Exhibit 10.1

 

KONA GRILL, inc.

 

2012 STOCK AWARD PLAN

 

              As amended through April 30, 2015

 

      1. Purpose. The purpose of this 2012 Stock Award Plan (the "Plan") is to
assist Kona Grill, Inc., a Delaware corporation (the "Company"), and its Related
Entities in attracting, motivating, retaining, and rewarding high-quality
Employees, officers, Directors, and Consultants by enabling such persons to
acquire or increase a proprietary interest in the Company in order to strengthen
the mutuality of interests between such persons and the Company's stockholders,
and providing such persons with annual and long-term performance incentives to
expend their maximum efforts in the creation of stockholder value. The Plan is
intended to qualify certain compensation awarded under the Plan for tax
deductibility under Section 162(m) of the Code (as hereafter defined) to the
extent deemed appropriate by the Committee (or any successor committee) of the
Board.

 

      2. Definitions. For purposes of the Plan, the following terms shall be
defined as set forth below, in addition to such terms defined in Section 1
hereof.

 

            (a) "2005 Plan" means the Company's 2005 Stock Plan.

 

            (b) "Applicable Laws" means the requirements relating to the
administration of equity compensation plans under U.S. state corporate laws,
U.S. federal and state securities laws, the Code, the rules and regulations of
any stock exchange upon which the Common Stock is listed, and the applicable
laws of any foreign country or jurisdiction where Awards are granted under the
Plan.

 

            (c) "Award" means any award granted pursuant to the terms of this
Plan including, an Option, Stock Appreciation Right, Restricted Stock, Stock
Units, Stock granted as a bonus or in lieu of another award, Dividend
Equivalent, Other Stock-Based Award, or Performance Award, together with any
other right or interest, granted to a Participant under the Plan.

 

            (d) "Beneficiary" means the person, persons, trust, or trusts which
have been designated by a Participant in his or her most recent written
beneficiary designation filed with the Committee to receive the benefits
specified under the Plan upon such Participant's death or to which Awards or
other rights are transferred if and to the extent permitted under Section 10(b)
hereof. If, upon a Participant's death, there is no designated Beneficiary or
surviving designated Beneficiary, then the term Beneficiary means the person,
persons, trust, or trusts entitled by will or the laws of descent and
distribution to receive such benefits.

 

            (e) "Beneficial Owner," "Beneficially Owning," and "Beneficial
Ownership" shall have the meanings ascribed to such terms in Rule 13d-3 under
the Exchange Act and any successor to such Rule.

 

            (f) "Board" means the Company's Board of Directors.

  

 
 

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            (g) "Cause" shall, with respect to any Participant, have the
equivalent meaning (or the same meaning as "cause" or "for cause") set forth in
any employment agreement between the Participant and the Company or a Related
Entity or, in the absence of any such agreement, such term shall mean (i) the
failure by the Participant to perform his or her duties as assigned by the
Company (or a Related Entity) in a reasonable manner, (ii) any violation or
breach by the Participant of his or her employment agreement with the Company
(or a Related Entity), if any, (iii) any violation or breach by the Participant
of his or her confidential information and invention assignment agreement with
the Company (or a Related Entity), if any, (iv) any act by the Participant of
dishonesty or bad faith with respect to the Company (or a Related Entity), (v)
any material violation or breach by the Participant of the Company's or a
Related Entity's policy for employee conduct, if any, (vi) any act by the
Participant of dishonesty or bad faith with respect to the Company (or a Related
Entity), (vii) use of alcohol, drugs, or other similar substances affecting the
Participant's work performance, or (viii) the commission by the Participant of
any act, misdemeanor, or crime reflecting unfavorably upon the Participant or
the Company. The good faith determination by the Committee of whether the
Participant's Continuous Service was terminated by the Company for "Cause" shall
be final and binding for all purposes hereunder.

