Exhibit 10.12

THE PENNANT GROUP, INC.

2019 OMNIBUS INCENTIVE PLAN

Section 1. Purpose

The purpose of the Plan is to promote the interests of the Company and its
stockholders by aiding the Company in attracting and retaining officers,
consultants, independent contractors and Directors capable of assuring the
future success of the Company and to attract and retain officers, employees and
independent contractors and directors for its Affiliates, to offer Eligible
Persons incentives to continue in the Company’s, or its Affiliates’ employ or
service, as applicable, and to afford Eligible Persons an opportunity to acquire
a proprietary interest, or otherwise increase their proprietary interest, in
the Company.

Section 2. Definitions

As used in the Plan, the following terms shall have the meanings set
forth below:

(a) “Affiliate” shall mean (i) any entity that, directly or indirectly through
one or more intermediaries, is controlled by the Company and (ii) any entity in
which the Company has a significant equity interest, in each case as determined
by the Committee.

(b) “Annual Meeting” shall mean the Company’s regular annual meeting of
stockholders

(c) “Automatic Stock Grant Program” shall mean the Directors’ Automatic Stock
Grant Program described in Section 6(i) of the Plan.

(d) “Award” shall mean any Option, Stock Appreciation Right, Restricted Stock,
Restricted Stock Unit, Performance Award, Dividend Equivalent, Other Stock
Grant, or Other Stock-Based Award granted under the Plan.

(e) “Award Agreement” shall mean any written agreement, contract or other
instrument or document evidencing an Award granted under the Plan. Each Award
Agreement shall be subject to the applicable terms and conditions of the Plan
and any other terms and conditions (not inconsistent with the Plan) determined
by the Committee.

(f) “Board” shall mean the Board of Directors of the Company.

(g) “Cause” shall mean the occurrence of any of the following: (i) Participant’s
personal dishonesty, willful misconduct, or breach of fiduciary duty involving
personal profit, (ii) Participant’s continuing intentional or habitual failure
to perform stated duties, (iii) Participant’s violation of any law (other than
minor traffic violations or similar misdemeanor offenses not involving moral
turpitude), (iv) Participant’s material breach of any provision of an employment
or independent contractor agreement with the Company, or (v) any other act or
omission by a Participant that, in the opinion of the Committee, could
reasonably be expected to adversely affect the Company’s business, financial
condition, prospects and/or reputation. In each of the foregoing subclauses
(i) through (v), whether or not a “Cause” event has occurred will be determined
by the Committee in its sole discretion or, in the case of Participants who are
Directors or officers or persons subject to Section 16 of the Exchange Act, the
Board, each of whose determination shall be final, conclusive and binding. A
Participant’s Service shall be deemed to have terminated for Cause if, after the
Participant’s Service has terminated, facts and circumstances are discovered
that would have justified a termination for Cause, including, without
limitation, violation of material Company policies or breach of noncompetition,
confidentiality or other restrictive covenants that may apply to the
Participant.

(h) “Change in Control” shall mean a change in ownership or control of the
Company effected through the consummation of any of the following transactions:
(i) a merger, consolidation or other reorganization unless securities
representing more than 50% of the total combined voting power of the voting
securities of the successor corporation (or its ultimate parent company) are
immediately thereafter beneficially owned, directly or indirectly and in
substantially the same proportion, by the Persons who beneficially owned the
Company’s outstanding voting securities immediately prior to such transaction;
(ii) a sale, transfer or other disposition of all or substantially all of

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the Company’s assets; (iii) the acquisition, directly or indirectly, by any
Person or related group of Persons (other than the Company or a Person that
directly or indirectly controls, is controlled by, or is under common control
with, the Company), of beneficial ownership (within the meaning of Rule 13d-3 of
the Exchange Act) of securities possessing more than 50% of the total combined
voting power of the Company’s outstanding securities pursuant to a tender or
exchange offer made directly to the Company’s stockholders or (iv) a majority of
the members of the Board are replaced during any 12-month period by board of
directors whose appointment or election is not endorsed by a majority of the
member of the Board before the date of appointment or election. To the extent
necessary to comply with Section 409A, a Change in Control must also constitute
a Section 409A “change in control event”.

(i) “Code” shall mean the Internal Revenue Code of 1986, as amended from time to
time, and any regulations promulgated thereunder.

(j) “Committee” shall mean a committee of Directors designated by the Board to
administer the Plan, which shall initially be the Compensation Committee. The
Committee shall be comprised of at least two Directors but not less than such
number of Directors as shall be required to permit Awards granted under the Plan
to qualify under Rule 16b-3, and each member of the Committee shall be a Rule
16b-3 “Non-Employee Director.”

(k) “Company” shall mean The Pennant Group, Inc., a Delaware corporation, and
any successor corporation.

(l) “Compensation Committee” shall mean the compensation committee of the Board.

(m) “Director” shall mean a member of the Board, including any Non-Employee
Director.

(n) “Dividend Equivalent” shall mean any right granted under Section 6(e) of
the Plan.

(o) “Eligible Person” shall mean any Person who/that is an employee, officer,
consultant, independent contractor or Director providing Services to the Company
or any Affiliate who the Committee determines to be an Eligible Person.

(p) “Equity Restructuring” shall mean a dividend or other distribution (whether
in the form of cash, Shares, other securities or other property),
recapitalization, stock split, reverse stock split, reorganization, merger,
consolidation, split-up, spin-off, combination, repurchase or exchange of Shares
or other securities of the Company, issuance of warrants or other rights to
purchase Shares or other securities of the Company or other similar corporate
transaction or event that affects the Shares such that an adjustment is
necessary in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan.

(q) “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

(r) “Fair Market Value” shall mean, with respect to any property (including,
without limitation, any Shares or other securities), the fair market value of
such property determined by the Committee pursuant to such methods or procedures
as shall be established from time to time by the Committee. Notwithstanding the
foregoing and unless otherwise determined by the Committee, the Fair Market
Value of a Share as of a given date shall be the closing sale price of one Share
as reported on the Nasdaq Stock Market or such other principal United States
securities market for such Shares on the date as of which Fair Market Value is
being determined, if the Shares are then listed on the Nasdaq Stock Market or
another principal United States securities market for such Shares.

