Exhibit 10.1

 

CERADYNE, INC.

2003 STOCK INCENTIVE PLAN

AS

AMENDED AND RESTATED

As of April 11, 2005

 

The 2003 STOCK INCENTIVE PLAN (the “Plan”) of Ceradyne, Inc., a Delaware
corporation (the “Company”), originally adopted by its Board of Directors (the
“Board”) as of April 16, 2003 (the “Effective Date”), is hereby amended and
restated as of April 11, 2005.

 

ARTICLE 1.

 

PURPOSES OF THE PLAN

 

1.1 Purposes. The purposes of the Plan are (a) to enhance the Company’s ability
to attract and retain the services of qualified employees, officers, directors,
consultants and other service providers upon whose judgment, initiative and
efforts the successful conduct and development of the Company’s business largely
depends, and (b) to provide additional incentives to such persons or entities to
devote their utmost effort and skill to the advancement and betterment of the
Company, by providing them an opportunity to participate in the ownership of the
Company and thereby have an interest in the success and increased value of the
Company.

 

ARTICLE 2.

 

DEFINITIONS

 

For purposes of this Plan, the following terms shall have the meanings
indicated:

 

2.1 Administrator. “Administrator” means the Board or, if the Board delegates
responsibility for any matter to the Committee, the term Administrator shall
mean the Committee.

 

2.2 Affiliated Company. “Affiliated Company” means:

 

(a) with respect to Incentive Options, any “parent corporation” or “subsidiary
corporation” of the Company, whether now existing or hereafter created or
acquired, as those terms are defined in Sections 424(e) and 424(f) of the Code,
respectively; and

 

(b) with respect to Nonqualified Options and Restricted Stock Awards, any entity
described in paragraph (a) of this Section 2.2 above, plus any other
corporation, limited liability company (“LLC”), partnership or joint venture,
whether now existing or hereafter created or acquired, with respect to which the
Company beneficially owns more than fifty percent (50%) of: (1) the total
combined voting power of all outstanding voting securities or (2) the capital or
profits interests of an LLC, partnership or joint venture.

 

2.3 Board. “Board” means the Board of Directors of the Company.

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2.4 Change in Control. “Change in Control” shall mean:

 

(a) The acquisition, directly or indirectly, in one transaction or a series of
related transactions, by any person or group (within the meaning of Section
13(d)(3) of the Securities Exchange Act of 1934, as amended) of the beneficial
ownership of securities of the Company possessing more than fifty percent (50%)
of the total combined voting power of all outstanding securities of the Company;

 

(b) A merger or consolidation in which the Company is not the surviving entity,
except for a transaction in which the holders of the outstanding voting
securities of the Company immediately prior to such merger or consolidation hold
as a result of holding Company securities prior to such transaction, in the
aggregate, securities possessing more than fifty percent (50%) of the total
combined voting power of all outstanding voting securities of the surviving
entity (or the parent of the surviving entity) immediately after such merger or
consolidation;

 

(c) A reverse merger in which the Company is the surviving entity but in which
the holders of the outstanding voting securities of the Company immediately
prior to such merger hold, in the aggregate, securities possessing less than
fifty percent (50%) of the total combined voting power of all outstanding voting
securities of the Company or of the acquiring entity immediately after such
merger;

 

(d) The sale, transfer or other disposition (in one transaction or a series of
related transactions) of all or substantially all of the assets of the Company,
except for a transaction in which the holders of the outstanding voting
securities of the Company immediately prior to such transaction(s) receive as a
distribution with respect to securities of the Company, in the aggregate,
securities possessing more than fifty percent (50%) of the total combined voting
power of all outstanding voting securities of the acquiring entity immediately
after such transaction(s); or

 

(e) The approval by the stockholders of a plan or proposal for the liquidation
or dissolution of the Company.

 

2.5 Code. “Code” means the Internal Revenue Code of 1986, as amended from time
to time.

 

2.6 Committee. “Committee” means a committee of two or more members of the Board
appointed to administer the Plan, as set forth in Section 8.1 hereof.

 

2.7 Common Stock. “Common Stock” means the Common Stock of the Company, subject
to adjustment pursuant to Section 4.2 hereof.

 

2.8 Company. “Company” means Ceradyne, Inc., a Delaware corporation, or any
entity that is a successor to the Company.

 

2.9 Covered Employee. “Covered Employee” means the Chief Executive Officer of
the Company (or the individual acting in a similar capacity) and the four (4)
other individuals that are the highest compensated executive officers of the
Company for the relevant taxable year for whom total compensation is required to
be reported to shareholders under the Exchange Act.

 

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2.10 Disability. “Disability” means permanent and total disability as defined in
Section 22(e)(3) of the Code. The Administrator’s determination of a Disability
or the absence thereof shall be conclusive and binding on all interested
parties.