 

            (h) "Change in Control" means and shall be deemed to have occurred
on the earliest of the following dates:

 

                  (i) the date on which any "person" (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act) obtains "beneficial ownership" (as
defined in Rule 13d-3 of the Exchange Act) or a pecuniary interest in more than
fifty percent (50%) of the combined voting power of the Company's then
outstanding securities ("Voting Stock");

 

                  (ii) the consummation of a merger, consolidation,
reorganization, or similar transaction other than a transaction: (1) (a) in
which substantially all of the holders of Company's Voting Stock hold or receive
directly or indirectly fifty percent (50%) or more of the voting stock of the
resulting entity or a parent company thereof, in substantially the same
proportions as their ownership of the Company immediately prior to the
transaction; or (2) in which the holders of Company's capital stock immediately
before such transaction will, immediately after such transaction, hold as a
group on a fully diluted basis the ability to elect at least a majority of the
directors of the surviving corporation (or a parent company);

 

                  (iii) there is consummated a sale, lease, exclusive license,
or other disposition of all or substantially all of the consolidated assets of
the Company and its Subsidiaries, other than a sale, lease, license, or other
disposition of all or substantially all of the consolidated assets of the
Company and its Subsidiaries to an entity, more than fifty percent (50%) of the
combined voting power of the voting securities of which are owned by
stockholders of the Company in substantially the same proportions as their
ownership of the Company immediately prior to such sale, lease, license, or
other disposition; or

 

                  (iv) individuals who, on the date this Plan is adopted by the
Board, are Directors (the "Incumbent Board") cease for any reason to constitute
at least a majority of the Directors; provided, however, that if the appointment
or election (or nomination for election) of any new Director was approved or
recommended by a majority vote of the members of the Incumbent Board then still
in office, such new member shall, for purposes of this Plan, be considered as a
member of the Incumbent Board.

 

      For purposes of determining whether a Change in Control has occurred, a
transaction includes all transactions in a series of related transactions, and
terms used in this definition but not defined are used as defined in the Plan.
The term Change in Control shall not include a sale of assets, merger, or other
transaction effected exclusively for the purpose of changing the domicile of the
Company.

 

      Notwithstanding the foregoing or any other provision of this Plan, the
definition of Change in Control (or any analogous term) in an individual written
agreement between the Company and the Participant shall supersede the foregoing
definition with respect to Awards subject to such agreement (it being
understood, however, that if no definition of Change in Control or any analogous
term is set forth in such an individual written agreement, the foregoing
definition shall apply).

 

            (i) "Code" means the Internal Revenue Code of 1986, as amended from
time to time, including regulations thereunder and successor provisions and
regulations thereto.

 

 
 

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            (j) "Committee" means a committee designated by the Board to
administer the Plan with respect to at least a group of Employees, Directors, or
Consultants.

 

            (k) "Consultant" means any person (other than an Employee or a
Director, solely with respect to rendering services in such person's capacity as
a director) who is engaged by the Company or any Related Entity to render
consulting or advisory services to the Company or such Related Entity.

 

            (l) "Continuous Service" means uninterrupted provision of services
to the Company as an Employee, a Director, or a Consultant. Continuous Service
shall not be considered to be interrupted in the case of (i) any approved leave
of absence, (ii) transfers among the Company, any Related Entities, or any
successor entities, as either an Employee, a Director, or a Consultant, or (iii)
any change in status as long as the individual remains in the service of the
Company or a Related Entity as either an Employee, a Director, or a Consultant
(except as otherwise provided in the Option Agreement). An approved leave of
absence shall include sick leave, military leave, or any other authorized
personal leave.

 

            (m) "Corporate Transaction" means the occurrence, in a single
transaction or in a series of related transactions, of any one or more of the
following events:

 

                  (i) a sale, lease, exclusive license, or other disposition of
all or substantially all, as determined by the Board in its discretion, of the
consolidated assets of the Company and its Subsidiaries;

 

                  (ii) a merger, consolidation, reorganization, or similar
transaction, whether or not the Company is the surviving corporation.