(s) “Fiscal Year” shall mean the Company’s fiscal year.

(t) “Full Value Award” shall mean any Award of Shares under this Plan or an
Award payable in Shares, other than an Option, a Stock Appreciation Right or
other purchase right for which the Participant pays fair market value for the
Shares measured as of the date of grant.

 

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(u) “Incentive Stock Option” shall mean an option granted under Section 6(a) of
the Plan that is intended to qualify as an “incentive stock option” in
accordance with the terms of Section 422 of the Code or any successor provision.

(v) “Non-Employee Director” shall mean any Director who is not also an employee
of the Company or an Affiliate within the meaning of Rule 16b-3 (which term
“Non-Employee Director” is defined in this paragraph for purposes of the
definition of “Committee” only and is not intended to define such term as used
elsewhere in the Plan).

(w) “Non-Qualified Stock Option” shall mean an option granted under Section 6(a)
of the Plan that is not an Incentive Stock Option.

(x) “Option” shall mean an Incentive Stock Option or a Non-Qualified
Stock Option.

(y) “Other Stock Grant” shall mean any right granted under Section 6(f) of
the Plan.

(z) “Other Stock-Based Award” shall mean any right granted under Section 6(g) of
the Plan.

(aa) “Participant” shall mean an Eligible Person designated to be granted an
Award under the Plan.

(bb) “Performance Award” shall mean any right granted under Section 6(d) of
the Plan.

(cc) “Performance Goal” shall mean a performance goal selected by the Committee,
which may include one or more of the following performance goals, either
individually, alternatively or in any combination, applied on a corporate,
subsidiary or business unit basis: revenue, cash flow, gross profit, earnings
before interest and taxes, earnings before interest, taxes, depreciation and
amortization and net earnings, earnings per share, margins (including one or
more of gross, operating and net income margins), returns (including one or more
of return on assets, equity, investment, capital and revenue and total
stockholder return), stock price, economic value added, working capital, market
share, cost reductions, workforce satisfaction and diversity goals, employee
retention, customer satisfaction, completion of key projects and strategic plan
development and implementation. Such goals may reflect absolute entity or
business unit performance or a relative comparison to the performance of a peer
group of entities or other external measure of the selected performance
criteria. The Committee shall establish the Performance Goals for a Performance
Award on or before the 90th day of the applicable performance period for which
Performance Goals are established and in no event after 25% of the applicable
performance period has elapsed and in any event when the achievement of the
applicable Performance Goals remains substantially uncertain. The Committee may
appropriately adjust any evaluation of performance under such Performance Goals
to exclude the effect of certain events, including without limitation any of the
following events: asset write-downs; litigation or claim judgments or
settlements; changes in tax law, accounting principles or other such laws or
provisions affecting reported results; severance, contract termination and other
costs related to exiting certain business activities; and gains or losses from
the disposition of businesses or assets, from the early extinguishment of debt
or items incorporated in the Company’s reporting.

(dd) “Person” shall mean any individual or entity, including a corporation,
partnership, limited liability company, association, joint venture or trust.

(ee) “Plan” shall mean The Pennant Group, Inc. 2019 Omnibus Incentive Plan, as
amended from time to time, the provisions of which are set forth herein.

(ff) “Restricted Stock” shall mean any Share granted under Section 6(c) of
the Plan (or any Share issued pursuant to an Option that is early exercised).

(gg) “Restricted Stock Unit” shall mean any unit granted under Section 6(c) of
the Plan evidencing the right to receive a Share (or evidencing the right to
receive a cash payment equal to the Fair Market Value of a Share if explicitly
so provided in the Award Agreement) at some future date.

(hh) “Rule 16b-3” shall mean Rule 16b-3 promulgated by the Securities and
Exchange Commission under the Exchange Act, or any successor rule or regulation.

 

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(ii) “Section 409A” shall mean Section 409A of the Code and the applicable
Treasury Regulations promulgated thereunder.

(jj) “Securities Act” shall mean the Securities Act of 1933, as amended.

(kk) “Separation From Service” has the meaning provided to such term under
Section 409A and the regulations promulgated thereunder.

(ll) “Service” shall mean the Participant’s performance of services for the
Company (or any Affiliate) in the capacity of an employee, officer, consultant,
independent contractor or Director.

(mm) “Share” or “Shares” shall mean a share or shares of common stock, $0.001
par value per share, of the Company or such other securities or property as may
become subject to Awards pursuant to an adjustment made under Section 4(c) of
the Plan.

(nn) “Specified Employee” has the meaning provided to such term under
Section 409A and the regulations promulgated thereunder.

(oo) “Stock Appreciation Right” shall mean any right granted under Section 6(b)
of the Plan.

(pp) “Substitute Awards” shall mean the Awards granted or Shares issued by the
Company in assumption of, or in substitution or exchange for, awards previously
granted, or the right or obligation to make future awards, in each case by a
company acquired by the Company or any Affiliate or with which the Company or
any Affiliate combines.

