EXHIBIT 10.2

 

2003 EQUITY INCENTIVE PLAN

OF

DTS, INC.

 

1.                               Purpose of this Plan

 

The purpose of this 2003 Equity Incentive Plan is to enhance the long-term
stockholder value of DTS, Inc. by offering opportunities to eligible individuals
to participate in the growth in value of the equity of DTS, Inc.

 

2.                               Definitions and Rules of Interpretation

 

2.1         Definitions

 

This Plan uses the following defined terms:

 

(a)       “Administrator” means the Board, the Committee, or any officer or
employee of the Company to whom the Board or the Committee delegates authority
to administer this Plan.

 

(b)       “Affiliate” means a “parent” or “subsidiary” (as each is defined in
Section 424 of the Code) of the Company and any other entity that the Board or
Committee designates as an “Affiliate” for purposes of this Plan.

 

(c)       “Applicable Law” means any and all laws of whatever jurisdiction,
within or without the United States, and the rules of any stock exchange or
quotation system on which Shares are listed or quoted, applicable to the taking
or refraining from taking of any action under this Plan, including the
administration of this Plan and the issuance or transfer of Awards or Award
Shares.

 

(d)       “Award” means a Stock Award, SAR, Cash Award, or Option granted in
accordance with the terms of this Plan.

 

(e)       “Award Agreement” means the document evidencing the grant of an Award.

 

(f)        “Award Shares” means Shares covered by an outstanding Award or
purchased under an Award.

 

(g)       “Awardee” means: (i) a person to whom an Award has been granted,
including a holder of a Substitute Award, (ii) a person to whom an Award has
been transferred in accordance with all applicable requirements of Sections 6.5,
7(h), and 17.

 

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

 

(i)        “Cash Award” means the right to receive cash as described in
Section 8.3.

 

(j)        “Change in Control” means any transaction or event that the Board
specifies as a Change in Control under Section 10.4.

 

(k)       “Code” means the Internal Revenue Code of 1986.

 

(l)        “Committee” means a committee composed of Company Directors appointed
in accordance with the Company’s charter documents and Section 4.

 

(m)      “Company” means DTS, Inc., a Delaware corporation.

 

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

 

(o)       “Consultant” means an individual who, or an employee of any entity
that, provides bona fide services to the Company or an Affiliate not in
connection with the offer or sale of securities in a capital-raising
transaction, but who is not an Employee.

 

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(p)       “Director” means a member of the Board of Directors of the Company or
an Affiliate.

 

(q)       “Divestiture” means any transaction or event that the Board specifies
as a Divestiture under Section 10.5.

 

(r)        “Domestic Relations Order” means a “domestic relations order” as
defined in, and otherwise meeting the requirements of, Section 414(p) of the
Code, except that reference to a “plan” in that definition shall be to this
Plan.

 

(s)        “Effective Date” means the first date of the sale by the Company of
shares of its capital stock in an initial public offering pursuant to a
registration statement on Form S-1 filed with the SEC.

 

(t)        “Employee” means a regular employee of the Company or an Affiliate,
including an officer or Director, who is treated as an employee in the personnel
records of the Company or an Affiliate, but not individuals who are classified
by the Company or an Affiliate as: (i) leased from or otherwise employed by a
third party, (ii) independent contractors, or (iii) intermittent or temporary
workers.  The Company’s or an Affiliate’s classification of an individual as an
“Employee” (or as not an “Employee”) for purposes of this Plan shall not be
altered retroactively even if that classification is changed retroactively for
another purpose as a result of an audit, litigation or otherwise.  An Awardee
shall not cease to be an Employee due to transfers between locations of the
Company, or between the Company and an Affiliate, or to any successor to the
Company or an Affiliate that assumes the Awardee’s Options under Section 10. 
Neither service as a Director nor receipt of a director’s fee shall be
sufficient to make a Director an “Employee”.

 

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

 

(v)       “Executive” means, if the Company has any class of any equity security
registered under Section 12 of the Exchange Act, an individual who is subject to
Section 16 of the Exchange Act or who is a “covered employee” under
Section 162(m) of the Code, in either case because of the individual’s
relationship with the Company or an Affiliate.  If the Company does not have any
class of any equity security registered under Section 12 of the Exchange Act,
“Executive” means any (i) Director, (ii) officer elected or appointed by the
Board, or (iii) beneficial owner of more than 10% of any class of the Company’s
equity securities.

 

(w)      “Expiration Date” means, with respect to an Award, the date stated in
the Award Agreement as the expiration date of the Award or, if no such date is
stated in the Award Agreement, then the last day of the maximum exercise period
for the Award, disregarding the effect of an Awardee’s Termination or any other
event that would shorten that period.

 

(x)       “Fair Market Value” means the value of Shares as determined under
Section 18.2.

 

(y)       “Fundamental Transaction” means any transaction or event described in
Section 10.3.

 

(z)        “Grant Date” means the date the Administrator approves the grant of
an Award.  However, if the Administrator specifies that an Award’s Grant Date is
a future date or the date on which a condition is satisfied, the Grant Date for
such Award is that future date or the date that the condition is satisfied.

 

(aa)     “Incentive Stock Option” means an Option intended to qualify as an
incentive stock option under Section 422 of the Code and designated as an
Incentive Stock Option in the Award Agreement for that Option.

 

(bb)     “Nonstatutory Option” means any Option other than an Incentive Stock
Option.

 

(cc)     “Non-Employee Director” means any person who is a member of the Board
but is not an Employee of the Company or any Affiliate of the Company and has
not been an Employee of the Company or any Affiliate of the Company at any time
during the preceding twelve months. Service as a Director does not in itself
constitute employment for purposes of this definition.

 

(dd)     “Objectively Determinable Performance Condition” shall mean a
performance condition (i) that is established (A) at the time an Award is
granted or (B)  no later than the earlier of (1) 90 days after the beginning of
the period of service to which it relates, or (2) before the elapse of 25% of
the period of service to which it relates, (ii) that is uncertain of achievement
at the time it is established, and (iii) the achievement of which is
determinable by a third party with knowledge of the relevant facts.  Examples of
measures that may be used in Objectively Determinable Performance Conditions
include net order dollars, net profit dollars, net profit growth, net revenue
dollars, revenue growth, individual performance, earnings per share, return on
assets, return on equity, and other financial objectives, objective customer

 

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satisfaction indicators and efficiency measures, each with respect to the
Company and/or an Affiliate or individual business unit.

 

(ee)     “Officer” means an officer of the Company as defined in Rule 16a-1
adopted under the Exchange Act.

 

(ff)       “Option” means a right to purchase Shares of the Company granted
under this Plan.

 

(gg)     “Option Price” means the price payable under an Option for Shares, not
including any amount payable in respect of withholding or other taxes.

 

(hh)     “Option Shares” means Shares covered by an outstanding Option or
purchased under an Option.

 

(ii)       “Plan” means this 2003 Equity Incentive Plan of DTS, Inc.

 

(jj)       “Prior Plans” means the Company’s 1997 Stock Option Plan and the 2002
Stock Option Plan in effect.

 

(kk)     “Purchase Price” means the price payable under a Stock Award for
Shares, not including any amount payable in respect of withholding or other
taxes.

 

(ll)       “Rule 16b-3” means Rule 16b-3 adopted under Section 16(b) of the
Exchange Act.

 

(mm)   “SAR” or “Stock Appreciation Right” means a right to receive cash based
on a change in the Fair Market Value of a specific number of Shares pursuant to
an Award Agreement, as described in Section 8.1.

 

(nn)     “Securities Act” means the Securities Act of 1933.

 

(oo)     “Share” means a share of the common stock of the Company or other
securities substituted for the common stock under Section 10.

 

(pp)     “Stock Award” means an offer by the Company to sell shares subject to
certain restrictions pursuant to the Award Agreement as described in
Section 8.2.

 

(qq)     “Substitute Award” means a Substitute Option, Substitute SAR or
Substitute Stock Award granted in accordance with the terms of this Plan.

 

(rr)      “Substitute Option” means an Option granted in substitution for, or
upon the conversion of, an option granted by another entity to purchase equity
securities in the granting entity.

 

(ss)      “Substitute SAR” means a SAR granted in substitution for, or upon the
conversion of, a stock appreciation right granted by another entity with respect
to equity securities in the granting entity.

 

(tt)       “Substitute Stock Award” means a Stock Award granted in substitution
for, or upon the conversion of, a stock award granted by another entity to
purchase equity securities in the granting entity.

 

(uu)     “Termination” means that the Awardee has ceased to be, with or without
any cause or reason, an Employee, Director or Consultant.  However, unless so
determined by the Administrator, or otherwise provided in this Plan,
“Termination” shall not include a change in status from an Employee, Consultant
or Director to another such status.  An event that causes an Affiliate to cease
being an Affiliate shall be treated as the “Termination” of that Affiliate’s
Employees, Directors, and Consultants.

 

2.2         Rules of Interpretation

 

Any reference to a “Section,” without more, is to a Section of this Plan. 
Captions and titles are used for convenience in this Plan and shall not, by
themselves, determine the meaning of this Plan.  Except when otherwise indicated
by the context, the singular includes the plural and vice versa.  Any reference
to a statute is also a reference to the applicable rules and regulations adopted
under that statute.  Any reference to a statute, rule or regulation, or to a
section of a statute, rule or regulation, is a reference to that statute, rule,
regulation, or section as amended from time to time, both before and after the
Effective Date and including any successor provisions.