 

            (n) "Covered Employee" means an Eligible Person who is a Covered
Employee as specified in Section 7(d) of the Plan.

 

             (o) "Deferred Compensation" means any Award under this Plan that
provides for the “deferral of compensation” under a “nonqualified deferred
compensation plan” (as those terms are defined under Code Section 409A and the
regulations promulgated thereunder) and that would be subject to the taxes
specified in Code Section 409A(a)(1) if and to the extent that the Plan and the
agreement evidencing the Incentive do not meet or are not operated in compliance
with the requirements of Code Section 409A(a)(2), (3) and (4) and the
regulations promulgated thereunder. Deferred Compensation shall not include any
amount that is otherwise exempt from the requirements of Code Section 409A and
the regulations promulgated thereunder.

 

            (p) "Director" means a member of the Board or the board of directors
of any Related Entity.

 

            (q) "Disability" means a permanent and total disability (within the
meaning of Section 22(e) of the Code), as determined by a medical doctor
satisfactory to the Committee.

 

            (r) "Dividend Equivalent" means a right, granted to a Participant
under Section 6(g) hereof, to receive cash, Stock, other Awards, or other
property equal in value to dividends paid with respect to a specified number of
Shares, or other periodic payments.

 

            (s) "Effective Date" means the effective date of this Plan, which
shall be the date this Plan is adopted by the Board, subject to the approval of
the stockholders of the Company.

  

 
 

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            (t) "Eligible Person" means all Employees (including officers),
Directors, and Consultants of the Company or of any Related Entity. The
foregoing notwithstanding, only employees of the Company, the Parent, or any
Subsidiary shall be Eligible Persons for purposes of receiving any Incentive
Stock Options. An Employee on leave of absence may be considered as still in the
employ of the Company or a Related Entity for purposes of eligibility for
participation in the Plan.

 

            (u) "Employee" means any person, including an officer or Director,
who is an employee of the Company or any Related Entity. The Payment of a
director's fee by the Company or a Related Entity shall not be sufficient to
constitute "employment" by the Company.

 

            (v) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, including rules thereunder and successor provisions
and rules thereto.

 

            (w) "Executive Officer" means an executive officer of the Company as
defined under the Exchange Act.

 

            (x) "Fair Market Value" means the fair market value of Stock,
Awards, or other property as determined by the Plan Administrator, or under
procedures established by the Plan Administrator. Unless otherwise determined by
the Plan Administrator, the Fair Market Value of Stock as of any given date,
after which the Stock is publicly traded on a stock exchange or market, shall be
the closing sale price per share reported on a consolidated basis for stock
listed on the principal stock exchange or market on which Stock is traded on the
date as of which such value is being determined or, if there is no sale on that
date, then on the last previous day on which a sale was reported.

 

            (y) "Incentive Stock Option" means any Option intended to be
designated as an incentive stock option within the meaning of Section 422 of the
Code or any successor provision thereto.

 

            (z) "Non-Employee Director" means a Director of the Company who is
not an Employee.

 

            (aa) "Option" means a right granted to a Participant under Section
6(b) hereof, to purchase Stock or other Awards at a specified price during
specified time periods.

 

            (bb) "Other Stock-Based Awards" means Awards granted to a
Participant pursuant to Section 6(h) hereof.

 

            (cc) "Parent" means any corporation (other than the Company),
whether now or hereafter existing, in an unbroken chain of corporations ending
with the Company, if each of the corporations in the chain (other than the
Company) owns stock possessing 50 percent or more of the combined voting power
of all classes of stock in one of the other corporations in the chain.

 

            (dd) "Participant" means a person who has been granted an Award
under the Plan which remains outstanding, including a person who is no longer an
Eligible Person.

 

            (ee) "Performance Award" means a right, granted to an Eligible
Person under Section 7 hereof, to receive Awards based upon performance criteria
specified by the Plan Administrator.

 

            (ff) "Person" has the meaning ascribed to such term in Section
3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof, and
shall include a "group" as defined in Section 12(d) thereof.