Section 3. Administration

(a) Power and Authority of the Committee. The Plan shall be administered by the
Committee. Any Awards made solely to members of the Committee, however, should
also be authorized by a disinterested majority of the Board. Subject to the
express provisions of the Plan and to applicable law, the Committee shall have
full power and authority to: (i) designate Participants; (ii) determine the type
or types of Awards to be granted to each Participant under the Plan;
(iii) determine the number of Shares to be covered by (or the method by which
payments or other rights are to be determined in connection with) each Award;
(iv) determine the terms and conditions of any Award or Award Agreement;
(v) modify or amend the terms and conditions of any Award or Award Agreement and
accelerate the exercisability of any Option or waive any restrictions relating
to any Award or extending the period of exercisability for an Award;
(vi) determine whether, to what extent and under what circumstances Awards may
be exercised in cash, Shares, other securities, other Awards or other property,
or canceled, forfeited or suspended; (vii) interpret and administer the Plan and
any instrument or agreement, including an Award Agreement, relating to the Plan;
(viii) establish, amend, suspend or waive such rules and regulations and appoint
such agents as it shall deem appropriate for the proper administration of the
Plan; (ix) include in an Award Agreement a requirement that, under certain
circumstances, acceleration of vesting (or compensation payable) with respect to
such Award shall be reduced (or eliminated) to the extent that such reduction
(or elimination) would, after taking into account any other payments in the
nature of compensation to which the Participant would have a right to receive
from the Company and any other Person contingent upon the occurrence of a Change
in Control, prevent the occurrence of a “parachute payment” as defined under
Code Section 280G; (x) granting Awards to Eligible Persons who are foreign
nationals on such terms and conditions different from those specified in the
Plan, which may be necessary or desirable to foster and promote achievement of
the purposes of the Plan, and adopting such modifications, procedures, and/or
subplans (with any such subplans attached as appendices to the Plan) and the
like as may be necessary or desirable to comply with provisions of the laws or
regulations of other countries or jurisdictions to ensure the viability of the
benefits from Awards granted to Participants employed in such countries or
jurisdictions, or to meet the requirements that permit the Plan to operate in a
qualified or tax efficient manner, and/or comply with applicable foreign laws or
regulations; and (xi) make any other determination and take any other action
that the Committee deems necessary or desirable for the administration of the
Plan. Unless otherwise expressly provided in the Plan, all designations,
determinations, interpretations and other decisions under or with respect to the
Plan or any Award or Award Agreement shall be within the sole discretion of the
Committee, may be made at any time and shall be final, conclusive and binding
upon any Eligible Person and

 

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any holder or beneficiary of any Award and shall receive the maximum deference
permitted under applicable law. The administration of the Automatic Stock Grant
Program, however, shall be self-executing in accordance with the terms of that
program so that neither the Board nor any Committee shall exercise any
discretionary functions with respect to any Awards made under that program. If
at any time (including after a notice of exercise has been delivered) the
Committee (or the Board), reasonably believes that a Participant has committed
an act of Cause (which includes a failure to act), the Committee (or Board) may
suspend the Participant’s right to exercise any Award (or vesting or settlement
of any Award) pending a determination of whether there was in fact an act of
Cause. If the Committee (or the Board) determines a Participant has committed an
act of Cause, neither the Participant nor his or her estate shall be entitled to
exercise any outstanding Award whatsoever and all of Participant’s outstanding
Awards shall then terminate without consideration. The expenses of the Plan
shall be borne by the Company.

Section 4. Shares Available for Awards

(a) Shares Available. Subject to adjustment as provided in Section 4(c) of the
Plan, a maximum number of 5,000,000 shares may be issued pursuant to the Plan
(the “Share Limit”). Such Shares may be in whole or in part authorized and
unissued or held by the Company as treasury shares.

(b) Accounting for Awards. To the extent that (i) Options or Stock Appreciation
Rights granted under the Plan shall expire unexercised, are cancelled,
forfeited, terminated or are not distributed, or (ii) Shares subject to Awards
under the Plan shall be, cancelled, forfeited, terminated or are settled in cash
in lieu of Shares, such Shares shall immediately become available for grant
under the Plan, as applicable, and shall increase the number of Shares available
for purposes of the Plan. To the extent that Options, Stock Appreciation Rights
or Shares awarded under this Plan shall be cancelled, forfeited or terminated
(or are settled in cash in lieu of Shares), such Shares shall be added back to
the Plan on the same basis and subject to the same ratio that applied when they
were granted and shall increase the number of Shares available for purposes of
the Plan. Shares delivered in payment of the purchase price in connection with
the exercise of any Award, Shares repurchased on the open market with proceeds
received by the Company from stock exercises, Shares delivered or withheld to
pay tax withholding obligations or otherwise under the Plan and Shares not
issued upon the net settlement or net exercise of Stock Appreciation Rights
shall be added to and shall increase the number of Shares available for purposes
of the Plan. Stock Appreciation Rights to be settled in Shares shall be counted
in full against the number of Shares available for award under the Plan
regardless of the number of Shares issued upon settlement of the Stock
Appreciation Rights.

(c) Adjustments. In the event of any Equity Restructuring, the number and type
of Shares (or other securities or other property) subject to outstanding Awards,
and the purchase price or exercise price with respect to any Award will be
proportionately adjusted; provided, however, that the number of Shares covered
by any Award or to which such Award relates shall always be rounded down to the
nearest whole number. The adjustments provided under this Section 4(c) shall be
nondiscretionary and shall be final and binding on the affected Participant and
the Company. The Committee shall make such proportionate adjustments, if any, as
the Committee in its discretion may deem appropriate to reflect such Equity
Restructuring with respect to the Share Limit, the ISO Limit, the aggregate
number and kind of shares that may be issued under the Plan (including, but not
limited to, adjustments of the limitations in Sections 4(a), 4(b) and 6(d)
hereof, the Limitations and Director Grant Limits as each are defined below, and
the automatic grant figures set forth in Section 6(i)).

(d) Substitute Awards. Substitute Awards shall not count toward the Share Limit
(or the other limits in Section 4(a)), nor shall Shares subject to a Substitute
Award again be available for Awards under the Plan as provided in Section 4(a).
Additionally, in the event that a company acquired by the Company or any
Affiliate or with which the Company or any Affiliate combines has shares
available under a pre-existing plan approved by stockholders and not adopted in
contemplation of such acquisition or combination, the shares available for grant
pursuant to the terms of such pre-existing plan (as adjusted, to the extent
appropriate, using the exchange ratio or other adjustment or valuation ratio or
formula used in such acquisition or combination to determine the consideration
payable to the holders of common stock of the entities party to such acquisition
or combination) may be used for Awards under the Plan and shall not count toward
the Share Limit; provided that Awards using such available shares shall not be
made after the date awards or grants could have been made under the terms of the
pre-existing plan, absent the acquisition or combination, and shall only be made
to individuals who were not Employees or Board members prior to such acquisition
or combination.