 

2.11 Dividend Equivalent. “Dividend Equivalent” means a right to receive
payments equivalent to the amount of dividends paid by the Company to holders of
shares of Common Stock with respect to the number of Dividend Equivalents held
by the Participant. The Dividend Equivalent may provide for payment in Common
Stock or in cash, or a fixed combination of Common Stock or cash, or the
Committee may reserve the right to determine the manner of payment at the time
the Dividend Equivalent is payable. Dividend Equivalents may be granted only in
connection with a grant of Restricted Stock Units and shall be subject to the
vesting conditions that govern Restricted Stock Units as set forth in the
applicable Restricted Stock Award Agreement.

 

2.12 Effective Date. “Effective Date” means the date on which the Plan was
originally adopted by the Board, as set forth on the first page hereof.

 

2.13 Exchange Act. “Exchange Act” means the Securities and Exchange Act of 1934,
as amended.

 

2.14 Exercise Price. “Exercise Price” means the purchase price per share of
Common Stock payable upon exercise of an Option.

 

2.15 Fair Market Value. “Fair Market Value” on any given date means the value of
one share of Common Stock, determined as follows:

 

(a) If the Common Stock is then listed or admitted to trading on a Nasdaq market
system or a stock exchange which reports closing sale prices, the Fair Market
Value shall be the closing sale price on the date of valuation on such Nasdaq
market system or principal stock exchange on which the Common Stock is then
listed or admitted to trading, or, if no closing sale price is quoted on such
day, then the Fair Market Value shall be the closing sale price of the Common
Stock on such Nasdaq market system or such exchange on the next preceding day on
which a closing sale price is reported.

 

(b) If the Common Stock is not then listed or admitted to trading on a Nasdaq
market system or a stock exchange which reports closing sale prices, the Fair
Market Value shall be the average of the closing bid and asked prices of the
Common Stock in the over-the-counter market on the date of valuation.

 

(c) If neither (a) nor (b) is applicable as of the date of valuation, then the
Fair Market Value shall be determined by the Administrator in good faith using
any reasonable method of evaluation, which determination shall be conclusive and
binding on all interested parties.

 

2.16 Incentive Option. “Incentive Option” means any Option designated and
qualified as an “incentive stock option” as defined in Section 422 of the Code.

 

2.17 Incentive Option Agreement. “Incentive Option Agreement” means an Option
Agreement with respect to an Incentive Option.

 

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2.18 NASD Dealer. “NASD Dealer” means a broker-dealer that is a member of the
National Association of Securities Dealers, Inc.

 

2.19 Nonqualified Option. “Nonqualified Option” means any Option that is not an
Incentive Option. To the extent that any Option designated as an Incentive
Option fails in whole or in part to qualify as an Incentive Option, including,
without limitation, for failure to meet the limitations applicable to a 10%
Stockholder or because it exceeds the annual limit provided for in Section 5.5
below, it shall to that extent constitute a Nonqualified Option.

 

2.20 Nonqualified Option Agreement. “Nonqualified Option Agreement” means an
Option Agreement with respect to a Nonqualified Option.

 

2.21 Option. “Option” means any option to purchase Common Stock granted pursuant
to the Plan.

 

2.22 Option Agreement. “Option Agreement” means the written agreement entered
into between the Company and the Optionee with respect to an Option granted
under the Plan.

 

2.23 Optionee. “Optionee” means any Participant who holds an Option.

 

2.24 Participant. “Participant” means an individual or entity that holds an
Option, shares of Restricted Stock, or Restricted Stock Units or Dividend
Equivalents under the Plan.

 

2.25 Performance Criteria. “Performance Criteria” means one or more of the
following as established by the Committee, which may be stated as a target
percentage or dollar amount, a percentage increase over a base period percentage
or dollar amount or the occurrence of a specific event or events:

 

(a) Sales;

 

(b) Operating income;

 

(c) Pre-tax income;

 

(d) Earnings before interest, taxes, depreciation and amortization (“EBITDA”);

 

(e) Earnings per common share on a fully diluted basis (“EPS”);

 

(f) Consolidated net income of the Company divided by the average consolidated
common stockholders equity (“ROE”);

 

   (g)  Cash and cash equivalents derived from either (i) net cash flow from
operations, or (ii) net cash flow from operations, financings and investing
activities (“Cash Flow”);

 

(h) Adjusted operating cash flow return on income;

 

(i) Cost containment or reduction;

 

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(j) The percentage increase in the market price of the Company’s common stock
over a stated period; and

 

(k) Individual business objectives.

 

2.26 Purchase Price. “Purchase Price” means the purchase price payable to
purchase a share of Restricted Stock, or a Restricted Stock Unit, which, in the
sole discretion of the Administrator, may be zero (0), subject to limitations
under applicable law.

 

2.27 Repurchase Right. “Repurchase Right” means the right of the Company to
repurchase either unvested shares of Restricted Stock pursuant to Section 6.6 or
to cancel unvested Restricted Stock Units pursuant to Section 7.6.

 

2.28 Restricted Stock. “Restricted Stock” means shares of Common Stock issued
pursuant to Article 6 hereof, subject to any restrictions and conditions as are
established pursuant to such Article 6.