 

            (gg) "Plan Administrator" means the Board or any Committee delegated
by the Board to administer the Plan.

  

 
 

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            (hh) "Related Entity" means any Parent, Subsidiary, and any
business, corporation, partnership, limited liability company, or other entity
in which the Company, a Parent, or a Subsidiary, directly or indirectly, holds a
substantial ownership interest.

 

            (ii) "Restricted Stock" means Stock granted to a Participant under
Section 6(d) hereof, that is subject to certain restrictions and to a risk of
forfeiture.

 

            (jj) "Rule 16b-3" and "Rule 16a-1(c)(3)" means Rule 16b-3 and Rule
16a-1(c)(3), as from time to time in effect and applicable to the Plan and
Participants, promulgated by the Securities and Exchange Commission under
Section 16 of the Exchange Act.

 

            (kk) "Shares" means the shares of the Company's Common Stock, and
the shares of such other securities as may be substituted (or resubstituted) for
Stock pursuant to Section 10(c) hereof.

 

            (ll) "Stock" means the Company's Common Stock, and such other
securities as may be substituted (or resubstituted) for the Company's Common
Stock pursuant to Section 10(c) hereof.

 

            (mm) "Stock Appreciation Right" means a right granted to a
Participant pursuant to Section 6(c) hereof.

 

            (nn) "Stock Unit" means a right, granted to a Participant pursuant
to Section 6(e) hereof, to receive Shares, cash or a combination thereof at the
end of a specified period of time.

 

            (oo) "Subsidiary" means any corporation (other than the Company),
whether now or hereafter existing, in an unbroken chain of corporations
beginning with the Company, if each of the corporations other than the last
corporation in the unbroken chain owns stock possessing 50 percent or more of
the total combined voting power of all classes of stock in one of the other
corporations in such chain.

 

      3. Administration.

 

            (a) Administration by Board. The Board shall administer the Plan
unless and until the Board delegates administration to a Committee, as provided
in Section 3(c).

 

            (b) Powers of Board. The Board shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:

 

                  (i) To determine from time to time which of the persons
eligible under the Plan shall be granted Awards; when and how each Award shall
be granted; what type or combination of types of Award shall be granted; the
provisions of each Award granted (which need not be identical), including the
time or times when a person shall be permitted to receive Shares pursuant to an
Award; and the number of Shares with respect to which an Award shall be granted
to each such person.

 

                  (ii) To construe and interpret the Plan and Awards granted
under it, and to establish, amend, and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission, or inconsistency in the Plan or in any Stock Award Agreement,
in a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.

 

                  (iii) To amend the Plan or an Award as provided in Section
10(e).

 

                  (iv) To terminate or suspend the Plan as provided in Section
10(e).

  

 
 

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                  (v) To effect, at any time and from time to time, with the
consent of any adversely affected Participant, (1) the reduction of the exercise
price of any outstanding Award under the Plan, if any, (2) the cancellation of
any outstanding Award and the grant in substitution therefor of (A) a new Award
under the Plan or another equity plan of the Company covering the same or a
different number of Shares, (B) cash and/or (C) other valuable consideration (as
determined by the Board, in its sole discretion), or (3) any other action that
is treated as a repricing under generally accepted accounting principles.

 

                  (vi) Generally, to exercise such powers and to perform such
acts as the Board deems necessary or expedient to promote the best interests of
the Company and that are not in conflict with the provisions of the Plan.

 

            (c) Delegation to Committee.

 

                  (i) General. The Board may delegate administration of the Plan
to a Committee or Committees of two (2) or more members of the Board, and the
term "Committee" shall apply to any person or persons to whom such authority has
been delegated. If administration is delegated to a Committee, the Committee
shall have, in connection with the administration of the Plan, the powers
theretofore possessed by the Board, including the power to delegate to a
subcommittee any of the administrative powers the Committee is authorized to
exercise (and references in this Plan to the Board shall thereafter be to the
Committee or subcommittee), subject, however, to such resolutions, not
inconsistent with the provisions of the Plan, as may be adopted from time to
time by the Board. The Board may abolish the Committee at any time and revest in
the Board the administration of the Plan.