 

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Section 5. Eligibility

Participation in the Plan shall be limited to Eligible Persons. In determining
which Eligible Persons shall receive an Award and the terms of any Award, the
Committee may take into account the nature of the services rendered by the
respective Eligible Persons, their present and potential contributions to the
success of the Company or such other factors as the Committee, in its
discretion, shall deem relevant. Notwithstanding the foregoing, an Incentive
Stock Option may only be granted to full-time or part-time employees (which term
as used herein includes, without limitation, officers and Directors who are also
employees), and an Incentive Stock Option shall not be granted to an employee of
an Affiliate unless such Affiliate is also a “subsidiary corporation” of the
Company within the meaning of Section 424(f) of the Code or any successor
provision.

Notwithstanding anything to the contrary, the maximum grant date fair value of
any Award granted to any Non-Employee Director during any calendar year will not
exceed $500,000, such limit which, for the avoidance of doubt, applies to Awards
granted under the Plan only and does not include Shares granted in lieu of all
or any portion of such Non-Employee Director’s cash retainer fees.

Section 6. Awards

(a) Options. The Committee is hereby authorized to grant Options to Eligible
Persons with the following terms and conditions and with such additional terms
and conditions not inconsistent with the provisions of the Plan as the Committee
shall determine:

(i) Exercise Price. The purchase price per Share purchasable under an Option
shall be determined by the Committee; provided, however, that such purchase
price shall not be less than 100% of the Fair Market Value of a Share on the
date of grant of such Option unless the Committee expressly acknowledges in its
granting resolutions that such Option has been structured to be exempt from or
compliant with the requirements of Section 409A.

(ii) Option Term. The term of each Option shall be fixed by the Committee at the
time of grant, but shall not be longer than 10 years from the date of grant.

(iii) Time and Method of Exercise. The Committee shall determine the time or
times at which an Option may be exercised in whole or in part and the method or
methods by which, and the form or forms (including, without limitation, cash,
Shares, other securities, other Awards or other property, or any combination
thereof, having a Fair Market Value on the exercise date equal to the applicable
exercise price) in which payment of the exercise price with respect thereto may
be made or deemed to have been made.

(iv) Incentive Stock Options. Notwithstanding anything in the Plan to the
contrary, the following additional provisions shall apply to the grant of stock
options which are intended to qualify as Incentive Stock Options:

(A) The Committee will not grant Incentive Stock Options in which the aggregate
Fair Market Value (determined as of the time the option is granted) of the
Shares with respect to which Incentive Stock Options are exercisable for the
first time by any Participant during any calendar year (under this Plan and all
other plans of the Company and its Affiliates) shall exceed $100,000.

(B) All Incentive Stock Options must be granted within ten years from the
earlier of the date on which this Plan was adopted by the Board or the date this
Plan was approved by the stockholders of the Company.

 

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(C) Unless sooner exercised, all Incentive Stock Options shall expire and no
longer be exercisable no later than 10 years after the date of grant; provided,
however, that in the case of a grant of an Incentive Stock Option to a
Participant who, at the time such Option is granted, owns (within the meaning of
Section 422 of the Code) stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company or of its Affiliate, such
Incentive Stock Option shall expire and no longer be exercisable no later than
5 years from the date of grant.

(D) The purchase price per Share for an Incentive Stock Option shall be not less
than 100% of the Fair Market Value of a Share on the date of grant of the
Incentive Stock Option; provided, however, that, in the case of the grant of an
Incentive Stock Option to a Participant who, at the time such Option is granted,
owns (within the meaning of Section 422 of the Code) stock possessing more than
10% of the total combined voting power of all classes of stock of the Company or
of its Affiliate, the purchase price per Share purchasable under an Incentive
Stock Option shall be not less than 110% of the Fair Market Value of a Share on
the date of grant of the Incentive Stock Option.

(E) Any Incentive Stock Option authorized under the Plan shall contain such
other provisions as the Committee shall deem advisable, but shall in all events
be consistent with and contain all provisions required in order to qualify the
Option as an Incentive Stock Option.

(F) Subject to adjustment as provided in Section 4(c), the maximum aggregate
number of Shares that may be issued pursuant to the exercise of Incentive Stock
Options granted under this Plan shall not exceed 5,000,000 Shares (the “ISO
Limit”).

(b) Stock Appreciation Rights. The Committee is hereby authorized to grant Stock
Appreciation Rights to Eligible Persons subject to the terms of the Plan and any
applicable Award Agreement. Each Stock Appreciation Right granted under the Plan
shall confer on the holder upon exercise the right to receive a whole number of
Shares equal to the excess of (a) the Fair Market Value of one Share on the date
of exercise (or, if the Committee shall so determine, at any time during a
specified period before or after the date of exercise) over (b) the grant price
of the Stock Appreciation Right as determined by the Committee, which grant
price shall not be less than 100% of the Fair Market Value of one Share on the
date of grant of the Stock Appreciation Right. The term of any Stock
Appreciation Right shall not exceed 10 years.

(c) Restricted Stock and Restricted Stock Units. The Committee is hereby
authorized to grant Restricted Stock and Restricted Stock Units to Eligible
Persons with the following terms and conditions and with such additional terms
and conditions not inconsistent with the provisions of the Plan as the Committee
shall determine:

(i) Restrictions. Shares of Restricted Stock and Restricted Stock Units shall be
subject to such restrictions as the Committee may impose (including, without
limitation, a restriction on or prohibition against the right to receive any
dividend or other right or property with respect thereto), which restrictions
may lapse separately or in combination at such time or times, in such
installments or otherwise as the Committee may deem appropriate.

(ii) Issuance of Shares. Any Restricted Stock granted under the Plan may be
evidenced in such manner as the Board may deem appropriate, including book-entry
registration or issuance of a stock certificate or certificates, which
certificate or certificates shall be held by the Company. Such certificate or
certificates shall be registered in the name of the Participant and shall bear
an appropriate legend referring to the restrictions and possible forfeiture
applicable to such Restricted Stock, as set forth in the Award Agreement.

(iii) Dividends. Dividends payable to holders of Restricted Stock and Restricted
Stock Units shall be handled pursuant to Section 9(s) of the Plan.

 

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(iv) Forfeiture. Except as otherwise determined by the Committee, upon a
Participant’s termination of Service (as determined under criteria established
by the Committee) during the applicable restriction period, all applicable
Shares of Restricted Stock and Restricted Stock Units at such time subject to
restriction shall be forfeited and with Shares of Restricted Stock reacquired by
the Company; provided, however, that the Committee may, when it finds that a
waiver would be in the best interest of the Company, waive in whole or in part
any or all remaining restrictions with respect to Shares of Restricted Stock or
Restricted Stock Units.