 

2.29 Restricted Stock Award. “Restricted Stock Award” means either the issuance
of Restricted Stock or the grant of Restricted Stock Units or Dividend
Equivalents under the Plan.

 

2.30 Restricted Stock Award Agreement. “Restricted Stock Award Agreement” means
the written agreement entered into between the Company and a Participant
evidencing the issuance of Restricted Stock or the grant of Restricted Stock
Units or Dividend Equivalents under the Plan.

 

2.31 Restricted Stock Unit. “Restricted Stock Unit” means the right to receive
one share of Common Stock issued pursuant to Article 7 hereof, subject to any
restrictions and conditions as are established pursuant to such Article 7.

 

2.32 Service Provider. “Service Provider” means a consultant or other person or
entity the Administrator authorizes to become a Participant in the Plan and who
provides services to (i) the Company, (ii) an Affiliated Company, or (iii) any
other business venture designated by the Administrator in which the Company or
an Affiliated Company has a significant ownership interest.

 

2.33 10% Stockholder. “10% Stockholder” means a person who, as of a relevant
date, owns or is deemed to own (by reason of the attribution rules applicable
under Section 424(d) of the Code) stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company or of an Affiliated
Company.

 

ARTICLE 3.

 

ELIGIBILITY

 

3.1 Incentive Options. Only employees of the Company or of an Affiliated Company
(including members of the Board if they are employees of the Company or of an
Affiliated Company) are eligible to receive Incentive Options under the Plan.

 

3.2 Nonqualified Options and Restricted Stock Awards. Employees of the Company
or of an Affiliated Company, members of the Board (whether or not employed by
the Company or an Affiliated Company), and Service Providers are eligible to
receive Nonqualified Options or Restricted Stock Awards under the Plan.

 

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3.3 Section 162(m) Limitation. In no event shall any Participant be granted
Options in any one calendar year pursuant to which the aggregate number of
shares of Common Stock that may be acquired thereunder exceeds two hundred fifty
thousand (250,000) shares, subject to adjustment as to the number and kind of
shares pursuant to Section 4.2 hereof. In no event shall any Participant be
granted Restricted Stock Awards in any one calendar year pursuant to which the
aggregate number of shares of Common Stock governed by such Restricted Stock
Awards exceeds one hundred thousand (100,000), subject to adjustment as to the
number and kind of shares pursuant to Section 4.2 hereof.

 

ARTICLE 4.

 

PLAN SHARES

 

4.1 Shares Subject to the Plan.

 

(a) The number of shares of Common Stock that may be issued under the Plan shall
be one million one hundred twenty-five thousand (1,125,000)1 shares, subject to
adjustment as to the number and kind of shares pursuant to Section 4.2 hereof.
For purposes of this limitation, in the event that (a) all or any portion of any
Option granted under the Plan can no longer under any circumstances be
exercised, or (b) any shares of Common Stock are reacquired by the Company
pursuant to an Option Agreement or Restricted Stock Award Agreement, the shares
of Common Stock allocable to the unexercised portion of such Option or the
shares so reacquired shall again be available for grant or issuance under the
Plan.

 

(b) The maximum number of shares of Common Stock that may be issued under the
Plan as Incentive Options shall be one million one hundred twenty-five thousand
(1,125,000)1 shares, subject to adjustment as to the number and kind of shares
pursuant to Section 4.2 hereof.

 

4.2 Changes in Capital Structure. In the event that the outstanding shares of
Common Stock are hereafter increased or decreased or changed into or exchanged
for a different number or kind of shares or other securities of the Company by
reason of a recapitalization, stock split, reverse stock split,
reclassification, stock dividend, or other change in the capital structure of
the Company, then appropriate adjustments shall be made by the Administrator to
the aggregate number and kind of shares subject to this Plan, the number and
kind of shares and the price per share subject to outstanding Option Agreements
and Restricted Stock Award Agreements and the limit on the number of shares
under Section 3.3, all in order to preserve, as nearly as practical, but not to
increase, the benefits to Participants.

 

ARTICLE 5.

 

OPTIONS

 

5.1 Grant of Stock Options. The Administrator shall have the right to grant
pursuant to this Plan, Options subject to such terms, restrictions and
conditions as the Administrator may

 

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1 As adjusted for the 3-for-2 stock splits in the form of 50% stock dividends
issued in April 2004 and January 2005.

 

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determine at the time of grant. Such conditions may include, but are not limited
to, continued employment or the achievement of specified performance goals or
objectives established by the Committee with respect to one or more Performance
Criteria.

 

5.2 Option Agreements. Each Option granted pursuant to this Plan shall be
evidenced by an Option Agreement which shall specify the number of shares
subject thereto, vesting provisions relating to such Option, the Exercise Price
per share, and whether the Option is an Incentive Option or Nonqualified Option.
As soon as is practical following the grant of an Option, an Option Agreement
shall be duly executed and delivered by or on behalf of the Company to the
Optionee to whom such Option was granted. Each Option Agreement shall be in such
form and contain such additional terms and conditions, not inconsistent with the
provisions of this Plan, as the Administrator shall, from time to time, deem
desirable.