 

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3.             Shares Subject to this Plan; Term of this Plan

 

3.1         Number of Award Shares

 

The Shares issuable under this Plan shall be authorized but unissued or
reacquired Shares, including Shares repurchased by the Company on the open
market. The number of Shares initially reserved for issuance over the term of
this Plan shall not exceed 3,000,000 Shares.  Such reserve shall consist of
(i) the number of Shares available for issuance, as of the Effective Date, under
the Prior Plans as last approved by the Company’s stockholders, including the
Shares subject to outstanding options under the Prior Plans, plus (ii) those
Shares issued under the Prior Plans that are forfeited or repurchased by the
Company or that are issuable upon exercise of options granted pursuant to the
Prior Plans that expire or become unexercisable for any reason without having
been exercised in full after the Effective Date, plus (iii) an additional
increase of approximately 928,949 Shares to be approved by the Company’s
stockholders prior to the Effective Date.  The maximum number of Shares shall be
cumulatively increased on the first January 1 after the Effective Date and each
January 1 thereafter for 10 years, by a number of Shares equal to the least of
(a) 4% of the number of Shares issued and outstanding on the immediately
preceding December 31, (b) 1,500,000 Shares, and (c) a number of Shares set by
the Board.  When an Award is granted, the maximum number of Shares that may be
issued under this Plan shall be reduced by the number of Shares covered by that
Award.  However, if an Award later terminates or expires without having been
exercised in full, the maximum number of shares that may be issued under this
Plan shall be increased by the number of Shares that were covered by, but not
purchased under, that Award.  By contrast, the repurchase of Shares by the
Company shall not increase the maximum number of Shares that may be issued under
this Plan.  Notwithstanding anything in this Plan to the contrary, at no time
during the eighteen (18) months following the Effective Date may the sum of the
number of Shares subject to Awards under this Plan and the number of Shares
subject to options under the Prior Plans exceed 15% of the outstanding Shares on
a “fully diluted” basis.  For the purposes of this Section 3.1, outstanding
Shares on a “fully diluted” basis shall be the number of Shares that is equal to
(x) the number of Shares issued and outstanding plus (y) all Shares subject to
or available for Awards or options under this Plan and the Prior Plans,
respectively, and 50% of the Shares then issuable upon the exercise of warrants
that were outstanding on the Effective Date of the Plan.

 

3.2         Source of Shares

 

Award Shares may be:  (a) Shares that have never been issued, (b) Shares that
have been issued but are no longer outstanding, or (c) Shares that are
outstanding and are acquired to discharge the Company’s obligation to deliver
Award Shares.

 

3.3         Term of this Plan

 

(a)       This Plan shall be effective on, and Awards may be granted under this
Plan on and after, the earliest the date on which the Plan has been both adopted
by the Board and approved by the Company’s stockholders.

 

(b)       Subject to the provisions of Section 14, Awards may be granted under
this Plan for a period of ten years from the earlier of the date on which the
Board approves this Plan and the date the Company’s stockholders approve this
Plan.  Accordingly, Awards may not be granted under this Plan after the earlier
of those dates.

 

4.                               Administration

 

4.1         General

 

(a)       The Board shall have ultimate responsibility for administering this
Plan.  The Board may delegate certain of its responsibilities to a Committee,
which shall consist of at least two members of the Board.  The Board or the
Committee may further delegate its responsibilities to any Employee of the
Company or any Affiliate.  Where this Plan specifies that an action is to be
taken or a determination made by the Board, only the Board may take that action
or make that determination.  Where this Plan specifies that an action is to be
taken or a determination made by the Committee, only the Committee may take that
action or make that determination.  Where this Plan references the
“Administrator,” the action may be taken or determination made by the Board, the
Committee, or other Administrator.  However, only the Board or the Committee may
approve grants of Awards to Executives, and an Administrator other than the
Board or the Committee may grant Awards only within guidelines established by
the Board or Committee.  Moreover, all actions and determinations by any
Administrator are subject to the provisions of this Plan.

 

(b)       So long as the Company has registered and outstanding a class of
equity securities under Section 12 of

 

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the Exchange Act, the Committee shall consist of Company Directors who are
“Non-Employee Directors” as defined in Rule 16b-3 and, after the expiration of
any transition period permitted by Treasury Regulations Section 1.162-27(h)(3),
who are “outside directors” as defined in Section 162(m) of the Code.

 

4.2         Authority of the Board or the Committee

 

Subject to the other provisions of this Plan, the Board or the Committee shall
have the authority to:

 

(a)       grant Awards, including Substitute Awards;

 

(b)       determine the Fair Market Value of Shares;

 

(c)       determine the Option Price and the Purchase Price of Awards;

 

(d)       select the Awardees;

 

(e)       determine the times Awards are granted;

 

(f)        determine the number of Shares subject to each Award;

 

(g)       determine the methods of payment that may be used to purchase Award
Shares;

 

(h)       determine the methods of payment that may be used to satisfy
withholding tax obligations;

 

(i)        determine the other terms of each Award, including but not limited to
the time or times at which Awards may be exercised, whether and under what
conditions an Award is assignable, and whether an Option is a Nonstatutory
Option or an Incentive Stock Option;

 

(j)        modify or amend any Award;

 

(k)       authorize any person to sign any Award Agreement or other document
related to this Plan on behalf of the Company;

 

(l)        determine the form of any Award Agreement or other document related
to this Plan, and whether that document, including signatures, may be in
electronic form;

 

(m)      interpret this Plan and any Award Agreement or document related to this
Plan;

 

(n)       correct any defect, remedy any omission, or reconcile any
inconsistency in this Plan, any Award Agreement or any other document related to
this Plan;

 

(o)       adopt, amend, and revoke rules and regulations under this Plan,
including rules and regulations relating to sub-plans and Plan addenda;

 

(p)       adopt, amend, and revoke special rules and procedures which may be
inconsistent with the terms of this Plan, set forth (if the Administrator so
chooses) in sub-plans regarding (for example) the operation and administration
of this Plan and the terms of Awards, if and to the extent necessary or useful
to accommodate non-U.S. Applicable Laws and practices as they apply to Awards
and Award Shares held by, or granted or issued to, persons working or resident
outside of the United States or employed by Affiliates incorporated outside the
United States;

 

(q)       determine whether a transaction or event should be treated as a Change
in Control, a Divestiture or neither;

 

(r)        determine the effect of a Fundamental Transaction and, if the Board
determines that a transaction or event should be treated as a Change in Control
or a Divestiture, then the effect of that Change in Control or Divestiture; and

 

(s)        make all other determinations the Administrator deems necessary or
advisable for the administration of this Plan.

 

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4.3         Scope of Discretion

 

Subject to the provisions of this Section 4.3, on all matters for which this
Plan confers the authority, right or power on the Board, the Committee, or other
Administrator to make decisions, that body may make those decisions in its sole
and absolute discretion.  Those decisions will be final, binding and
conclusive.  In making its decisions, the Board, Committee or other
Administrator need not treat all persons eligible to receive Awards, all
Awardees, all Awards or all Award Shares the same way.  Notwithstanding anything
herein to the contrary, and except as provided in Section 14.3, the discretion
of the Board, Committee or other Administrator is subject to the specific
provisions and specific limitations of this Plan, as well as all rights
conferred on specific Awardees by Award Agreements and other agreements.

 

5.             Persons Eligible to Receive Awards

 

5.1         Eligible Individuals

 

Awards (including Substitute Awards) may be granted to, and only to, Employees,
Directors and Consultants, including to prospective Employees, Directors and
Consultants conditioned on the beginning of their service for the Company or an
Affiliate.  However, Incentive Stock Options may only be granted to Employees,
as provided in Section 7(g).

 

5.2         Section 162(m) Limitation

 

(a)       Options and SARs  Subject to the provisions of this Section 5.2, for
so long as the Company is a “publicly held corporation” within the meaning of
Section 162(m) of the Code: (i) no Employee may be granted one or more SARs and
Options within any fiscal year of the Company under this Plan to purchase more
than 1,500,000 Shares under Options or to receive compensation calculated with
reference to more than that number of Shares under SARs, subject to adjustment
pursuant to Section 10, (ii) Options and SARs may be granted to an Executive
only by the Committee (and, notwithstanding anything to the contrary in
Section 4.1(a), not by the Board).  If an Option or SAR is cancelled without
being exercised or if the Option Price of an Option is reduced, that cancelled
or repriced Option or SAR shall continue to be counted against the limit on
Awards that may be granted to any individual under this Section 5.2. 
Notwithstanding anything herein to the contrary, a new Employee of the Company
or an Affiliate shall be eligible to receive up to a maximum of 2,000,000 Shares
under Options in the calendar year in which they commence employment, or such
compensation calculated with reference to such number of Shares under SARs,
subject to adjustment pursuant to Section 10.

 

(b)       Cash Awards and Stock Awards  Any Cash Award or Stock Award intended
as “qualified performance-based compensation” within the meaning of
Section 162(m) of the Code must vest or become exercisable contingent on the
achievement of one or more Objectively Determinable Performance Conditions.  The
Committee shall have the discretion to determine the time and manner of
compliance with Section 162(m) of the Code.

 

6.                               Terms and Conditions of Option

 

The following rules apply to all Options:

 

6.1         Price

 

No Nonstatutory Option may have an Option Price less than 85% of the Fair Market
Value of the Shares on the Grant Date.  No Option intended as “qualified
incentive-based compensation” within the meaning of Section 162(m) of the Code
may have an Option Price less than 100% of the Fair Market Value of the Shares
on the Grant Date.  In no event will the Option Price of any Option be less than
the par value of the Shares issuable under the Option if that is required by
Applicable Law.  The Option Price of an Incentive Stock Option shall be subject
to Section 7(f).

 

6.2         Term

 

No Option shall be exercisable after its Expiration Date.  No Option may have an
Expiration Date that is more than ten years after its Grant Date.  Additional
provisions regarding the term of Incentive Stock Options are provided in
Sections 7(a) and 7(e).

 

6.3         Vesting

 

Options shall be exercisable: (a) on the Grant Date, or (b) in accordance with a
schedule related to the Grant Date, the date the Optionee’s directorship,
employment or consultancy begins, or a different date specified in the Option

 

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Agreement.  Additional provisions regarding the vesting of Incentive Stock
Options are provided in Section 7(c).  No Option granted to an individual who is
subject to the overtime pay provisions of the Fair Labor Standards Act may be
exercised before the expiration of six months after the Grant Date.