(d) Performance Awards. The Committee is hereby authorized to grant Performance
Awards to Eligible Persons subject to the terms of the Plan. A Performance Award
granted under the Plan (i) may be denominated or payable in cash, Shares
(including, without limitation, Restricted Stock and Restricted Stock Units),
other securities, other Awards or other property and (ii) shall confer on the
holder thereof the right to receive payments, in whole or in part, upon the
achievement of such Performance Goals during such performance periods as the
Committee shall establish. Subject to the terms of the Plan, the Performance
Goals to be achieved during any performance period, the length of any
performance period, the amount of any Performance Award granted, the amount of
any payment or transfer to be made pursuant to any Performance Award and any
other terms and conditions of any Performance Award shall be determined by the
Committee.

(e) Dividend Equivalents. The Committee is hereby authorized to grant Dividend
Equivalents to Eligible Persons under which the Participant shall be entitled to
receive payments (in cash, Shares, other securities, other Awards or other
property as determined in the discretion of the Committee) equivalent to the
amount of cash dividends paid by the Company to holders of Shares with respect
to a number of Shares determined by the Committee. Subject to the terms of the
Plan, such Dividend Equivalents may have such terms and conditions as the
Committee shall determine except that all Dividend Equivalents shall be subject
to the same vesting conditions as to the underlying Award to which they are
attached.

(f) Other Stock Grants. The Committee is hereby authorized, subject to the terms
of the Plan, to grant to Eligible Persons Shares without restrictions thereon as
are deemed by the Committee to be consistent with the purpose of the Plan.
Subject to the terms of the Plan and any applicable Award Agreement, such Other
Stock Grant may have such terms and conditions as the Committee shall determine.

(g) Other Stock-Based Awards. The Committee is hereby authorized to grant to
Eligible Persons, subject to the terms of the Plan, such other Awards that are
denominated or payable in, valued in whole or in part by reference to, or
otherwise based on or related to, Shares (including, without limitation,
securities convertible into Shares), as are deemed by the Committee to be
consistent with the purpose of the Plan. Shares or other securities delivered
pursuant to a purchase right granted under this Section 6(g) shall be purchased
for such consideration, which may be paid by such method or methods and in such
form or forms (including, without limitation, cash, Shares, other securities,
other Awards or other property or any combination thereof), as the Committee
shall determine, the value of which consideration, as established by the
Committee, shall not be less than 100% of the Fair Market Value of such Shares
or other securities as of the date such purchase right is granted unless the
Committee expressly acknowledges in its granting resolutions that such Other
Stock-Based Award has been structured to be exempt from or compliant with the
requirements of Section 409A.

(h) General.

(i) Consideration for Awards. Awards may be granted for no cash consideration or
for any cash or other consideration as determined by the Committee and required
by applicable law.

(ii) Awards May Be Granted Separately or Together. Awards may, in the discretion
of the Committee, be granted either alone or in addition to, in tandem with or
in substitution for any other Award or any award granted under any plan of the
Company or any Affiliate. Awards granted in addition to or in tandem with other
Awards or in addition to or in tandem with awards granted under any such other
plan of the Company or any Affiliate may be granted either at the same time as
or at a different time from the grant of such other Awards or awards.

 

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(iii) Forms of Payment under Awards. Subject to the terms of the Plan and of any
applicable Award Agreement, payments or transfers to be made by the Company or
an Affiliate upon the grant, exercise or payment of an Award may be made in such
form or forms as the Committee shall determine (including, without limitation,
cash, Shares, other securities, other Awards or other property or any
combination thereof), and may be made in a single payment or transfer, in
installments or on a deferred basis, in each case in accordance with rules and
procedures established by the Committee. Such rules and procedures may include,
without limitation, provisions for the payment or crediting of reasonable
interest on installment or deferred payments or the grant or crediting of
Dividend Equivalents with respect to installment or deferred payments.

(iv) Limits on Transfer of Awards. No Award (other than Other Stock Grants) and
no right under any such Award shall be transferable by a Participant other than
by will or by the laws of descent and distribution and the Company shall not be
required to recognize any attempted assignment of such rights by any
Participant; provided, however, that, if so determined by the Committee, a
Participant may, in the manner established by the Committee, designate a
beneficiary or beneficiaries to exercise the rights of the Participant and
receive any property distributable with respect to any Award upon the death of
the Participant; provided, further, that, if so determined by the Committee, a
Participant may, at any time that such Participant holds such Option, transfer a
Non-Qualified Stock Option to any “Family Member” (as such term is defined in
the General Instructions to Form S-8 (or any successor to such Instructions or
such Form) under the Securities Act), provided that the Participant may not
receive any consideration for such transfer, the Family Member may not make any
subsequent transfers other than by will or by the laws of descent and
distribution and the Company receives written notice of such transfer. Except as
otherwise determined by the Committee, each Award (other than an Incentive Stock
Option) or right under any such Award shall be exercisable during the
Participant’s lifetime only by the Participant or, if permissible under
applicable law, by the Participant’s guardian or legal representative. Except as
otherwise determined by the Committee, no Award (other than an Incentive Stock
Option) or right under any such Award may be pledged, alienated, attached or
otherwise encumbered, and any purported pledge, alienation, attachment or other
encumbrance thereof shall be void and unenforceable against the Company or
any Affiliate.

(v) Term of Awards. Subject to Section 6(a)(iv)(C), the term of each Award shall
be fixed by the Committee at the time of grant, but shall not be longer than
10 years from the date of grant.

