eligible for participation in the Plan;
          (3) An amendment which materially increases the benefits accruing to
Participants under the Plan or materially reduces the exercise price for Options
or Stock Appreciation Rights;
          (4) An amendment which materially extends the term of the Plan; or
          (5) An amendment which expands the types of awards available for
issuance under the Plan which are payable in shares of the Company’s common
stock.
     (b) The Board may in its sole discretion submit any other amendment to the
Plan for stockholder approval, including, but not limited to, amendments to the
Plan intended to satisfy the requirements of (i) Section 162(m) of the Code and
the regulations promulgated thereunder regarding the exclusion of
performance-based compensation from the limit on corporate deductibility of
compensation paid to certain executive officers, (ii) Section 422 of the Code
regarding Incentive Stock Options, or (iii) Rule 16b-3.
     (c) It is expressly contemplated that the Board may amend the Plan in any
respect the Board deems necessary or advisable to provide eligible Employees,
Directors, or Consultants with the maximum benefits provided or to be provided
under the provisions of the Code and the regulations promulgated thereunder
including, without limitation, relating to Incentive Stock Options and certain
nonqualified deferred compensation under Section 409A of the Code and/or to
bring the Plan and/or Stock Awards granted under the Plan into compliance
therewith.
     (d) Except as provided in subsection 14(c), rights and obligations under
any Stock Award granted before amendment of the Plan shall not be impaired by
any amendment of the Plan unless: (i) the Company requests the consent of the
person to whom the Stock Award was granted; and (ii) such person consents in
writing.
     (e) The Board at any time, and from time to time, may amend the terms of
any Stock Award; provided, however, that, except as provided in subsection
14(c), the rights and obligations under any Stock Award shall not be impaired by
any such amendment unless: (i) the Company requests the consent of the person to
whom the Stock Award was granted and (ii) such person consents in writing.
     (f) The Board may amend the terms of any Stock Award (including, without
limitation, by amending the Company’s Executive Change in Control and Severance
Benefit Plan) without approval by the stockholders of the Company: (i) to extend
the period for exercise of an Option pursuant to subsection 6(f), 6(h), or 6(i),
provided that in no case shall such period extend beyond the maximum term of the
Option as set forth in the Option Agreement; or (ii) to accelerate the time at
which a Stock Award may first be exercised or the time during which a Stock
Award or any part thereof will vest pursuant to subsection 6(e), 7(d), or 8(c)
or Section 13.

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15. Termination or Suspension of the Plan.
     (a) The Board may suspend or terminate the Plan at any time. Unless sooner
terminated, the Plan shall terminate on December 31, 2011. No Stock Awards may
be granted under the Plan while the Plan is suspended or after it is terminated.
     (b) Except as provided in subsection 14(c), rights and obligations under
any Stock Award granted while the Plan is in effect shall not be impaired by
suspension or termination of the Plan, except with the consent of the person to
whom the Stock Award was granted.
16. Effective Date of Plan.
     The Plan shall become effective on the Effective Date. Prior to the
Effective Date the Prior Plans are unaffected by the Plan, and Stock Awards
shall continue to be granted from the Prior Plans. If the Plan has not been
approved by the stockholders of the Company by the first anniversary of the
Adoption Date, the adoption of the Plan shall be null and void and the Prior
Plans shall continue unaffected by the adoption of the Plan. If the Plan is so
approved, (i) the Prior Plans shall be deemed merged into the Plan and to cease
their separate existence and (ii) outstanding options and other awards granted
pursuant to the Prior Plans shall automatically become Stock Awards.
Notwithstanding that the Prior Plans are merged into the Plan, the terms of the
Prior Plans shall continue to govern any Stock Awards granted prior to the
Effective Date.

18.