 

6.4         Form and Method of Payment

 

(a)       The Board or Committee shall determine the acceptable form and method
of payment for exercising an Option.

 

(b)       Acceptable forms of payment for all Option Shares are cash, check or
wire transfer, denominated in U.S. dollars except as specified by the
Administrator for non-U.S. Employees or non-U.S. sub-plans.

 

(c)       In addition, the Administrator may permit payment to be made by any of
the following methods:

 

(i)       other Shares, or the designation of other Shares, which (A) are
“mature” shares for purposes of avoiding variable accounting treatment under
generally accepted accounting principles (generally mature shares are those that
have been owned by the Optionee for more than six months on the date of
surrender), and (B) have a Fair Market Value on the date of surrender equal to
the Option Price of the Shares as to which the Option is being exercised;

 

(ii)     provided that a public market exists for the Shares, consideration
received by the Company under a procedure under which a licensed broker-dealer
advances funds on behalf of an Optionee or sells Option Shares on behalf of an
Optionee (a “ Cashless Exercise Procedure  “), provided that if the Company
extends or arranges for the extension of credit to an Optionee under any
Cashless Exercise Procedure, no Officer or Director may participate in that
Cashless Exercise Procedure;

 

(iii)    with respect only to Optionees who are neither Officers nor Directors
as of the date of exercise, one or more promissory notes meeting the
requirements of Section 6.4(e) provided, however, that promissory notes may not
be used for any portion of an Award which is not vested at the time of exercise;

 

(iv)     cancellation of any debt owed by the Company or any Affiliate to the
Optionee by the Company including without limitation waiver of compensation due
or accrued for services previously rendered to the Company; and

 

(v)      any combination of the methods of payment permitted by any paragraph of
this Section 6.4.

 

(d)       The Administrator may also permit any other form or method of payment
for Option Shares permitted by Applicable Law.

 

(e)                      The promissory notes referred to in
Section 6.4(c)(iii) shall be full recourse.  Unless the Committee specifies
otherwise after taking into account any relevant accounting issues, the
promissory notes shall bear interest at a fair market value rate when the Option
is exercised.  Interest on the promissory notes shall also be at least
sufficient to avoid imputation of interest under Sections 483, 1274, and 7872 of
the Code.  The promissory notes and their administration shall at all times
comply with any applicable margin rules of the Federal Reserve.  The promissory
notes may also include such other terms as the Administrator specifies.  Payment
may not be made by promissory note by Officers or Directors if Shares are
registered under Section 12 of the Exchange Act.

 

6.5                          Nonassignability of Options

 

Except as determined by the Administrator, no Option shall be assignable or
otherwise transferable by the Optionee except by will or by the laws of descent
and distribution.  However, Options may be transferred and exercised in
accordance with a Domestic Relations Order and may be exercised by a guardian or
conservator appointed to act for the Optionee.  Incentive Stock Options may only
be assigned in compliance with Section 7(h).

 

6.6                          Substitute Options

 

The Board may cause the Company to grant Substitute Options in connection with
the acquisition by the Company or an Affiliate of equity securities of any
entity (including by merger, tender offer, or other similar transaction) or of
all or a portion of the assets of any entity.  Any such substitution shall be
effective on the effective date of the acquisition.  Substitute Options may be
Nonstatutory Options or Incentive Stock Options.  Unless and to the extent
specified otherwise by

 

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the Board, Substitute Options shall have the same terms and conditions as the
options they replace, except that (subject to the provisions of Section 10)
Substitute Options shall be Options to purchase Shares rather than equity
securities of the granting entity and shall have an Option Price determined by
the Board.

 

6.7                          Repricings

 

In furtherance of, and not in limitation of the provisions of Section 10,
Options may be repriced, replaced or regranted through cancellation or
modification without stockholder approval.

 

7.             Incentive Stock Options

 

The following rules apply only to Incentive Stock Options and only to the extent
these rules are more restrictive than the rules that would otherwise apply under
this Plan.  With the consent of the Optionee, or where this Plan provides that
an action may be taken notwithstanding any other provision of this Plan, the
Administrator may deviate from the requirements of this Section, notwithstanding
that any Incentive Stock Option modified by the Administrator will thereafter be
treated as a Nonstatutory Option.

 

(a)                     The Expiration Date of an Incentive Stock Option shall
not be later than ten years from its Grant Date, with the result that no
Incentive Stock Option may be exercised after the expiration of ten years from
its Grant Date.

 

(b)                     No Incentive Stock Option may be granted more than ten
years from the date this Plan was approved by the Board.

 

(c)                      Options intended to be incentive stock options under
Section 422 of the Code that are granted to any single Optionee under all
incentive stock option plans of the Company and its Affiliates, including
incentive stock options granted under this Plan, may not vest at a rate of more
than $100,000 in Fair Market Value of stock (measured on the grant dates of the
options) during any calendar year.  For this purpose, an option vests with
respect to a given share of stock the first time its holder may purchase that
share, notwithstanding any right of the Company to repurchase that share. 
Unless the administrator of that option plan specifies otherwise in the related
agreement governing the option, this vesting limitation shall be applied by, to
the extent necessary to satisfy this $100,000 rule, treating certain stock
options that were intended to be incentive stock options under Section 422 of
the Code as Nonstatutory Options.  The stock options or portions of stock
options to be reclassified as Nonstatutory Options are those with the highest
option prices, whether granted under this Plan or any other equity compensation
plan of the Company or any Affiliate that permits that treatment.  This
Section 7(c) shall not cause an Incentive Stock Option to vest before its
original vesting date or cause an Incentive Stock Option that has already vested
to cease to be vested.

 

(d)                     In order for an Incentive Stock Option to be exercised
for any form of payment other than those described in Section 6.4(b), that right
must be stated at the time of grant in the Option Agreement relating to that
Incentive Stock Option.

 

(e)                      Any Incentive Stock Option granted to a Ten Percent
Stockholder, must have an Expiration Date that is not later than five years from
its Grant Date, with the result that no such Option may be exercised after the
expiration of five years from the Grant Date.  A “ Ten Percent Stockholder  “ is
any person who, directly or by attribution under Section 424(d) of the Code,
owns stock possessing more than ten percent of the total combined voting power
of all classes of stock of the Company or of any Affiliate on the Grant Date.

 

(f)                         The Option Price of an Incentive Stock Option shall
never be less than the Fair Market Value of the Shares at the Grant Date.  The
Option Price for the Shares covered by an Incentive Stock Option granted to a
Ten Percent Stockholder shall never be less than 110% of the Fair Market Value
of the Shares at the Grant Date.

 

(g)                     Incentive Stock Options may be granted only to
Employees.  If an Optionee changes status from an Employee to a Consultant, that
Optionee’s Incentive Stock Options become Nonstatutory Options if not exercised
within the time period described in Section 7(i) (determined by treating that
change in status as a Termination solely for purposes of this Section 7(g)).

 

(h)                     No rights under an Incentive Stock Option may be
transferred by the Optionee, other than by will or the laws of descent and
distribution.  During the life of the Optionee, an Incentive Stock Option may be
exercised only by the Optionee.  The Company’s compliance with a Domestic
Relations Order, or the exercise of an Incentive Stock Option

 

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by a guardian or conservator appointed to act for the Optionee, shall not
violate this Section 7(h).

 

(i)                        An Incentive Stock Option shall be treated as a
Nonstatutory Option if it remains exercisable after, and is not exercised
within, the three-month period beginning with the Optionee’s Termination for any
reason other than the Optionee’s death or disability (as defined in
Section 22(e) of the Code).  In the case of Termination due to death, an
Incentive Stock Option shall continue to be treated as an Incentive Stock Option
if it remains exercisable after, and is not exercised within, the three-month
period after the Optionee’s Termination provided it is exercised before the
Expiration Date.  In the case of Termination due to disability, an Incentive
Stock Option shall be treated as a Nonstatutory Option if it remains exercisable
after, and is not exercised within, one year after the Optionee’s Termination.

 

(j)                         An Incentive Stock Option may only be modified by
the Board.

 

8.             Stock Appreciation Rights, Stock Awards and Cash Awards

 

8.1                          Stock Appreciation Rights

 

The following rules apply to SARs:

 

(a)                     General.  SARs may be granted either alone, in addition
to, or in tandem with other Awards granted under this Plan. The Administrator
may grant SARs to eligible participants subject to terms and conditions not
inconsistent with this Plan and determined by the Administrator. The specific
terms and conditions applicable to the Awardee shall be provided for in the
Award Agreement. SARs shall be exercisable, in whole or in part, at such times
as the Administrator shall specify in the Award Agreement.  The grant or vesting
of a SAR may be made contingent on the achievement of Objectively Determinable
Performance Conditions.

 

(b)                     Exercise of SARs.  Upon the exercise of an SAR, in whole
or in part, an Awardee shall be entitled to a payment in an amount equal to the
excess of the Fair Market Value of a fixed number of Shares covered by the
exercised portion of the SAR on the date of exercise, over the Fair Market Value
of the Shares covered by the exercised portion of the SAR on the Grant Date. 
The amount due to the Awardee upon the exercise of a SAR shall be paid in cash,
Shares or a combination thereof, over the period or periods specified in the
Award Agreement.  An Award Agreement may place limits on the amount that may be
paid over any specified period or periods upon the exercise of a SAR, on an
aggregate basis or as to any Awardee.  A SAR shall be considered exercised when
the Company receives written notice of exercise in accordance with the terms of
the Award Agreement from the person entitled to exercise the SAR.  If a SAR has
been granted in tandem with an Option, upon the exercise of the SAR, the number
of shares that may be purchased pursuant to the Option shall be reduced by the
number of shares with respect to which the SAR is exercised.