 

                  (ii) Section 162(m) and Rule 16b-3 Compliance. In the
discretion of the Board, the Committee may consist solely of two or more
"Outside Directors", in accordance with Section 162(m) of the Code, and/or
solely of two or more "Non-Employee Directors", in accordance with Rule 16b-3.
In addition, the Board or the Committee may delegate to a committee of two or
more members of the Board the authority to grant Awards to eligible persons who
are either (a) not then Covered Employees and are not expected to be Covered
Employees at the time of recognition of income resulting from such Award, (b)
not persons with respect to whom the Company wishes to comply with Section
162(m) of the Code, or (c) not then subject to Section 16 of the Exchange Act.

 

            (d) Effect of Board's Decision. All determinations, interpretations,
and constructions made by the Board in good faith shall not be subject to review
by any person and shall be final, binding, and conclusive on all persons.

 

            (e) Arbitration. Any dispute or claim concerning any Award granted
(or not granted) pursuant to the Plan or any disputes or claims relating to or
arising out of the Plan shall be fully, finally, and exclusively resolved by
binding and confidential arbitration conducted pursuant to the rules of Judicial
Arbitration and Mediation Services, Inc. ("JAMS") in Phoenix, Arizona. The
Company shall pay all arbitration fees. In addition to any other relief, the
arbitrator may award to the prevailing party recovery of its attorneys' fees and
costs. By accepting an Award, the Participant and the Company waive their
respective rights to have any such disputes or claims tried by a judge or jury.

 

            (f) Limitation of Liability. The Committee and the Board, and each
member thereof, shall be entitled to, in good faith, rely or act upon any report
or other information furnished to him or her by any officer or Employee, the
Company's independent auditors, Consultants or any other agents assisting in the
administration of the Plan. Members of the Committee and the Board, and any
officer or Employee acting at the direction or on behalf of the Plan
Administrator, shall not be personally liable for any action or determination
taken or made in good faith with respect to the Plan, and shall, to the extent
permitted by law, be fully indemnified and protected by the Company with respect
to any such action or determination.

 

 
 

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      4. Stock Subject to Plan.

 

            (a) Limitation on Overall Number of Shares Subject to Awards.
Subject to adjustment as provided in Section 10(c) hereof, the total number of
Shares reserved and available for delivery in connection with Awards under the
Plan shall be 2,250,000. In addition, as of the date this Plan is first approved
by the stockholders, any shares available in the reserve of the 2005 Plan shall
be added to the Plan share reserve and be available for issuance under the Plan.
Any Shares delivered under the Plan may consist, in whole or in part, of
authorized and unissued shares or treasury shares.

 

            (b) Availability of Shares Not Delivered under Awards.

 

                  (i) If any Shares subject to an Award or subject to an award
under the 2005 Plan are forfeited, expire or otherwise terminate without
issuance of such Shares, or any Award is settled for cash or otherwise does not
result in the issuance of all or a portion of the Shares subject to such Award,
the Shares shall, to the extent of such forfeiture, expiration, termination,
cash settlement or non-issuance, again be available for Awards under the Plan,
subject to Section 4(b)(iv) below.

 

                  (ii) If any Shares issued pursuant to an Award or an award
under the 2005 Plan are forfeited back to or repurchased by the Company,
including, but not limited to, any repurchase or forfeiture caused by the
failure to meet a contingency or condition required for the vesting of such
shares, then such forfeited or repurchased Shares shall revert to and again
become available for issuance under the Plan, subject to Section 4(b)(iv) below.