(vi) Restrictions; Securities Exchange Listing. All Shares or other securities
delivered under the Plan pursuant to any Award or the exercise thereof shall be
subject to such stop transfer orders and other restrictions as the Committee may
deem advisable under the Plan, applicable federal or state securities laws and
regulatory requirements, and the Committee may direct appropriate stop transfer
orders and cause other legends to be placed on the certificates for such Shares
or other securities to reflect such restrictions. If the Shares or other
securities are traded on a securities exchange, the Company shall not be
required, and shall have no liability for failure, to deliver any Shares or
other securities covered by an Award unless and until such Shares or other
securities have been and continue to be admitted for trading on such securities
exchange. No Shares or other assets shall be issued or delivered pursuant to the
Plan, and the Company shall have no liability for failure to issue or deliver
Shares under the Plan, unless and until there shall have been compliance with
all applicable requirements of applicable securities laws, including the filing
and effectiveness of the Form S-8 registration statement for the Shares issuable
pursuant to the Plan, and all applicable listing requirements of any stock
exchange or trading system, including the Nasdaq Stock Market, on which Common
Stock is then traded. No Shares shall be issued or delivered pursuant to the
Plan, and the Company shall have no liability for failure to issue or deliver
Shares under the Plan, if doing so would violate any internal policies of
the Company.

(vii) Prohibition on Repricing. Except as provided in Section 4(c) of the Plan,
no Option or Stock Appreciation Right may be amended to reduce its initial
exercise or grant price and no Option or Stock Appreciation Right shall be
canceled and replaced with either cash or Shares or with Options or Stock
Appreciation Rights having a lower exercise or grant price, without the approval
of the stockholders of the Company. In addition, no re-load Options may be
granted without the approval of the stockholders of the Company.

(i) Directors’ Automatic Stock Grant Program.

 

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(i) Automatic Quarterly Restricted Stock Awards. Beginning with the Adoption
Date, each Non-Employee Director serving as a duly elected or appointed Class I,
Class II, or Class III Director on the first day of each fiscal quarter shall
receive 750 Shares for each fiscal quarter of service. Shares granted pursuant
to the Automatic Stock Grant Program shall vest in accordance with the schedule
designated by the Committee as set forth in the Award Agreement. There shall be
no limit on the number of Shares any one Non-Employee Director may receive over
his or her period of Board service pursuant to the Automatic Stock Grant
Program, and Non-Employee Directors who have previously been employees of the
Company (or any Affiliate) or who have received one or more Awards from the
Company prior to becoming a Non-Employee Director shall nevertheless be eligible
to receive Shares pursuant to the Automatic Stock Grant Program over their
period of continued Board service. Non-Employee Directors must be serving as a
member of the Board on the first day of the fiscal quarter in question to be
eligible to receive an Award under this subsection. If a Non-Employee Director
ceases to serve as a member of the Board for any reason, such Non-Employee
Director shall no longer be eligible or entitled to receive any Awards
contemplated by this subsection. Non-Employee Directors elected to fill less
than a three-year term will receive a pro rata stock award

(ii) Timing of Awards. Awards made pursuant to the Automatic Stock Grant Program
shall be granted on the fifteenth (15th) day of the first month of the fiscal
quarter for which the Non-Employee Director qualifies for such Award, provided
that such day is not a Saturday, Sunday or holiday observed by the NASDAQ Stock
Market. In the event that the fifteenth (15th) day of the first month of the
fiscal quarter is a Saturday, Sunday or holiday observed by the NASDAQ Stock
Market, the Shares shall be issued on the next regular business and trading day
following the fifteenth (15th) day of the first month of the fiscal quarter.

Section 7. Amendment and Termination; Adjustments

(a) Amendments to the Plan. The Board may amend, alter, suspend, discontinue or
terminate the Plan at any time; provided, however, that, notwithstanding any
other provision of the Plan or any Award Agreement, without the approval of the
stockholders of the Company, no such amendment, alteration, suspension,
discontinuation or termination shall be made that, absent such approval:

(i) violates the rules or regulations of the National Association of Securities
Dealers, Inc. or any other securities exchange that are applicable to
the Company;

(ii) causes the Company to be unable, under the Code, to grant Incentive Stock
Options under the Plan;

(iii) increases the number of shares authorized under the Plan as specified in
Section 4(a); or

(iv) permits the award of Options or Stock Appreciation Rights at a price less
than 100% of the Fair Market Value of a Share on the date of grant of such
Option or Stock Appreciation Right, as prohibited by Sections 6(a)(i) and 6(b)
of the Plan or the repricing of Options or Stock Appreciation Rights, as
prohibited by Section 6(h)(vii) of the Plan.

(b) Amendments to Awards. The Committee may waive any conditions of or rights of
the Company under any outstanding Award, prospectively or retroactively. Except
as otherwise provided herein or in an Award Agreement, the Committee may not
amend, alter, suspend, discontinue or terminate any outstanding Award,
prospectively or retroactively, if such action would adversely affect the rights
of the holder of such Award, without the consent of the Participant or holder or
beneficiary thereof.

(c) Correction of Defects, Omissions and Inconsistencies. The Committee may
correct any defect, supply any omission or reconcile any inconsistency in the
Plan or in any Award or Award Agreement in the manner and to the extent it shall
deem desirable to implement or maintain the effectiveness of the Plan.

 

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Section 8. Income Tax Withholding

In order to comply with all applicable federal, state or local income tax laws
or regulations, the Company may take such action as it deems appropriate to
ensure that all applicable federal, state or local payroll, withholding, income
or other taxes, which are the sole and absolute responsibility of a Participant,
are withheld or collected from such Participant. In order to assist a
Participant in paying all or a portion of the federal, state and local taxes to
be withheld or collected upon exercise or receipt of (or the lapse of
restrictions relating to) an Award, the Committee, in its discretion and subject
to such additional terms and conditions as it may adopt, may permit the
Participant to satisfy such tax obligation by (i) electing to have the Company
withhold a portion of the Shares otherwise to be delivered upon exercise or
receipt of (or the lapse of restrictions relating to) such Award with a Fair
Market Value equal to the amount of such taxes (but only up to the maximum
amount permitted to be withheld under applicable laws or regulations or
financial accounting rules and without causing the Award to be classified as a
liability under financial accounting rules) or (ii) delivering to the Company
Shares other than Shares issuable upon exercise or receipt of (or the lapse of
restrictions relating to) such Award with a Fair Market Value equal to the
amount of such taxes (but only up to the maximum amount permitted to be withheld
under applicable laws or regulations or financial accounting rules and without
causing the Award to be classified as a liability under financial accounting
rules). The election, if any, must be made on or before the date that the amount
of tax to be withheld is determined.