 

(c)                      Nonassignability of SARs.  Except as determined by the
Administrator, no SAR shall be assignable or otherwise transferable by the
Awardee except by will or by the laws of descent and distribution. 
Notwithstanding anything herein to the contrary, SARs may be transferred and
exercised in accordance with a Domestic Relations Order.

 

(d)                     Substitute SARs.  The Board may cause the Company to
grant Substitute SARs in connection with the acquisition by the Company or an
Affiliate of equity securities of any entity (including by merger) or all or a
portion of the assets of any entity.  Any such substitution shall be effective
on the effective date of the acquisition.  Unless and to the extent specified
otherwise by the Board, Substitute SARs shall have the same terms and conditions
as the options they replace, except that (subject to the provisions of
Section 10) Substitute SARs shall be exercisable with respect to the Fair Market
Value of Shares rather than equity securities of the granting entity and shall
be on terms that, as determined by the Board in its sole and absolute
discretion, properly reflects the substitution.

 

(e)                      Repricings.  A SAR may be repriced, replaced or
regranted, through cancellation or modification without stockholder approval.

 

8.2                          Stock Awards

 

The following rules apply to all Stock Awards:

 

(a)                     General.  The specific terms and conditions of a Stock
Award applicable to the Awardee shall be provided for in the Award Agreement.
The Award Agreement shall state the number of Shares that the Awardee shall be
entitled to receive or purchase, the terms and conditions on which the Shares
shall vest, the price to be paid and, if applicable,

 

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the time within which the Awardee must accept such offer. The offer shall be
accepted by execution of the Award Agreement.  The Administrator may require
that all Shares subject to a right of repurchase or risk of forfeiture be held
in escrow until such repurchase right or risk of forfeiture lapses.  The grant
or vesting of a Stock Award may be made contingent on the achievement of
Objectively Determinable Performance Conditions.

 

(b)                     Right of Repurchase.  If so provided in the Award
Agreement, Award Shares acquired pursuant to a Stock Award may be subject to
repurchase by the Company or an Affiliate if not vested in accordance with the
Award Agreement.

 

(c)                      Form of Payment.  The Administrator shall determine the
acceptable form and method of payment for exercising a Stock Award.  Acceptable
forms of payment for all Award Shares are cash, check or wire transfer,
denominated in U.S. dollars except as specified by the Administrator for
non-U.S. Employees or non-U.S. sub-plans.  In addition, the Administrator may
permit payment to be made by any of the methods permitted with respect to the
exercise of Options pursuant to Section 6.4.

 

(d)                     Nonassignability of Stock Awards.  Except as determined
by the Administrator, no Stock Award shall be assignable or otherwise
transferable by the Awardee except by will or by the laws of descent and
distribution.  Notwithstanding anything to the contrary herein, Stock Awards may
be transferred and exercised in accordance with a Domestic Relations Order.

 

(e)                      Substitute Stock Award.  The Board may cause the
Company to grant Substitute Stock Awards in connection with the acquisition by
the Company or an Affiliate of equity securities of any entity (including by
merger) or all or a portion of the assets of any entity.  Unless and to the
extent specified otherwise by the Board, Substitute Stock Awards shall have the
same terms and conditions as the stock awards they replace, except that (subject
to the provisions of Section 10) Substitute Stock Awards shall be Stock Awards
to purchase Shares rather than equity securities of the granting entity and
shall have a Purchase Price that, as determined by the Board in its sole and
absolute discretion, properly reflects the substitution.  Any such Substituted
Stock Award shall be effective on the effective date of the acquisition.

 

8.3                          Cash Awards

 

The following rules apply to all Cash Awards:

 

Cash Awards may be granted either alone, in addition to, or in tandem with other
Awards granted under this Plan. After the Administrator determines that it will
offer a Cash Award, it shall advise the Awardee, by means of an Award Agreement,
of the terms, conditions and restrictions related to the Cash Award.

 

9.                               Exercise of Awards

 

9.1                          In General

 

An Award shall be exercisable in accordance with this Plan and the Award
Agreement under which it is granted.

 

9.2                          Time of Exercise

 

Options and Stock Awards shall be considered exercised when the Company
receives: (a) written notice of exercise from the person entitled to exercise
the Option or Stock Award, (b) full payment, or provision for payment, in a form
and method approved by the Administrator, for the Shares for which the Option or
Stock Award is being exercised, and (c) with respect to Nonstatutory Options,
payment, or provision for payment, in a form approved by the Administrator, of
all applicable withholding taxes due upon exercise.  An Award may not be
exercised for a fraction of a Share.  SARs shall be considered exercised when
the Company receives written notice of the exercise from the person entitled to
exercise the SAR.

 

9.3                          Issuance of Award Shares

 

The Company shall issue Award Shares in the name of the person properly
exercising the Award.  If the Awardee is that person and so requests, the Award
Shares shall be issued in the name of the Awardee and the Awardee’s spouse.  The
Company shall endeavor to issue Award Shares promptly after an Award is
exercised or after the Grant Date of a Stock Award, as applicable.  Until Award
Shares are actually issued, as evidenced by the appropriate entry on the stock

 

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register of the Company or its transfer agent, the Awardee will not have the
rights of a stockholder with respect to those Award Shares, even though the
Awardee has completed all the steps necessary to exercise the Award.  No
adjustment shall be made for any dividend, distribution, or other right for
which the record date precedes the date the Award Shares are issued, except as
provided in Section 10.

 

9.4                          Termination

 

(a)                     In General  Except as provided in an Award Agreement or
in writing by the Administrator, including in an Award Agreement, and as
otherwise provided in Sections 9.4(b), (c), (d) and (e) after an Awardee’s
Termination, the Awardee’s Awards shall be exercisable to the extent (but only
to the extent) they are vested on the date of that Termination and only during
the three months after the Termination, but in no event after the Expiration
Date.  To the extent the Awardee does not exercise an Award within the time
specified for exercise, the Award shall automatically terminate.

 

(b)                     Leaves of Absence  Unless otherwise provided in the
Award Agreement, no Award may be exercised more than three months after the
beginning of a leave of absence, other than a personal or medical leave approved
by an authorized representative of the Company with employment guaranteed upon
return.  Awards shall not continue to vest during a leave of absence, unless
otherwise determined by the Administrator with respect to an approved personal
or medical leave with employment guaranteed upon return.

 

(c)                      Death or Disability  Unless otherwise provided by the
Administrator, if an Awardee’s Termination is due to death or disability (as
determined by the Administrator with respect to all Awards other than Incentive
Stock Options and as defined by Section 22(e) of the Code with respect to
Incentive Stock Options), all Awards of that Awardee to the extent exercisable
at the date of that Termination may be exercised for one year after that
Termination, but in no event after the Expiration Date.  In the case of
Termination due to death, an Award may be exercised as provided in Section 17. 
In the case of Termination due to disability, if a guardian or conservator has
been appointed to act for the Awardee and been granted this authority as part of
that appointment, that guardian or conservator may exercise the Award on behalf
of the Awardee.  Death or disability occurring after an Awardee’s Termination
shall not cause the Termination to be treated as having occurred due to death or
disability.  To the extent an Award is not so exercised within the time
specified for its exercise, the Award shall automatically terminate.

 

(d)                     Divestiture  If an Awardee’s Termination is due to a
Divestiture, the Board may take any one or more of the actions described in
Section 10.3 or 10.4 with respect to the Awardee’s Awards.

 

(e)                      Termination for Cause  In the discretion of the
Administrator, which may be exercised on the date of grant, or at a date later
in time, if an Awardee’s Termination is due to Cause, all of the Awardee’s
Awards shall automatically terminate and cease to be exercisable at the time of
Termination and the Administrator may rescind any and all exercises of Awards by
the Awardee that occurred after the first event constituting Cause.  “Cause”
means employment-related dishonesty, fraud, misconduct or disclosure or misuse
of confidential information, or other employment-related conduct that is likely
to cause significant injury to the Company, an Affiliate, or any of their
respective employees, officers or directors (including, without limitation,
commission of a felony or similar offense), in each case as determined by the
Administrator.  “Cause” shall not require that a civil judgment or criminal
conviction have been entered against or guilty plea shall have been made by the
Awardee regarding any of the matters referred to in the previous sentence. 
Accordingly, the Administrator shall be entitled to determine “Cause” based on
the Administrator’s good faith belief.  If the Awardee is criminally charged
with a felony or similar offense, that shall be a sufficient, but not a
necessary, basis for such a belief.

 

(f)                         Administrator Discretion  Notwithstanding the
provisions of Section 9.4 (a)-(e), the Plan Administrator shall have complete
discretion, exercisable either at the time an Award is granted or at any time
while the Award remains outstanding, to:

 

(i)                    Extend the period of time for which the Award is to
remain exercisable, following the Awardee’s Termination, from the limited
exercise period otherwise in effect for that Award to such greater period of
time as the Administrator shall deem appropriate, but in no event beyond the
Expiration Date; and/or

 

(ii)                Permit the Award to be exercised, during the applicable
post-Termination exercise period, not only with respect to the number of vested
Shares for which such Award may be exercisable at the time of the Awardee’s
Termination but also with respect to one or more additional installments in
which the Awardee would have vested had the Awardee not been subject to
Termination.

 

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(g)                     Consulting or Employment Relationship  Nothing in this
Plan or in any Award Agreement, and no Award or the fact that Award Shares
remain subject to repurchase rights, shall:  (A) interfere with or limit the
right of the Company or any Affiliate to terminate the employment or consultancy
of any Awardee at any time, whether with or without cause or reason, and with or
without the payment of severance or any other compensation or payment, or
(B) interfere with the application of any provision in any of the Company’s or
any Affiliate’s charter documents or Applicable Law relating to the election,
appointment, term of office, or removal of a Director.