 

                  (iii) In the event that any Option or other Award granted
hereunder or under the 2005 Plan is exercised through the tendering of Shares
(either actually or by attestation) or by the withholding of Shares by the
Company, or withholding tax liabilities arising from such Option, other Award or
other award are satisfied by the tendering of Shares (either actually or by
attestation) or by the withholding of Shares by the Company, then only the net
number of Shares actually issued to the Participant shall be counted as issued
for purposes of determining the maximum number of Shares available for grant
under the Plan, subject to Section 4(b)(iv) below.

 

                  (iv) Notwithstanding anything in this Section 4(b) to the
contrary and solely for purposes of determining whether Shares are available for
the grant of Incentive Stock Options, the maximum aggregate number of shares
that may be granted under this Plan shall be determined without regard to any
Shares restored pursuant to this Section 4(b) that, if taken into account, would
cause the Plan, for purposes of the grant of Incentive Stock Options, to fail
the requirement under Code Section 422 that the Plan designate a maximum
aggregate number of shares that may be issued.

 

            (c) Application of Limitations. The limitation contained in this
Section 4 shall apply not only to Awards that are settled by the delivery of
Shares but also to Awards relating to Shares but settled only in cash (such as
cash-only Stock Appreciation Rights). The Plan Administrator may adopt
reasonable counting procedures to ensure appropriate counting, avoid double
counting (as, for example, in the case of tandem or substitute awards) and make
adjustments if the number of Shares actually delivered differs from the number
of shares previously counted in connection with an Award.

 

      5. Eligibility. Awards may be granted under the Plan only to Eligible
Persons.

  

 
 

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      6. Terms of Awards.

 

            (a) General. Awards may be granted on the terms and conditions set
forth in this Section 6. In addition, the Plan Administrator may impose on any
Award or the exercise thereof, at the date of grant or thereafter (subject to
Section 10(e)), such additional terms and conditions, not inconsistent with the
provisions of the Plan, as the Plan Administrator shall determine, including but
not limited to terms requiring forfeiture of Awards in the event of termination
of Continuous Service by the Participant and terms permitting a Participant to
make elections relating to his or her Award. The Plan Administrator shall retain
full power and discretion to accelerate, waive, or modify, at any time, any term
or condition of an Award that is not mandatory under the Plan.

 

            (b) Options. The Plan Administrator is authorized to grant Options
to Participants on the following terms and conditions:

 

                  (i) Stock Option Agreement. Each grant of an Option shall be
evidenced by a Stock Option Agreement. Such Stock Option Agreement shall be
subject to all applicable terms and conditions of the Plan and may be subject to
any other terms and conditions which are not inconsistent with the Plan and
which the Plan Administrator deems appropriate for inclusion in a Stock Option
Agreement. The provisions of the various Stock Option Agreements entered into
under the Plan need not be identical.

 

                  (ii) Number of Shares. Each Stock Option Agreement shall
specify the number of Shares that are subject to the Option and shall provide,
either explicitly or pursuant to general incorporation of the Plan by reference
into such Stock Option Agreement, for the adjustment of such number in
accordance with Section 10(c) hereof. The Stock Option Agreement shall also
specify whether the Stock Option is an Incentive Stock Option or a Non-Qualified
Stock Option.

 

                  (iii) Exercise Price.

 

                        (A) In General. Each Stock Option Agreement shall state
the price at which Shares subject to the Option may be purchased (the "Exercise
Price"), which shall be, with respect to Incentive Stock Options, not less than
100% of the Fair Market Value of the Stock on the date of grant. In the case of
Non-Qualified Stock Options, the Exercise Price shall be determined in the sole
discretion of the Plan Administrator.

 

                        (B) Ten Percent Stockholder. If a Participant owns or is
deemed to own (by reason of the attribution rules applicable under Section
424(d) of the Code) more than 10% of the combined voting power of all classes of
stock of the Company or any Related Entity, any Incentive Stock Option granted
to such Participant must have an Exercise Price per share of at least 110% of
the Fair Market Value of a share of Stock on the date of grant.