 

5.3 Exercise Price. The Exercise Price per share of Common Stock covered by each
Option shall be determined by the Administrator, subject to the following: (a)
the Exercise Price of an Incentive Option shall not be less than 100% of Fair
Market Value on the date the Incentive Option is granted, (b) the Exercise Price
of a Nonqualified Option shall not be less than 100% of Fair Market Value on the
date the Nonqualified Option is granted, and (c) if the person to whom an
Incentive Option is granted is a 10% Stockholder on the date of grant, the
Exercise Price shall not be less than 110% of Fair Market Value on the date the
Incentive Option is granted. However, an Option may be granted with an exercise
price lower than that set forth in the preceding sentence if such Option is
granted pursuant to an assumption or substitution for another option in a manner
satisfying the provisions of Section 424 of the Code.

 

5.4 Payment of Exercise Price. Payment of the Exercise Price shall be made upon
exercise of an Option and may be made, in the discretion of the Administrator,
subject to any legal restrictions, by: (a) cash; (b) check; (c) the surrender of
shares of Common Stock owned by the Optionee (provided that shares acquired
pursuant to the exercise of options granted by the Company must have been held
by the Optionee for the requisite period necessary to avoid a charge to the
Company’s earnings for financial reporting purposes), which surrendered shares
shall be valued at Fair Market Value as of the date of such exercise; (d) the
cancellation of indebtedness of the Company to the Optionee; (e) the waiver of
compensation due or accrued to the Optionee for services rendered; (f) provided
that a public market for the Common Stock exists, a “same day sale” commitment
from the Optionee and an NASD Dealer whereby the Optionee irrevocably elects to
exercise the Option and to sell a portion of the shares so purchased to pay for
the Exercise Price and whereby the NASD Dealer irrevocably commits upon receipt
of such shares to forward the Exercise Price directly to the Company; (g)
provided that a public market for the Common Stock exists, a “margin” commitment
from the Optionee and an NASD Dealer whereby the Optionee irrevocably elects to
exercise the Option and to pledge the shares so purchased to the NASD Dealer in
a margin account as security for a loan from the NASD Dealer in the amount of
the Exercise Price, and whereby the NASD Dealer irrevocably commits upon receipt
of such shares to forward the Exercise Price directly to the Company; or (h) any
combination of the foregoing methods of payment or any other consideration or
method of payment as shall be permitted by applicable law.

 

5.5 Term and Termination of Options. The term and provisions for termination of
each Option shall be as fixed by the Administrator, but no Option may be
exercisable more than ten (10) years after the date it is granted. An Incentive
Option granted to a person who is a 10% Stockholder on the date of grant shall
not be exercisable more than five (5) years after the date it is granted.

 

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5.6 Vesting and Exercise of Options. Each Option shall vest and become
exercisable in one or more installments at such time or times and subject to
such conditions, including without limitation the achievement of specified
performance goals or objectives established with respect to one or more
Performance Criteria, as shall be determined by the Administrator.

 

5.7 Annual Limit on Incentive Options. To the extent required for “incentive
stock option” treatment under Section 422 of the Code, the aggregate Fair Market
Value (determined as of the time of grant) of the Common Stock with respect to
which Incentive Options granted under this Plan and any other plan of the
Company or any Affiliated Company become exercisable for the first time by an
Optionee during any calendar year shall not exceed $100,000.

 

5.8 Nontransferability of Options. Except as otherwise provided in this Section
5.8, Options shall not be assignable or transferable except by will, the laws of
descent and distribution or pursuant a domestic relations order entered by a
court in settlement of marital property rights, and during the life of the
Optionee, Options shall be exercisable only by the Optionee. At the discretion
of the Committee and in accordance with rules it establishes from time to time,
Optionees may be permitted to transfer some or all of their Nonqualified Options
to one or more “family members,” which is not a “prohibited transfer for value,”
provided that (i) the Optionee (or such Optionee’s estate or representative)
shall remain obligated to satisfy all income or other tax withholding
obligations associated with the exercise of such Nonqualified Option; (ii) the
Optionee shall notify the Company in writing that such transfer has occurred and
disclose to the Company the name and address of the “family member” or “family
members” and their relationship to the Optionee, and (iii) such transfer shall
be effected pursuant to transfer documents in a form approved by the Committee.
For purposes of the foregoing, the terms “family members” and “prohibited
transfer for value” have the meaning ascribed to them in the General
Instructions to form S-8 (or any successor form) promulgated under the
Securities Act of 1933, as amended.

 

5.9 Rights as a Stockholder. An Optionee or permitted transferee of an Option
shall have no rights or privileges as a stockholder with respect to any shares
covered by an Option until such Option has been duly exercised and certificates
representing shares purchased upon such exercise have been issued to such
person.

 

ARTICLE 6.