 

10.                        Certain Transactions and Events

 

10.1                   In General

 

Except as provided in this Section 10, no change in the capital structure of the
Company, merger, sale or other disposition of assets or a subsidiary, change in
control, issuance by the Company of shares of any class of securities or
securities convertible into shares of any class of securities, exchange or
conversion of securities, or other transaction or event shall require or be the
occasion for any adjustments of the type described in this Section 10. 
Additional provisions with respect to the foregoing transactions are set forth
in Section 14.3.

 

10.2                   Changes in Capital Structure

 

In the event of any stock split, reverse stock split, recapitalization,
combination or reclassification of stock, stock dividend, spin-off, or similar
change to the capital structure of the Company (not including a Fundamental
Transaction or Change in Control), the Board shall make whatever adjustments it
concludes are appropriate to: (a) the number and type of Awards that may be
granted under this Plan, (b) the number and type of Options that may be granted
to any individual under this Plan, (c) the terms of any SAR, (d) the Purchase
Price of any Stock Award, (e) the Option Price and number and class of
securities issuable under each outstanding Option, and (f) the repurchase price
of any securities substituted for Award Shares that are subject to repurchase
rights.  The specific adjustments shall be determined by the Board.  Unless the
Board specifies otherwise, any securities issuable as a result of any such
adjustment shall be rounded down to the next lower whole security.  The Board
need not adopt the same rules for each Award or each Awardee.

 

10.3                   Fundamental Transactions

 

Except for grants to Non-Employee Directors pursuant to Section 11 herein, in
the event of (a) a merger or consolidation in which the Company is not the
surviving corporation (other than a merger or consolidation with a wholly-owned
subsidiary, a reincorporation of the Company in a different jurisdiction, or
other transaction in which there is no substantial change in the stockholders of
the Company or their relative stock holdings and the Awards granted under this
Plan are assumed, converted or replaced by the successor corporation, which
assumption shall be binding on all Participants), (b) a merger in which the
Company is the surviving corporation but after which the stockholders of the
Company immediately prior to such merger (other than any stockholder that
merges, or which owns or controls another corporation that merges, with the
Company in such merger) cease to own their shares or other equity interest in
the Company, (c) the sale of all or substantially all of the assets of the
Company, or (d) the acquisition, sale, or transfer of more than 50% of the
outstanding shares of the Company by tender offer or similar transaction (each,
a “ Fundamental Transaction  “), any or all outstanding Awards may be assumed,
converted or replaced by the successor corporation (if any), which assumption,
conversion or replacement shall be binding on all participants under this Plan. 
In the alternative, the successor corporation may substitute equivalent Awards
or provide substantially similar consideration to participants as was provided
to stockholders (after taking into account the existing provisions of the
Awards).  The successor corporation may also issue, in place of outstanding
Shares held by the participants, substantially similar shares or other property
subject to repurchase restrictions no less favorable to the participant. In the
event such successor corporation (if any) does not assume or substitute Awards,
as provided above, pursuant to a transaction described in this Subsection 10.3,
the vesting with respect to such Awards shall fully and immediately accelerate
or the repurchase rights of the Company shall fully and immediately terminate,
as the case may be, so that the Awards may be exercised or the repurchase rights
shall terminate before, or otherwise in connection with the closing or
completion of the Fundamental Transaction or event, but then terminate. 
Notwithstanding anything in this Plan to the contrary, the Committee may, in its
sole discretion, provide that the vesting of any or all Award Shares subject to
vesting or a right of repurchase shall accelerate or lapse, as the case may be,
upon a transaction described in this Section 10.3. If the Committee exercises
such discretion with respect to Options, such Options shall become exercisable
in full prior to the consummation of such event at such time and on such
conditions as the Committee determines, and if such Options are not exercised
prior to the consummation of the Fundamental Transaction, they shall terminate
at such time as determined by the Committee.  Subject to any greater rights
granted to participants under the foregoing provisions of this Section 10.3, in
the event of the occurrence of any Fundamental Transaction, any outstanding
Awards shall be treated as provided in the applicable agreement or plan of
merger, consolidation, dissolution, liquidation, or sale of assets.

 

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10.4                   Changes of Control

 

The Board may also, but need not, specify that other transactions or events
constitute a “Change in Control “.  The Board may do that either before or after
the transaction or event occurs.  Examples of transactions or events that the
Board may treat as Changes of Control are: (a) any person or entity, including a
“group” as contemplated by Section 13(d)(3) of the Exchange Act, acquires
securities holding 30% or more of the total combined voting power or value of
the Company, or (b) as a result of or in connection with a contested election of
Company Directors, the persons who were Company Directors immediately before the
election cease to constitute a majority of the Board.  In connection with a
Change in Control, notwithstanding any other provision of this Plan, the Board
may, but need not, take any one or more of the actions described in
Section 10.3.  In addition, the Board may extend the date for the exercise of
Awards (but not beyond their original Expiration Date).  The Board need not
adopt the same rules for each Award or each Awardee.  Notwithstanding anything
in this Plan to the contrary, in the event of a Termination of services for any
reason other than death, disability or Cause, within 18 months following the
consummation of a Fundamental Transaction or Change in Control, any Awards,
assumed or substituted in a Fundamental Transaction or Change in Control, which
are subject to vesting conditions and/or the right of repurchase in favor of the
Company or a successor entity, shall accelerate fully so that such Award Shares
are immediately exercisable upon Termination or, if subject to the right of
repurchase in favor of the Company, such repurchase rights shall lapse as of the
date of Termination. Such Awards shall be exercisable for a period of three
(3) months following termination.

 

10.5                   Divestiture

 

If the Company or an Affiliate sells or otherwise transfers equity securities of
an Affiliate to a person or entity other than the Company or an Affiliate, or
leases, exchanges or transfers all or any portion of its assets to such a person
or entity, then the Board may specify that such transaction or event constitutes
a “ Divestiture  “.  In connection with a Divestiture, notwithstanding any other
provision of this Plan, the Board may, but need not, take one or more of the
actions described in Section 10.3 or 10.4 with respect to Awards or Award Shares
held by, for example, Employees, Directors or Consultants for whom that
transaction or event results in a Termination.  The Board need not adopt the
same rules for each Award or each Awardee.

 

10.6                   Dissolution

 

If the Company adopts a plan of dissolution, the Board may cause Awards to be
fully vested and exercisable (but not after their Expiration Date) before the
dissolution is completed but contingent on its completion and may cause the
Company’s repurchase rights on Award Shares to lapse upon completion of the
dissolution.  The Board need not adopt the same rules for each Award or each
Awardee.  Notwithstanding anything herein to the contrary, in the event of a
dissolution of the Company, to the extent not exercised before the earlier of
the completion of the dissolution or their Expiration Date, Awards shall
terminate immediately prior to the dissolution.

 

10.7                   Cut-Back to Preserve Benefits

 

If the Administrator determines that the net after-tax amount to be realized by
any Awardee, taking into account any accelerated vesting, termination of
repurchase rights, or cash payments to that Awardee in connection with any
transaction or event set forth in this Section 10 would be greater if one or
more of those steps were not taken or payments were not made with respect to
that Awardee’s Awards or Award Shares, then, at the election of the Awardee, to
such extent, one or more of those steps shall not be taken and payments shall
not be made.

 

11.          Automatic Option Grants to Non-Employee Directors and Non-Employee
Director Fee Option Grants

 

11.1                   Automatic Option Grants to Non-Employee Directors

 

(a)                     Grant Dates  Option grants to Non-Employee Directors
shall be made on the dates specified below:

 

(i)                    Each Non-Employee Director who is then serving as a
member of the Board on the Effective Date (the “ Current Directors  “) and each
Non-Employee Director who is first elected or appointed to the Board at any time
after the effective date of this Plan shall automatically be granted, on the
date of such initial election or appointment, a Nonstatutory Option to purchase
7,500 Shares (the “ Initial Grant  “).

 

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(ii)                Commencing in 2004, on the date of each annual stockholders
meeting, each individual who is to continue to serve as a Non-Employee Director
shall automatically be granted a Nonstatutory Option to purchase 3,750 Shares
(the “ Annual Grant “), provided, however, that such individual has served as a
Non-Employee Director for at least six (6) months.

 

(b)                     Exercise Price

 

(i)                    The Option Price shall be equal to one hundred percent
(100%) of the Fair Market Value of the Shares on the Option grant date.

 

(ii)                The Option Price shall be payable in one or more of the
alternative forms authorized pursuant to Section 6.4.  Except to the extent the
sale and remittance procedure specified thereunder is utilized, payment of the
Option Price must be made on the date of exercise.

 

(c)                      Option Term   Each Option shall have a term of ten
(10) years measured from the Option grant date.

 

(d)                     Exercise and Vesting of Options  Except as otherwise
determined by the whole Board, the Shares underlying each Option granted
pursuant to Section 11.1 shall vest and be exercisable as set forth below.

 

(i)                    Initial Grant.  The Shares underlying each Option issued
pursuant to the Initial Grant shall vest and be exercisable as to 4.1666% of the
Shares at the end of each full succeeding month from the date of grant, rounded
down to the nearest whole Share, for so long as the Non-Employee Director
continuously remains a Director of, or a Consultant to, the Company provided,
however, that the Shares underlying each Option issued to Current Directors,
pursuant to the Initial Grant, shall be fully vested and immediately exercisable
on the grant date.

 

(ii)                Annual Grant.  The Shares underlying each Option issued
pursuant to the Annual Grant shall vest and be exercisable as to 8.3333% of the
Shares at the end of each full succeeding month from the date of grant, rounded
down to the nearest whole Share, for so long as the Non-Employee Director
continuously remains a Director of, or a Consultant to, the Company.