Section 9. General Provisions

(a) No Rights to Awards. No Eligible Person or other Person shall have any claim
to be granted any Award under the Plan, and there is no obligation for
uniformity of treatment of Eligible Persons or holders or beneficiaries of
Awards under the Plan. The terms and conditions of Awards need not be the same
with respect to any Participant or with respect to different Participants. A
grant of any type made hereunder in any one year to an Eligible Person shall
neither guarantee nor preclude a further grant of that or any other type of
Award to such Eligible Person in that year or subsequent years.

(b) Award Agreements. No Participant will have rights under an Award granted to
such Participant unless and until an Award Agreement shall have been duly
executed on behalf of the Company and, if requested by the Company, signed by
the Participant.

(c) Plan Provisions Control. In the event that any provision of an Award
Agreement conflicts with or is inconsistent in any respect with the terms of the
Plan as set forth herein or subsequently amended, the terms of the Plan shall
control.

(d) No Rights of Stockholders. Except with respect to Shares of Restricted Stock
as to which the Participant has been granted the right to vote, neither a
Participant nor the Participant’s legal representative shall be, or have any of
the rights and privileges of, a stockholder of the Company with respect to any
Shares issuable to such Participant upon the exercise or payment of any Award,
in whole or in part, unless and until such Shares have been issued in the name
of such Participant or such Participant’s legal representative without
restrictions thereto.

(e) No Limit on Other Compensation Arrangements. Nothing contained in the Plan
shall prevent the Company or any Affiliate from adopting or continuing in effect
other or additional compensation arrangements, and such arrangements may be
either generally applicable or applicable only in specific cases.

(f) No Right to Employment. The grant of an Award shall not be construed as
giving a Participant the right to be retained in the employ, or as giving a
Director of the Company or an Affiliate the right to continue as a Director or
an Affiliate of the Company or any Affiliate, nor will it affect in any way the
right of the Company or an Affiliate to terminate a Participant’s employment or
Service at any time, with or without cause. In addition, the Company or an
Affiliate may at any time dismiss a Participant from employment, or terminate
the term of a Director of the Company or an Affiliate, free from any liability
or any claim under the Plan or any Award, unless otherwise expressly provided in
the Plan or in any Award Agreement. Nothing in this Plan shall confer on any
Participant any legal or equitable right against the Company or any Affiliate,
directly or indirectly, or give rise to any cause of action at law or in equity
against the Company or an Affiliate. The Awards granted hereunder shall not form
any part of the wages or salary of any Eligible Person for purposes of severance
pay or termination indemnities, irrespective of the reason for termination of
employment. Under no circumstances shall any Participant ceasing to

 

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be an employee of the Company or any Affiliate be entitled to any compensation
for any loss of any right or benefit under the Plan which such employee might
otherwise have enjoyed but for termination of employment, whether such
compensation is claimed by way of damages for wrongful or unfair dismissal,
breach of contract or otherwise. By participating in the Plan, each Participant
shall be deemed to have accepted all the conditions of the Plan and the terms
and conditions of any rules and regulations adopted by the Committee and shall
be fully bound thereby.

(g) Transferability. Unless the Committee determines otherwise, no Award granted
under the Plan shall be transferable by a Participant other than by will or the
laws of descent and distribution or, with respect to such grants other than
grants of Incentive Stock Options, to a Participant’s Family Member by gift or a
qualified domestic relations order as defined by the Code. Unless the Committee
determines otherwise, an Option or SAR may be exercised only by the Participant
thereof; by his or her Family Member if such person has acquired the Option or
SAR by gift or qualified domestic relations order; by his or her executor or
administrator or the executor or administrator of the estate of any of the
foregoing or any person to whom the Option is transferred by will or the laws of
descent and distribution; or by his or her guardian or legal representative or
the guardian or legal representative of any of the foregoing; provided that
Incentive Stock Options may be exercised by any Family Member, guardian or legal
representative only if permitted by the Code and any regulations thereunder. All
provisions of the Plan shall in any event continue to apply to any Award granted
under the Plan and transferred as permitted by this Section 9(g), and any
transferee of any such Award shall be bound by all provisions of the Plan as and
to the same extent as the applicable original Participant.

(h) Governing Law. The validity, construction and effect of the Plan or any
Award, and any rules and regulations relating to the Plan or any Award, shall be
determined in accordance with the internal laws, and not the law of conflicts,
of the State of Delaware.

(i) Severability. If any provision of the Plan or any Award is or becomes or is
deemed to be invalid, illegal or unenforceable in any jurisdiction or would
disqualify the Plan or any Award under any law deemed applicable by the
Committee, such provision shall be construed or deemed amended to conform to
applicable laws, or if it cannot be so construed or deemed amended without, in
the determination of the Committee, materially altering the purpose or intent of
the Plan or the Award, such provision shall be stricken as to such jurisdiction
or Award, and the remainder of the Plan or any such Award shall remain in full
force and effect.

(j) No Trust or Fund Created. Neither the Plan nor any Award shall create or be
construed to create a trust or separate fund of any kind or a fiduciary
relationship between the Company or any Affiliate and an Eligible Person or
Participant. To the extent that a Participant acquires a right to receive
payments from the Company or any Affiliate pursuant to an Award, such right
shall be no greater than the right of any unsecured general creditor of the
Company or any Affiliate.

(k) Other Benefits. No compensation or benefit awarded to or realized by any
Participant under the Plan shall be included for the purpose of computing such
Participant’s compensation under any compensation-based retirement, disability,
or similar plan of the Company unless required by law or otherwise provided by
such other plan.

(l) No Fractional Shares. No fractional Shares shall be issued or delivered
pursuant to the Plan or any Award, and the Committee shall determine whether
cash shall be paid in lieu of any fractional Shares or whether such fractional
Shares or any rights thereto shall be canceled, terminated or otherwise
eliminated.

(m) Headings. Headings are given to the Sections and subsections of the Plan
solely as a convenience to facilitate reference. Such headings shall not be
deemed in any way material or relevant to the construction or interpretation of
the Plan or any provision thereof.