 

RESTRICTED STOCK

 

6.1 Issuance of Restricted Stock. The Administrator shall have the right to
issue pursuant to this Plan, at a Purchase Price determined by the
Administrator, shares of Common Stock subject to such terms, restrictions and
conditions as the Administrator may determine at the time of grant. Such
conditions may include, but are not limited to, continued employment or the
achievement of specified performance goals or objectives established by the
Committee with respect to one or more Performance Criteria, which require the
Committee to certify in writing whether and the extent to which such performance
goals were achieved before such restrictions are considered to have lapsed.

 

6.2 Restricted Stock Agreements. A Participant shall have no rights with respect
to the shares of Restricted Stock covered by a Restricted Stock Award Agreement
until the Participant has paid the full Purchase Price, if any, to the Company
in the manner set forth in Section 6.3(b) hereof

 

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and has executed and delivered to the Company the applicable Restricted Stock
Award Agreement. Each Restricted Stock Award Agreement shall be in such form,
and shall set forth the Purchase Price, if any, and such other terms, conditions
and restrictions of the Restricted Stock Award Agreement, not inconsistent with
the provisions of this Plan, as the Administrator shall, from time to time, deem
desirable. Each such Restricted Stock Award Agreement may be different from each
other Restricted Stock Award Agreement.

 

6.3 Purchase Price.

 

(a) Amount. Restricted Stock may be issued to Participants for no consideration
or such minimum consideration as may be required by applicable law.

 

(b) Payment. Payment of the Purchase Price, if any, may be made, in the
discretion of the Administrator, subject to any legal restrictions, by: (a)
cash; (b) check; (c) the surrender of shares of Common Stock owned by the
Participant (provided that shares acquired pursuant to the exercise of options
granted by the Company shall have been held by the Participant for the requisite
period necessary to avoid a charge to the Company’s earnings for financial
reporting purposes), which surrendered shares shall be valued at Fair Market
Value as of the date of such acceptance; (d) the Participant’s full recourse
promissory note in a form and on terms acceptable to the Administrator; (e) the
cancellation of indebtedness of the Company to the Participant; (f) the waiver
of compensation due or accrued to the Participant for services rendered; or (g)
any combination of the foregoing methods of payment or any other consideration
or method of payment as shall be permitted by applicable law. If payment for
shares of Restricted Stock is made by promissory note, any cash dividends paid
with respect to the Restricted Stock may be applied, in the discretion of the
Administrator, to repayment of such note.

 

6.4 Vesting of Restricted Stock. The Restricted Stock Award Agreement shall
specify the date or dates, the performance goals, if any, established by the
Committee with respect to one or more Performance Criteria that must be
achieved, and any other conditions on which the Restricted Stock may vest.

 

6.5 Rights as a Stockholder. Upon complying with the provisions of Section 6.2
hereof, a Participant shall have the rights of a stockholder with respect to the
Restricted Stock acquired pursuant to a Restricted Stock Award Agreement,
including voting and dividend rights, subject to the terms, restrictions and
conditions as are set forth in such Restricted Stock Award Agreement. Unless the
Administrator shall determine otherwise, certificates evidencing shares of
Restricted Stock shall remain in the possession of the Company until such shares
have vested in accordance with the terms of the Restricted Stock Award
Agreement.

 

6.6 Restrictions. Shares of Restricted Stock may not be sold, pledged or
otherwise encumbered or disposed of and shall not be assignable or transferable
except by will, the laws of descent and distribution or pursuant a domestic
relations order entered by a court in settlement of marital property rights,
except as specifically provided in the Restricted Stock Award Agreement or as
authorized by the Administrator. In the event of termination of a Participant’s
employment, service as a director of the Company or Service Provider status for
any reason whatsoever (including death or disability), the Restricted Stock
Award Agreement may provide, in the discretion of the Administrator, that the
Company may, at the discretion of the Administrator, exercise a Repurchase Right
to repurchase at the original Purchase Price the shares of Restricted Stock that
have not vested as of the date of termination.

 

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ARTICLE 7.

 

RESTRICTED STOCK UNITS

 

7.1 Grants of Restricted Stock Units and Dividend Equivalents. The Administrator
shall have the right to grant pursuant to this Plan, Restricted Stock Units and
Dividend Equivalents, subject to such terms, restrictions and conditions as the
Administrator may determine at the time of grant. Such conditions may include,
but are not limited to, continued employment or the achievement of specified
performance goals or objectives established by the Committee with respect to one
or more Performance Criteria, which require the Committee to certify in writing
whether and the extent to which such performance goals were achieved before such
restrictions are considered to have lapsed.

 

7.2 Restricted Stock Unit Agreements. A Participant shall have no rights with
respect to the Restricted Stock Units or Dividend Equivalents covered by a
Restricted Stock Award Agreement until the Participant has executed and
delivered to the Company the applicable Restricted Stock Award Agreement. Each
Restricted Stock Award Agreement shall be in such form, and shall set forth the
Purchase Price, if any, and such other terms, conditions and restrictions of the
Restricted Stock Award Agreement, not inconsistent with the provisions of this
Plan, as the Administrator shall, from time to time, deem desirable. Each such
Restricted Stock Award Agreement may be different from each other Restricted
Stock Award Agreement.