 

(e)                      Termination of Board Service  The following provisions
shall govern the exercise of any Options held by the Awardee at the time the
Awardee ceases to serve as a Non-Employee Director:

 

(i)                    In General  Except as otherwise provided in Section 11.3,
after cessation of service as a Director (the “ Cessation Date  “), the
Awardee’s Options shall be exercisable to the extent (but only to the extent)
they are vested on the Cessation Date and only during the three months after
such Cessation Date, but in no event after the Expiration Date.  To the extent
the Awardee does not exercise an Option within the time specified for exercise,
the Option shall automatically terminate.

 

(ii)                Death or Disability  If an Awardee’s cessation of service on
the Board is due to death or disability (as determined by the Board), all
Options of that Awardee, to the extent exercisable upon such Cessation Date, may
be exercised for one year after the Cessation Date, but in no event after the
Expiration Date.  In the case of a cessation of service due to death, an Option
may be exercised as provided in Section 17.  In the case of a cessation of
service due to disability, if a guardian or conservator has been appointed to
act for the Awardee and been granted this authority as part of that appointment,
that guardian or conservator may exercise the Option on behalf of the Awardee. 
Death or disability occurring after an Awardee’s cessation of service shall not
cause the cessation of service to be treated as having occurred due to death or
disability.  To the extent an Option is not so exercised within the time
specified for its exercise, the Option shall automatically terminate.

 

11.2                   Director Fee Option Grants

 

(a)                     Option Grants.  The Board shall have the sole and
exclusive authority to determine the calendar year or years for which the
Director fee option grant program (the “ Director Fee Option Program ”) is to be
in effect.  For each such calendar year the program is in effect, each
Non-Employee Director may elect to apply all or any portion of the annual
retainer fee otherwise payable in cash, for his or her service on the Board for
that year, to the acquisition of a special Option grant under this Director Fee
Option Program.  Such election must be filed with the Company’s Chief Financial
Officer prior to first day of the calendar year for which the annual retainer
fee which is the subject of that election is otherwise payable.  Each
Non-Employee Director who files such a timely election shall automatically be
granted an Option

 

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under this Director Fee Option Program on the first trading day in January in
the calendar year for which the annual retainer fee which is the subject of that
election would otherwise be payable in cash.

 

(b)                     Option Terms  Each Option shall be a Nonstatutory Option
governed by the terms and conditions specified below.

 

(i)                    Exercise Price

 

A.                  The Purchase Price shall be thirty-three and one-third
percent (33-1/3%) of the Fair Market Value per Share on the Option grant date.

 

B.                  The Purchase Price shall become immediately due upon
exercise of the Option and shall be payable in one or more of the alternative
forms authorized pursuant to Section 6.4 of this Plan.  Except to the extent the
sale and remittance procedure specified thereunder is utilized, payment of the
Purchase Price must be made on the date that the Option is exercised.

 

(ii)                Number of Option Shares.  The number of Shares subject to
the Option shall be determined pursuant to the following formula (rounded down
to the nearest whole number):

 

X = A ÷ (B x 66-2/3%), where

 

X is the number of Option Shares,

 

A is the portion of the annual retainer fee subject to the Non-Employee
Director’s election, and

 

B is the Fair Market Value of a Share on the option grant date.

 

(iii)            Exercise and Term of Options  The Option shall become
exercisable in a series of twelve (12) equal monthly installments upon the
Awardee’s completion of each month of Board service over the twelve (12)-month
period measured from the grant date.  Each Option shall have a maximum term of
ten (10) years measured from the Option grant date.

 

(iv)              Termination of Board Service  Should the Awardee cease Board
service for any reason (other than death or permanent disability) while holding
one or more Options under this Director Fee Option Program, then each such
Option shall remain exercisable, for any or all of the Shares for which the
Option is exercisable at the time of such cessation of Board service, until the
earlier of (x) the expiration of the ten (10)-year Option term or (y) the
expiration of the three (3)-year period measured from the date of such cessation
of Board service.  However, each Option held by the Awardee under this Director
Fee Option Program at the time of his or her cessation of Board service shall
immediately terminate and cease to remain outstanding with respect to any and
all Shares for which the Option is not otherwise at that time exercisable.

 

(v)                  Death or Permanent Disability  Should the Awardee’s service
as a Board member cease by reason of death or permanent disability, then each
Option held by such Awardee under this Director Fee Option Program shall
immediately become exercisable for all the Shares at the time subject to that
Option, and the Option may be exercised for any or all of those Shares as
fully-vested Shares until the earlier of (x) the expiration of the ten (10)-year
option term or (y) the expiration of the three (3)-year period measured from the
date of such cessation of Board service.

 

Should the Awardee die after cessation of his or her Board service but while
holding one or more Options under this Director Fee Option Program, then each
such Option may be exercised, for any or all of the shares for which the Option
is exercisable at the time of the Awardee’s cessation of Board service (less any
Shares subsequently purchased by the Awardee prior to death), by the personal
representative of the Awardee’s estate or by the person or persons to whom the
Option is transferred pursuant to the Awardee’s will or in accordance with the
laws of descent and distribution or by the designated beneficiary or
beneficiaries of such option.  Such right of exercise shall lapse, and the
Option shall terminate, upon the earlier of (xx) the expiration of the ten
(10)-year Option term or (yy) the three (3)-year period measured from the date
of the Awardee’s cessation of Board service.

 

11.3                   Certain Transactions and Events

 

(a)                     In the event of a Fundamental Transaction while the
Awardee remains a Non-Employee

 

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Director, the Shares at the time subject to each outstanding Option held by such
Awardee pursuant to Section 11, but not otherwise vested, shall automatically
vest in full so that each such Option shall, immediately prior to the effective
date of the Fundamental Transaction, become exercisable for all the Shares as
fully vested Shares and may be exercised for any or all of those vested Shares.
Immediately following the consummation of the Fundamental Transaction, each
Option shall terminate and cease to be outstanding, except to the extent assumed
by the successor corporation (or Affiliate thereof).

 

(b)                     In the event of a Change in Control while the Awardee
remains a Non-Employee Director, the Shares at the time subject to each
outstanding Option held by such Awardee pursuant to Section 11, but not
otherwise vested, shall automatically vest in full so that each such Option
shall, immediately prior to the effective date of the Change in Control, become
exercisable for all the Shares as fully vested Shares and may be exercised for
any or all of those vested Shares. Each such Option shall remain exercisable for
such fully vested Shares until the expiration or sooner termination of the
Option term in connection with a Change in Control.

 

(c)                      Each Option which is assumed in connection with a
Fundamental Transaction shall be appropriately adjusted, immediately after such
Fundamental Transaction, to apply to the number and class of securities which
would have been issuable to the Awardee in consummation of such Fundamental
Transaction had the Option been exercised immediately prior to such Fundamental
Transaction. Appropriate adjustments shall also be made to the Option Price
payable per share under each outstanding Option, provided the aggregate Option
Price payable for such securities shall remain the same. To the extent the
actual holders of the Company’s outstanding Common Stock receive cash
consideration for their Common Stock in consummation of the Fundamental
Transaction, the successor corporation may, in connection with the assumption of
the outstanding Options granted pursuant to Section 11, substitute one or more
shares of its own common stock with a fair market value equivalent to the cash
consideration paid per share of Common Stock in such Fundamental Transaction.

 

(d)                     The grant of Options pursuant to Section 11 shall in no
way affect the right of the Company to adjust, reclassify, reorganize or
otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.

 

(e)                      The remaining terms of each Option granted pursuant to
Section 11 shall, as applicable, be the same as terms in effect for Awards
granted under this Plan.  Notwithstanding the foregoing, the provisions of
Section 9.4 and Section 10 shall not apply to Options granted pursuant to
Section 11.

 

11.4                   Limited Transferability of Options

 

Each Option granted pursuant to Section 11 may be assigned in whole or in part
during the Awardee’s lifetime to one or more members of the Awardee’s family or
to a trust established exclusively for one or more such family members or to an
entity in which the Awardee is majority owner or to the Awardee ‘s former
spouse, to the extent such assignment is in connection with the Awardee ‘s
estate or financial plan or pursuant to a Domestic Relations Order. The assigned
portion may only be exercised by the person or persons who acquire a proprietary
interest in the Option pursuant to the assignment. The terms applicable to the
assigned portion shall be the same as those in effect for the Option immediately
prior to such assignment and shall be set forth in such documents issued to the
assignee as the Administrator may deem appropriate. The Awardee may also
designate one or more persons as the beneficiary or beneficiaries of his or her
outstanding Options under Section 11, and those Options shall, in accordance
with such designation, automatically be transferred to such beneficiary or
beneficiaries upon the Awardee ‘s death while holding those Options. Such
beneficiary or beneficiaries shall take the transferred Options subject to all
the terms and conditions of the applicable Award Agreement evidencing each such
transferred Option, including (without limitation) the limited time period
during which the Option may be exercised following the Awardee ‘s death.

 

12.                        Withholding and Tax Reporting

 

12.1                   Tax Withholding Alternatives

 

(a)                     General  Whenever Award Shares are issued or become free
of restrictions, the Company may require the Awardee to remit to the Company an
amount sufficient to satisfy any applicable tax withholding requirement, whether
the related tax is imposed on the Awardee or the Company.  The Company shall
have no obligation to deliver Award Shares or release Award Shares from an
escrow or permit a transfer of Award Shares until the Awardee has satisfied
those tax withholding obligations.  Whenever payment in satisfaction of Awards
is made in cash, the payment will be reduced by an amount sufficient to satisfy
all tax withholding requirements.

 

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(b)                     Method of Payment  The Awardee shall pay any required
withholding using the forms of consideration described in Section 6.4(b), except
that, in the discretion of the Administrator, the Company may also permit the
Awardee to use any of the forms of payment described in Section 6.4(c).  The
Administrator, in its sole discretion, may also permit Award Shares to be
withheld to pay required withholding.  If the Administrator permits Award Shares
to be withheld, 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.