(n) Section 16 Compliance. The Plan is intended to comply in all respects with
Rule 16b-3 or any successor provision, as in effect from time to time, and in
all events the Plan shall be construed in accordance with the requirements of
Rule 16b-3. If any Plan provision does not comply with Rule 16b-3 as hereafter
amended or interpreted, the provision shall be deemed inoperative. The Board, in
its absolute discretion, may bifurcate the Plan so as to restrict, limit or
condition the use of any provision of the Plan with respect to persons who are
officers or Directors subject to Section 16 of the Exchange Act without so
restricting, limiting or conditioning the Plan with respect to other Eligible
Persons.

 

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(o) Conditions Precedent to Issuance of Shares. Shares shall not be issued, and
the Company shall not have any liability for failure to issue Shares, pursuant
to the exercise or payment of the purchase price relating to an Award unless
such exercise or payment and the issuance and delivery of such Shares pursuant
thereto shall comply with all relevant provisions of law, including, without
limitation, the Securities Act, the Exchange Act, the rules and regulations
promulgated thereunder, the requirements of any applicable Stock Exchange and
the Delaware General Corporation Law. As a condition to the exercise or payment
of the purchase price relating to such Award, the Company may require that the
Participant exercising or paying the purchase price represent and warrant that
the Shares are being purchased only for investment and without any present
intention to sell or distribute such Shares if, in the opinion of counsel for
the Company, such a representation and warranty is required by law.

(p) Section 409A. Notwithstanding anything in the Plan to the contrary, the Plan
and Awards granted hereunder are intended to be exempt from or comply with the
requirements of Section 409A and shall be interpreted in a manner consistent
with such intention. In the event that any provision of the Plan or an Award
Agreement is determined by the Committee to not comply with the applicable
requirements of Section 409A or the applicable regulations and other guidance
issued thereunder, the Committee shall have the authority (but without an
affirmative obligation) to take such actions and to make such changes to the
Plan or an Award Agreement as the Committee deems necessary to comply with such
requirements. Any payment made pursuant to any Award shall be considered a
separate payment and not one of a series of payments for purposes of
Section 409A. Notwithstanding the foregoing or anything elsewhere in the Plan or
an Award Agreement to the contrary, if upon a Participant’s Separation From
Service he/she is then a Specified Employee, then solely to the extent necessary
to comply with Section 409A and avoid the imposition of taxes under
Section 409A, the Company shall defer payment of “nonqualified deferred
compensation” subject to Section 409A payable as a result of and within six
(6) months following such Separation From Service under this Plan until the
earlier of (i) the first business day of the seventh month following the
Participant’s Separation From Service, or (ii) twenty (20) days after the
Company receives written confirmation of the Participant’s death. Any such
delayed payments shall be made without interest. While it is intended that all
payments and benefits provided under the Plan or an Award will be exempt from or
comply with Section 409A, the Company makes no representation or covenant to
ensure that the payments under the Plan or an Award are exempt from or compliant
with Section 409A. In no event whatsoever shall the Company be liable if a
payment or benefit under the Plan or an Award is challenged by any taxing
authority or for any additional tax, interest or penalties that may be imposed
on a Participant by Section 409A or any damages for failing to comply with
Section 409A. The Participant will be entirely responsible for any and all taxes
on any benefits payable to such Participant as a result of the Plan or an Award.
If the applicable Award Agreement or Participant’s employment agreement provides
for Section 409A related provisions other than what is specified above in this
Section 9(p), then such provisions in the Award or employment agreement shall
govern.

(q) Change in Control. In the event that there is a Change in Control and/or the
Company is a party to a merger or acquisition or reorganization or similar
transaction, outstanding Awards shall be subject to the merger agreement or
other applicable transaction agreement. Such agreement may provide, without
limitation, that subject to the consummation of the applicable transaction, for
the assumption (or substitution) of outstanding Awards by the surviving entity
or its parent, for their continuation by the Company (if the Company is a
surviving corporation), for accelerated vesting, or for their cancellation
either with or without consideration, in all cases without the consent of the
Participant.

(r) Recoupment of Compensation. The Company may (i) cause the cancellation of
any Award, (ii) require reimbursement of any Award by a Participant and
(iii) effect any other right of recoupment of equity or other compensation
provided under this Plan or otherwise in accordance with Company policies as may
be adopted and/or modified from time to time by the Company and/or applicable
law (each, a “Clawback Policy”). In addition, a Participant may be required to
repay to the Company certain previously paid compensation, whether provided
under this Plan or an Award Agreement or otherwise, in accordance with the
Clawback Policy. By accepting an Award, a Participant is also agreeing to be
bound by the Company’s Clawback Policy which may be amended from time to time by
the Company in its discretion (including without limitation to comply with
applicable laws or stock exchange requirements) and is further agreeing that all
of the Participant’s Awards may be unilaterally amended by the Company to the
extent needed to comply with the Clawback Policy.

 

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(s) Dividends. No dividends (that are paid by the Company to holders of Shares)
will be paid or accrued with respect to Options, Stock Appreciation Rights,
Restricted Stock Units or unearned Performance Awards; however, dividends may be
paid with respect to unvested Restricted Stock awards issued under the Plan that
are subject to time-vesting requirements only.

(t) Dissolution. To the extent not previously exercised or settled, all Awards
shall terminate immediately prior to the dissolution or liquidation of the
Company and shall be forfeited to the Company (except for repayment of any
amounts a Participant had paid to the Company to acquire unvested Shares
underlying the forfeited Awards).

Section 10. Effective Date of the Plan

The Plan shall be effective as of the date of its approval by the Board (the
“Adoption Date”), however no Awards may be granted until the Plan has been
approved by Company stockholders.

Section 11. Term of the Plan

No Award shall be granted under the Plan after (a) the tenth anniversary of the
Adoption Date, or (b) any earlier date of discontinuation or termination
established pursuant to Section 7(a) of the Plan. However, unless otherwise
expressly provided in the Plan or in an applicable Award Agreement, any Award
theretofore granted may extend beyond such date, and the authority of the
Committee provided for hereunder with respect to the Plan and any Awards, and
the authority of the Board to amend the Plan, shall extend beyond the
termination of the Plan.

 

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