 

7.3 Purchase Price.

 

(a) Amount. Restricted Stock Units may be issued to Participants for no
consideration or such minimum consideration as may be required by applicable
law.

 

(b) Payment. Payment of the Purchase Price, if any, may be made, in the
discretion of the Administrator, subject to any legal restrictions, by: (a)
cash; (b) check; (c) the surrender of shares of Common Stock owned by the
Participant (provided that shares acquired pursuant to the exercise of options
granted by the Company shall have been held by the Participant for the requisite
period necessary to avoid a charge to the Company’s earnings for financial
reporting purposes), which surrendered shares shall be valued at Fair Market
Value as of the date of such acceptance; (d) the Participant’s full recourse
promissory note in a form and on terms acceptable to the Administrator; (e) the
cancellation of indebtedness of the Company to the Participant; (f) the waiver
of compensation due or accrued to the Participant for services rendered; or (g)
any combination of the foregoing methods of payment or any other consideration
or method of payment as shall be permitted by applicable law.

 

7.4 Vesting of Restricted Stock Units and Dividend Equivalents. The Restricted
Stock Award Agreement shall specify the date or dates, the performance goals, if
any, established by the Committee with respect to one or more Performance
Criteria that must be achieved, and any other conditions on which the Restricted
Stock Units and Dividend Equivalents may vest.

 

7.5 Rights as a Stockholder. Holders of Restricted Stock Units shall not be
entitled to vote or to receive dividends until they become owners of the shares
of Common Stock pursuant to their Restricted Stock Award Agreement and the terms
and conditions of the Plan.

 

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7.6 Restrictions. Restricted Stock Units and Dividend Equivalents may not be
sold, pledged or otherwise encumbered or disposed of and shall not be assignable
or transferable except by will, the laws of descent and distribution or pursuant
a domestic relations order entered by a court in settlement of marital property
rights, except as specifically provided in the Restricted Stock Award Agreement
or as authorized by the Administrator. In the event of termination of a
Participant’s employment, service as a director of the Company or Service
Provider status for any reason whatsoever (including death or disability), the
Restricted Stock Award Agreement may provide that all Restricted Stock Units and
Dividend Equivalents that have not vested as of such date shall be automatically
forfeited by the Participant. However, if, with respect to such unvested
Restricted Stock Units. the Participant paid a Purchase Price, the
Administrator, shall have the right, exercisable at the discretion of the
Administrator, to exercise a Repurchase Right to cancel such unvested Restricted
Stock Units upon payment to the Participant of the original Purchase Price. The
Participant shall forfeit such unvested Restricted Stock Units upon the
Administrator’s exercise of such right.

 

ARTICLE 8.

 

ADMINISTRATION OF THE PLAN

 

8.1 Administrator. Authority to control and manage the operation and
administration of the Plan shall be vested in the Board, which may delegate such
responsibilities in whole or in part to a committee consisting of two (2) or
more members of the Board (the “Committee”). Members of the Committee may be
appointed from time to time by, and shall serve at the pleasure of, the Board.
The Board may limit the composition of the Committee to those persons necessary
to comply with the requirements of Section 162(m) of the Code and Section 16 of
the Exchange Act. As used herein, the term “Administrator” means the Board or,
with respect to any matter as to which responsibility has been delegated to the
Committee, the term Administrator shall mean the Committee.

 

8.2 Powers of the Administrator. In addition to any other powers or authority
conferred upon the Administrator elsewhere in the Plan or by law, the
Administrator shall have full power and authority: (a) to determine the persons
to whom, and the time or times at which, Incentive Options or Nonqualified
Options or Restricted Stock Awards shall be granted, the number of shares to be
represented by each Option and the number of shares of Common Stock to be
subject to Restricted Stock Awards, and the consideration to be received by the
Company upon the exercise of such Options or sale of the Restricted Stock or the
Restricted Stock Units governed by such Restricted Stock Awards; (b) to
interpret the Plan; (c) to create, amend or rescind rules and regulations
relating to the Plan; (d) to determine the terms, conditions and restrictions
contained in, and the form of, Option Agreements and Restricted Stock Award
Agreements; (e) to determine the identity or capacity of any persons who may be
entitled to exercise a Participant’s rights under any Option or Restricted Stock
Award Agreement under the Plan; (f) to correct any defect or supply any omission
or reconcile any inconsistency in the Plan or in any Option Agreement or
Restricted Stock Award Agreement; (g) to accelerate the vesting of any Option or
release or waive any repurchase rights of the Company with respect to Restricted
Stock Awards; (h) to extend the expiration date of any Option; (i) to amend
outstanding Option Agreements and Restricted Stock Award Agreements to provide
for, among other things, any change or modification which the Administrator
could have included in the original Agreement or in furtherance of the powers
provided for herein; and (j) to make all other determinations necessary or
advisable for the administration of the Plan, but only to