 

12.2                   Reporting of Dispositions

 

Any holder of Option Shares acquired under an Incentive Stock Option shall
promptly notify the Administrator, following such procedures as the
Administrator may require, of the sale or other disposition of any of those
Option Shares if the disposition occurs during:  (a) the longer of two years
after the Grant Date of the Incentive Stock Option and one year after the date
the Incentive Stock Option was exercised, or (b) such other period as the
Administrator has established.

 

13.          Compliance with Law

 

The grant of Awards and the issuance and subsequent transfer of Award Shares
shall be subject to compliance with all Applicable Law, including all applicable
securities laws.  Awards may not be exercised, and Award Shares may not be
transferred, in violation of Applicable Law.  Thus, for example, Awards may not
be exercised unless:  (a) a registration statement under the Securities Act is
then in effect with respect to the related Award Shares, or (b) in the opinion
of legal counsel to the Company, those Award Shares may be issued in accordance
with an applicable exemption from the registration requirements of the
Securities Act and any other applicable securities laws.  The failure or
inability of the Company to obtain from any regulatory body the authority
considered by the Company’s legal counsel to be necessary or useful for the
lawful issuance of any Award Shares or their subsequent transfer shall relieve
the Company of any liability for failing to issue those Award Shares or
permitting their transfer.  As a condition to the exercise of any Award or the
transfer of any Award Shares, the Company may require the Awardee to satisfy any
requirements or qualifications that may be necessary or appropriate to comply
with or evidence compliance with any Applicable Law.

 

14.          Amendment or Termination of this Plan or Outstanding Awards

 

14.1                   Amendment and Termination

 

The Board may at any time amend, suspend, or terminate this Plan.

 

14.2                   Stockholder Approval

 

The Company shall obtain the approval of the Company’s stockholders for any
amendment to this Plan if stockholder approval is necessary or desirable to
comply with any Applicable Law or with the requirements applicable to the grant
of Awards intended to be Incentive Stock Options.  The Board may also, but need
not, require that the Company’s stockholders approve any other amendments to
this Plan.

 

14.3                   Effect

 

No amendment, suspension, or termination of this Plan, and no modification of
any Award even in the absence of an amendment, suspension, or termination of
this Plan, shall impair any existing contractual rights of any Awardee unless
the affected Awardee consents to the amendment, suspension, termination, or
modification.  Notwithstanding anything herein to the contrary, no such consent
shall be required if the Board determines, in its sole and absolute discretion,
that the amendment, suspension, termination, or modification:  (a) is required
or advisable in order for the Company, this 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 10, is in the best interests of the Company or its
stockholders.  The Board may, but need not, take the tax or accounting
consequences to affected Awardees into consideration in acting under the
preceding sentence.  Those decisions shall be final, binding and conclusive. 
Termination of this Plan shall not affect the Administrator’s ability to
exercise the powers granted to it under this Plan with respect to Awards granted
before the termination of Award Shares issued under such Awards even if those
Award Shares are issued after the termination.

 

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15.          Reserved Rights

 

15.1                   Nonexclusivity of this Plan

 

This Plan shall not limit the power of the Company or any Affiliate to adopt
other incentive arrangements including, for example, the grant or issuance of
stock options, stock, or other equity-based rights under other plans.

 

15.2                   Unfunded Plan

 

This Plan shall be unfunded.  Although bookkeeping accounts may be established
with respect to Awardees, any such accounts will be used merely as a
convenience.  The Company shall not be required to segregate any assets on
account of this Plan, the grant of Awards, or the issuance of Award Shares.  The
Company and the Administrator shall not be deemed to be a trustee of stock or
cash to be awarded under this Plan.  Any obligations of the Company to any
Awardee shall be based solely upon contracts entered into under this Plan, such
as Award Agreements.  No such obligations shall be deemed to be secured by any
pledge or other encumbrance on any assets of the Company.  Neither the Company
nor the Administrator shall be required to give any security or bond for the
performance of any such obligations.

 

16.          Special Arrangements Regarding Award Shares

 

16.1                   Escrow of Stock Certificates

 

To enforce any restrictions on Award Shares, the Administrator may require their
holder to deposit the certificates representing Award Shares, with stock powers
or other transfer instruments approved by the Administrator endorsed in blank,
with the Company or an agent of the Company to hold in escrow until the
restrictions have lapsed or terminated.  The Administrator may also cause a
legend or legends referencing the restrictions to be placed on the certificates.

 

16.2                   Repurchase Rights

 

(a)                     General  If a Stock Award is subject to vesting
conditions, the Company shall have the right, during the seven months after the
Awardee’s Termination, to repurchase any or all of the Award Shares that were
unvested as of the date of that Termination.  The repurchase price shall be
determined by the Administrator in accordance with this Section 16.2 which shall
be either (i) the Purchase Price for the Award Shares (minus the amount of any
cash dividends paid or payable with respect to the Award Shares for which the
record date precedes the repurchase) or (ii) the lower of (A) the Purchase Price
for the Shares or (B) the Fair Market Value of those Award Shares as of the date
of the Termination.  The repurchase price shall be paid in cash.  The Company
may assign this right of repurchase.

 

(b)                     Procedure  The Company or its assignee may choose to
give the Awardee a written notice of exercise of its repurchase rights under
this Section 16.2.  However, the Company’s failure to give such a notice shall
not affect its rights to repurchase Award Shares.  The Company must, however,
tender the repurchase price during the period specified in this Section 16.2 for
exercising its repurchase rights in order to exercise such rights.

 

17.          Beneficiaries

 

An Awardee may file a written designation of one or more beneficiaries who are
to receive the Awardee’s rights under the Awardee’s Awards after the Awardee’s
death.  An Awardee may change such a designation at any time by written notice. 
If an Awardee designates a beneficiary, the beneficiary may exercise the
Awardee’s Awards after the Awardee’s death.  If an Awardee dies when the Awardee
has no living beneficiary designated under this Plan, the Company shall allow
the executor or administrator of the Awardee’s estate to exercise the Award or,
if there is none, the person entitled to exercise the Option under the Awardee’s
will or the laws of descent and distribution.  In any case, no Award may be
exercised after its Expiration Date.

 

18.          Miscellaneous

 

18.1                   Governing Law

 

This Plan, the Award Agreements and all other agreements entered into under this
Plan, and all actions taken under this Plan or in connection with Awards or
Award Shares, shall be governed by the laws of the State of Delaware.

 

18.2                   Determination of Value

 

Fair Market Value shall be determined as follows:

 

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(a)                     Listed Stock.  If the Shares are traded on any
established stock exchange or quoted on a national market system, Fair Market
Value shall be the closing sales price for the Shares as quoted on that stock
exchange or system for the date the value is to be determined (the “ Value Date 
“) as reported in   The Wall Street Journal   or a similar publication.  If no
sales are reported as having occurred on the Value Date, Fair Market Value shall
be that closing sales price for the last preceding trading day on which sales of
Shares are reported as having occurred.  If no sales are reported as having
occurred during the five trading days before the Value Date, Fair Market Value
shall be the closing bid for Shares on the Value Date.  If Shares are listed on
multiple exchanges or systems, Fair Market Value shall be based on sales or bid
prices on the primary exchange or system on which Shares are traded or quoted.

 

(b)                     Stock Quoted by Securities Dealer  If Shares are
regularly quoted by a recognized securities dealer but selling prices are not
reported on any established stock exchange or quoted on a national market
system, Fair Market Value shall be the mean between the high bid and low asked
prices on the Value Date.  If no prices are quoted for the Value Date, Fair
Market Value shall be the mean between the high bid and low asked prices on the
last preceding trading day on which any bid and asked prices were quoted.

 

(c)                      No Established Market  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 Administrator (following
guidelines established by the Board or Committee) will determine Fair Market
Value in good faith.  The Administrator will consider the following factors, and
any others it considers significant, in determining Fair Market Value: (i) the
price at which other securities of the Company have been issued to purchasers
other than Employees, Directors, or Consultants, (ii) the Company’s
stockholder’s equity, prospective earning power, dividend-paying capacity, and
non-operating assets, if any, and (iii) any other relevant factors, including
the economic outlook for the Company and the Company’s industry, the Company’s
position in that industry, the Company’s goodwill and other intellectual
property, and the values of securities of other businesses in the same industry.

 

18.3                   Reservation of Shares

 

During the term of this Plan, the Company shall at all times reserve and keep
available such number of Shares as are still issuable under this Plan.

 

18.4                   Electronic Communications

 

Any Award Agreement, notice of exercise of an Award, or other document required
or permitted by this Plan may be delivered in writing or, to the extent
determined by the Administrator, electronically.  Signatures may also be
electronic if permitted by the Administrator.

 

18.5                   Notices

 

Unless the Administrator specifies otherwise, any notice to the Company under
any Option Agreement or with respect to any Awards or Award Shares shall be in
writing (or, if so authorized by Section 18.4, communicated electronically),
shall be addressed to the Secretary of the Company, and shall only be effective
when received by the Secretary of the Company.

 

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Amendment to

2003 Equity Incentive Plan

of DTS, Inc.

 

Notwithstanding the provisions of Section 11 of the 2003 Equity Incentive Plan
(the “Plan”) of DTS, Inc. (the “Company”), the Plan was amended on May 9, 2005
to provide as follows:

 

Any automatic option grant to newly elected or appointed non-employee directors
under the Plan made during the period from May 19, 2005 to December 31, 2005
shall consist of an option to purchase 30,000 shares of the Company’s common
stock, vesting monthly over a three year period starting on the date of the
grant.

 

Any annual automatic option grant to non-employee directors under the Plan made
during the period from May 19, 2005 to December 31, 2005 shall consist of an
option to purchase 10,000 shares of the Company’s common stock, vesting monthly
over a one year period starting on the date of the grant, provided that such
individual has served as a non-employee director for at least 6 months.