 

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the extent not contrary to the express provisions of the Plan. Any action,
decision, interpretation or determination made in good faith by the
Administrator in the exercise of its authority conferred upon it under the Plan
shall be final and binding on the Company and all Participants. Notwithstanding
any term or provision in this Plan, the Administrator shall not have the power
or authority, by amendment or otherwise to extend the expiration date of an
Incentive Option beyond the tenth (10th) anniversary of the date the Incentive
Option was granted;

 

8.3 Limitation on Liability. No employee of the Company or member of the Board
or Committee shall be subject to any liability with respect to duties under the
Plan unless the person acts fraudulently or in bad faith. To the extent
permitted by law, the Company shall indemnify each member of the Board or
Committee, and any employee of the Company with duties under the Plan, who was
or is a party, or is threatened to be made a party, to any threatened, pending
or completed proceeding, whether civil, criminal, administrative or
investigative, by reason of such person’s conduct in the performance of duties
under the Plan.

 

ARTICLE 9.

 

CHANGE IN CONTROL

 

9.1 Options. In order to preserve a Participant’s rights with respect to any
outstanding Options in the event of a Change in Control of the Company:

 

(a) Vesting of all outstanding Options shall accelerate automatically effective
as of immediately prior to the consummation of the Change in Control unless the
Options are to be assumed by the acquiring or successor entity (or parent
thereof) or new options or New Incentives are to be issued in exchange therefor,
as provided in subsection (b) below.

 

(b) Vesting of outstanding Options shall not accelerate if and to the extent
that: (i) the Options (including the unvested portion thereof) are to be assumed
by the acquiring or successor entity (or parent thereof) or new options of
comparable value are to be issued in exchange therefor pursuant to the terms of
the Change in Control transaction, or (ii) the Options (including the unvested
portion thereof) are to be replaced by the acquiring or successor entity (or
parent thereof) with other incentives of comparable value under a new incentive
program (“New Incentives”) containing such terms and provisions as the
Administrator in its discretion may consider equitable. If outstanding Options
are assumed, or if new options of comparable value are issued in exchange
therefor, then each such Option or new option shall be appropriately adjusted,
concurrently with the Change in Control, to apply to the number and class of
securities or other property that the Optionee would have received pursuant to
the Change in Control transaction in exchange for the shares issuable upon
exercise of the Option had the Option been exercised immediately prior to the
Change in Control, and appropriate adjustment also shall be made to the Exercise
Price such that the aggregate Exercise Price of each such Option or new option
shall remain the same as nearly as practicable.

 

(c) If any Option is assumed by an acquiring or successor entity (or parent
thereof) or a new option of comparable value or New Incentive is issued in
exchange therefor pursuant to the terms of a Change in Control transaction, then
if so provided in an Option Agreement, the vesting of the Option, the new option
or the New Incentive shall accelerate if and at such time as the Optionee’s
service as an employee, director, officer, consultant or other service provider
to the acquiring or successor entity (or a parent or subsidiary thereof) is
terminated involuntarily or

 

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voluntarily under certain circumstances within a specified period following
consummation of the Change in Control, pursuant to such terms and conditions as
shall be set forth in the Option Agreement.

 

(d) If vesting of outstanding Options will accelerate pursuant to subsection (a)
above, the Administrator in its discretion may provide, in connection with the
Change in Control transaction, for the purchase or exchange of each Option for
an amount of cash or other property having a value equal to the difference (or
“spread”) between: (x) the value of the cash or other property that the Optionee
would have received pursuant to the Change in Control transaction in exchange
for the shares issuable upon exercise of the Option had the Option been
exercised immediately prior to the Change in Control, and (y) the Exercise Price
of the Option.

 

(e) The Administrator shall have the discretion to provide in each Option
Agreement other terms and conditions that relate to (i) vesting of such Option
in the event of a Change in Control, and (ii) assumption of such Options or
issuance of comparable securities or New Incentives in the event of a Change in
Control. The aforementioned terms and conditions may vary in each Option
Agreement, and may be different from and have precedence over the provisions set
forth in Sections 9.1(a) - 9.1(d) above.

 

(f) Outstanding Options shall terminate and cease to be exercisable upon
consummation of a Change in Control except to the extent that the Options are
assumed by the successor entity (or parent thereof) pursuant to the terms of the
Change in Control transaction.

 

(g) If outstanding Options will not be assumed by the acquiring or successor
entity (or parent thereof), the Administrator shall cause written notice of a
proposed Change in Control transaction to be given to Optionees not less than
fifteen (15) days prior to the anticipated effective date of the proposed
transaction.

 

9.2 Restricted Stock Awards. In order to preserve a Participant’s rights with
respect to any outstanding Restricted Stock Awards in the event of a Change in
Control of the Company:

 

(a) All Repurchase Rights shall automatically terminate immediately prior to the
consummation of such Change in Control and any shares of Common Stock subject to
such terminated Repurchase Rights, or Restricted Stock Units, whether or not
subject to such terminated Repurchase Rights, and Dividend Equivalents shall
immediately vest in full, except to the extent that in connection with such
Change in Control, the acquiring or successor entity (or parent thereof)
provides for the continuance or assumption of Restricted Stock Award Agreements
or the substitution of new agreements of comparable value covering shares of a
successor corporation, with appropriate adjustments as to the number and kind of
shares and purchase price.