 

Any automatic option grant to newly elected or appointed non-employee directors
under the Plan made at any time on or after January 1, 2006 shall consist of an
option to purchase 15,000 shares of the Company’s common stock, vesting monthly
over a three year period starting on the date of the grant.

 

Any annual automatic option grant to non-employee directors under the Plan made
at any time on or after January 1, 2006 shall consist of an option to purchase
5,000 shares of the Company’s common stock, vesting monthly over a one year
period starting on the date of the grant, provided that such individual has
served as a non-employee director for at least 6 months.

 

Each non-employee director first elected or appointed to the Board at any time
on or after January 1, 2006 shall automatically be granted on the date of such
initial election or appointment, 7,500 shares of restricted stock under the
Plan, which shall vest over a period of three years in equal installments at the
end of each full month from the date of the grant for so long as the
non-employee director continuously remains a director of, or a consultant to,
the Company.

 

On the date of each annual stockholders’ meeting held on or after January 1,
2006, each individual who is to continue to serve as a non-employee director
shall automatically be granted 2,500 shares of restricted stock under the Plan,
provided that such individual has served as a non-employee director for at least
6 months.  Such restricted stock shall vest over a period of one year in equal
installments at the end of each full month from the date of grant for so long as
the non-employee director continuously remains a director of, or a consultant
to, the Company.

 

None of the above-referenced compensation shall be paid to any member of the
Board (or committees thereof) who is an employee of the Company.

 

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Amendment to

2003 Equity Incentive Plan

of DTS, Inc.

 

The 2003 Equity Incentive Plan of DTS, Inc., as amended on May 9, 2005, was
further amended on May 15, 2008, by adding a new Section 5.2(c). The new
Section 5.2(c) reads in its entirety as follows:

 

(c)                                  Cash Awards.  Subject to the provisions of
this Section 5.2, so long as the Company is a “publicly held corporation” within
the meaning of Code Section 162(m), no Employee may be granted one or more Cash
Awards within a single fiscal year of the Company having an aggregate amount of
more than $3,000,000, considered without regard to any number of Options, SARs
or Stock Awards that may have been granted or awarded to such Employee during
the applicable fiscal year. With respect to any Cash Award that is granted with
the intent of having it qualify as “qualified performance-based compensation”
under Code Section 162(m), such Cash Awards may be granted to an Executive only
by the Committee (and, notwithstanding anything to the contrary in
Section 4.1(a), not by the Board). Any Cash Award intended as “qualified
performance-based compensation” within the meaning of Section 162(m) of the Code
must be awarded, vest or become exercisable contingent on the achievement of one
or more Objectively Determinable Performance Conditions. If a Cash Award is
cancelled, the cancelled Cash Award shall continue to be counted toward the
foregoing limitation.

 

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Amendment to

2003 Equity Incentive Plan

of DTS, Inc.

 

Notwithstanding the provisions of Section 11 of the 2003 Equity Incentive Plan
(the “Plan”) of DTS, Inc., as previously amended on May 9, 2005 and May 15,
2008, on February 19, 2009 Section 11 of the Plan was further amended to provide
as follows:

 

Any annual automatic option grant to non-employee directors under the Plan made
at any time after February 19, 2009 shall consist of an option to purchase 7,500
shares of the Company’s common stock, vesting monthly over a one year period
starting on the date of the grant, provided that such individual has served as a
non-employee director for at least 6 months.

 

Each non-employee director first elected or appointed to the Board at any time
after February 19, 2009 shall automatically be granted on the date of such
initial election or appointment, 5,000 shares of restricted stock under the
Plan, which shall vest over a period of three years in equal installments on
each annual anniversary of the date of grant for so long as the non-employee
director continuously remains a director of, or a consultant to, the Company.

 

Each restricted stock award automatically granted to a non-employee director on
the date of each annual stockholders’ meeting shall vest in a single installment
on the one-year anniversary of the date of grant so long as the non-employee
director continuously remains a director of, or a consultant to, the Company.

 

Except as set forth above, the terms and conditions of Section 11 of the Plan,
as amended on May 9, 2005, shall remain in effect.

 

The above-referenced equity compensation shall not be paid to any member of the
Board (or committees thereof) who is an employee of the Company.

 

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Amendment to

2003 Equity Incentive Plan

of DTS, Inc.

 

The 2003 Equity Incentive Plan of DTS, Inc., as amended on May 9, 2005, May 15,
2008 and February 19, 2009 (as amended, the “Plan”), was further amended on
February 15, 2010 to provide as follows:

 

1.  Section 2.1(d) shall be amended in its entirety to read as follows:

 

(d)       “Award” means a Stock Award, SAR, Cash Award, Option, or Restricted
Stock Unit granted in accordance with the terms of this Plan.

 

2.  Section 2.1 shall be amended by the addition of a new Section 2.11(vv) as
follows:

 

(vv)     “Restricted Stock Unit” means a right granted to a Participant pursuant
to Section 8.4 to receive on a future date a Share.

 

3.  Section 8 of the Plan shall be amended by the addition of a new Section 8.4
as follows:

 

8.4           The following rules apply to Restricted Stock Units Awards:

 

Restricted Stock Units may be granted under this Plan.  Restricted Stock Unit
Awards shall be evidenced by Award Agreements specifying the number of
Restricted Stock Units subject to the Award, in such form as the Administrator
shall from time to time establish.  Award Agreements evidencing Restricted Stock
Units may incorporate all or any of the terms of the Plan by reference and shall
comply with and be subject to the following terms and conditions:

 

(a)          Grant of Restricted Stock Unit Awards

 

Restricted Stock Unit Awards may be granted upon such conditions as the
Administrator shall determine, including, without limitation, upon the
attainment of one or more Objectively Determinable Performance Conditions.

 

(b)         Purchase Price

 

No monetary payment (other than applicable tax withholding, if any) shall be
required as a condition of receiving a Restricted Stock Unit Award, the
consideration for which shall be services actually rendered to the Company or an
Affiliate.  Notwithstanding the foregoing, if required by applicable state
corporate law, the Participant shall furnish consideration in the form of cash
or past services having a value not less than the par value of the Shares issued
upon settlement of the Restricted Stock Unit Award.

 

(c)          Vesting

 

Restricted Stock Unit Awards may (but need not) be made subject to vesting
conditions based upon the satisfaction of such service requirements, conditions,
restrictions or performance criteria set forth in the Award Agreement evidencing
such Award.

 

(d)         Voting Rights, Dividend Equivalent Rights and Distributions

 

Participants shall have no voting rights with respect to Shares represented by
Restricted Stock Units until the date of the issuance of such Shares (as
evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company).  However, the Award Agreement
evidencing any Restricted Stock Unit Award may provide that the Participant
shall be entitled to dividend equivalent rights with respect to the payment of
cash dividends on Shares during the period beginning on the date such Award is
granted and ending, with respect to each Share subject to the Award, on the
earlier of the date the Award is settled or the date on which it is terminated. 
Such

 

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dividend equivalent rights, if any, shall be paid by crediting the Participant
with additional whole Restricted Stock Units as of the date of payment of such
cash dividends on Shares.  The number of additional Restricted Stock Units
(rounded to the nearest whole number) to be so credited shall be determined by
dividing (i) the amount of cash dividends paid on such date with respect to the
number of Shares represented by the Restricted Stock Units previously credited
to the Participant by (ii) the Fair Market Value per Share on such date.  Such
additional Restricted Stock Units shall be subject to the same terms and
conditions and shall be settled in the same manner and at the same time as the
Restricted Stock Units originally subject to the Restricted Stock Unit Award. 
In the event of a dividend or distribution paid in Shares or other property or
any other adjustment made upon a change in the capital structure of the Company
as described in Section 10.2, appropriate adjustments shall be made in the
Participant’s Restricted Stock Unit Award so that it represents the right to
receive upon settlement any and all new, substituted or additional securities or
other property (other than regular, periodic cash dividends) to which the
Participant would be entitled by reason of the Shares issuable upon settlement
of the Award, and all such new, substituted or additional securities or other
property shall be immediately subject to the same vesting conditions as are
applicable to the Award.

 

(e)          Effect of Termination of Service

 

Unless otherwise set forth in the Award Agreement evidencing a Restricted Stock
Unit Award, if a Participant’s service terminates for any reason, whether
voluntary or involuntary (including the Participant’s death or disability), then
the Participant shall forfeit to the Company any Restricted Stock Units pursuant
to the Award which remain subject to vesting conditions as of the date of the
Participant’s termination of service.

 

(f)            Settlement of Restricted Stock Unit Awards

 

The Company shall issue to a Participant on the date on which Restricted Stock
Units subject to the Participant’s Restricted Stock Unit Award vest or on such
other date set forth in the Award Agreement one (1) Share (and/or any other new,
substituted or additional securities or other property pursuant to an adjustment
described above) for each Restricted Stock Unit then becoming vested or
otherwise to be settled on such date, subject to the withholding of applicable
taxes, if any.  If permitted by the Administrator, the Participant may elect,
consistent with the requirements of Section 409A of the Code, to defer receipt
of all or any portion of the Shares or other property otherwise issuable to the
Participant, and such deferred issuance date(s) and amount(s) elected by the
Participant shall be set forth in the Award Agreement.

 

(g)         Nontransferability of Restricted Stock Unit Awards

 

The right to receive Shares pursuant to a Restricted Stock Unit Award shall not
be subject in any manner to anticipation, alienation, sale, exchange, transfer,
assignment, pledge, encumbrance, or garnishment by creditors of the Participant
or the Participant’s beneficiary, except transfer by will or by the laws of
descent and distribution.  All rights with respect to a Restricted Stock Unit
Award granted to a Participant hereunder shall be exercisable during his or her
lifetime only by such Participant or the Participant’s guardian or legal
representative.

 

Except as set forth above, the terms and conditions of the Plan, as
amended hereby, shall remain in effect.

 

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