 

(b) The Administrator in its discretion may provide in any Restricted Stock
Award Agreement that if, upon a Change in Control, the acquiring or successor
entity (or parent thereof) assumes such Restricted Stock Award Agreement or
substitutes new agreements of comparable value covering shares of a successor
corporation (with appropriate adjustments as to the number and kind of shares
and purchase price), then any Repurchase Right provided for in such Restricted
Stock Award Agreement shall terminate, and the shares of Common Stock subject to
the terminated Repurchase Right or any substituted shares shall immediately vest
in full, if the Participant’s service as an employee, director, officer,
consultant or other service provider to the acquiring or successor entity (or a
parent or subsidiary thereof) is terminated involuntarily or

 

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voluntarily under certain circumstances within a specified period following
consummation of a Change in Control, pursuant to such terms and conditions as
shall be set forth in the Restricted Stock Award Agreement.

 

ARTICLE 10.

 

AMENDMENT AND TERMINATION OF THE PLAN

 

10.1 Amendments. The Board may from time to time alter, amend, suspend or
terminate the Plan in such respects as the Board may deem advisable. No such
alteration, amendment, suspension or termination shall be made which shall
substantially affect or impair the rights of any Participant under an
outstanding Option Agreement or Restricted Stock Award Agreement without such
Participant’s consent. The Board may alter or amend the Plan to comply with
requirements under the Code relating to Incentive Options or other types of
options which give Optionees more favorable tax treatment than that applicable
to Options granted under this Plan as of the date of its adoption. Upon any such
alteration or amendment, any outstanding Option granted hereunder may, if the
Administrator so determines and if permitted by applicable law, be subject to
the more favorable tax treatment afforded to an Optionee pursuant to such terms
and conditions.

 

10.2 Plan Termination. Unless the Plan shall theretofore have been terminated,
the Plan shall terminate on the tenth (10th) anniversary of the Effective Date
and no Options or Restricted Stock Awards may be granted under the Plan
thereafter, but Option Agreements and Restricted Stock Award Agreements then
outstanding shall continue in effect in accordance with their respective terms.

 

ARTICLE 11.

 

TAX WITHHOLDING

 

11.1 Withholding. The Company shall have the power to withhold, or require a
Participant to remit to the Company, an amount sufficient to satisfy any
applicable Federal, state, and local tax withholding requirements with respect
to any Options exercised or, with respect to the issuance of Restricted Stock,
the date that the shares are issued, if the Purchaser makes the election set
forth in Code Section 83(b), or, if the Purchaser does not make such election,
then with respect to the Restricted Stock Award, as of the date that the
applicable restrictions set forth in the Restricted Stock Award Agreement and
the Plan lapse. To the extent permissible under applicable tax, securities and
other laws, the Administrator may, in its sole discretion and upon such terms
and conditions as it may deem appropriate, permit a Participant to satisfy his
or her obligation to pay any such tax, in whole or in part, up to an amount
determined on the basis of the highest marginal tax rate applicable to such
Participant, by (a) directing the Company to apply shares of Common Stock to
which the Participant is entitled as a result of the exercise of an Option or as
a result of the purchase of or lapse of restrictions on Restricted Stock Awards
or (b) delivering to the Company shares of Common Stock owned by the
Participant. The shares of Common Stock so applied or delivered in satisfaction
of the Participant’s tax withholding obligation shall be valued at their Fair
Market Value as of the date of measurement of the amount of income subject to
withholding.

 

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ARTICLE 12.

 

MISCELLANEOUS

 

12.1 Benefits Not Alienable. Other than as provided above, benefits under the
Plan may not be assigned or alienated, whether voluntarily or involuntarily. Any
unauthorized attempt at assignment, transfer, pledge or other disposition shall
be without effect.

 

12.2 No Enlargement of Employee Rights. This Plan is strictly a voluntary
undertaking on the part of the Company and shall not be deemed to constitute a
contract between the Company and any Participant to be consideration for, or an
inducement to, or a condition of, the employment of any Participant. Nothing
contained in the Plan shall be deemed to give the right to any Participant to be
retained as an employee of the Company or any Affiliated Company or to interfere
with the right of the Company or any Affiliated Company to discharge any
Participant at any time.

 

12.3 Application of Funds. The proceeds received by the Company from the sale of
Common Stock pursuant to Option Agreements and Restricted Stock Award
Agreements, except as otherwise provided herein, will be used for general
corporate purposes.

 

12.4 Annual Reports. During the term of this Plan, the Company will furnish to
each Participant who does not otherwise receive such materials, copies of all
reports, proxy statements and other communications that the Company distributes
generally to its stockholders.

 

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