 

                  (iv) Time and Method of Exercise. The Plan Administrator shall
determine the time or times at which or the circumstances under which an Option
may be exercised in whole or in part (including based on achievement of
performance goals and/or future service requirements). The Plan Administrator
may also determine the time or times at which Options shall cease to be or
become exercisable following termination of Continuous Service or upon other
conditions. The Board or the Committee may determine the methods by which such
exercise price may be paid or deemed to be paid (including, in the discretion of
the Plan Administrator, a cashless exercise procedure), the form of such
payment, including, without limitation, cash, Stock, other Awards or awards
granted under other plans of the Company or a Related Entity, or other property
(including notes or other contractual obligations of Participants to make
payment on a deferred basis), and the methods by or forms in which Stock will be
delivered or deemed to be delivered to Participants.

 

 
 

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                  (v) Incentive Stock Options. The terms of any Incentive Stock
Option granted under the Plan shall comply in all respects with the provisions
of Section 422 of the Code. Anything in the Plan to the contrary
notwithstanding, no term of the Plan relating to Incentive Stock Options
(including any Stock Appreciation Rights in tandem therewith) shall be
interpreted, amended, or altered, nor shall any discretion or authority granted
under the Plan be exercised, so as to disqualify either the Plan or any
Incentive Stock Option under Section 422 of the Code, unless the Participant has
consented in writing to the change that will result in such disqualification. If
and to the extent required to comply with Section 422 of the Code, Options
granted as Incentive Stock Options shall be subject to the following special
terms and conditions:

 

                        (1) the Option shall not be exercisable more than ten
years after the date such Incentive Stock Option is granted; provided, however,
that if a Participant owns or is deemed to own (by reason of the attribution
rules of Section 424(d) of the Code) more than 10% of the combined voting power
of all classes of stock of the Company or any Parent Corporation and the
Incentive Stock Option is granted to such Participant, the term of the Incentive
Stock Option shall be (to the extent required by the Code at the time of the
grant) for no more than five years from the date of grant; and

 

                        (2) If the aggregate Fair Market Value (determined as of
the date the Incentive Stock Option is granted) of the Shares with respect to
which Incentive Stock Options granted under the Plan and all other option plans
of the Company, its Parent or any Subsidiary are exercisable for the first time
by a Participant during any calendar year exceeds $100,000, then such
Participant's Incentive Stock Option(s) or portions thereof that exceed such
$100,000 limit shall be treated as Non-statutory Stock Options (in the reverse
order in which they were granted, so that the last Incentive Stock Option will
be the first treated as a Non-statutory Stock Option). This paragraph shall only
apply to the extent such limitation is applicable under the Code at the time of
the grant.

 

                  (vi) Repurchase Rights. The Committee and the Board shall have
the discretion to grant Options that are exercisable for unvested shares of
Common Stock. Should the Participant's Continuous Service cease while holding
such unvested shares, the Company shall have the right to repurchase any or all
of those unvested shares, at either (a) the exercise price paid per share, (b)
the fair market value, or (c) the lower of the exercise price paid per share and
the fair market value. The terms upon which such repurchase right shall be
exercisable (including the period and procedure for exercise and the appropriate
vesting schedule for the purchased shares) shall be established by the Plan
Administrator and set forth in the document evidencing such repurchase right.

 

(vii) Limitation on Awards. During any one fiscal year, no Person shall receive
Options and Stock Appreciation Rights that exceed, in the aggregate, 300,000
Shares.

 

            (c) Stock Appreciation Rights. The Plan Administrator is authorized
to grant Stock Appreciation Rights to Participants on the following terms and
conditions:

 

                  (i) Right to Payment. A Stock Appreciation Right shall confer
on the Participant to whom it is granted a right to receive, upon exercise
thereof, the excess of (A) the Fair Market Value of one share of stock on the
date of exercise over (B) the grant price of the Stock Appreciation Right as
determined by the Plan Administrator.

 

                  (ii) Other Terms. The Plan Administrator shall determine at
the date of grant or thereafter, the time or times at which and the
circumstances under which a Stock Appreciation Right may be exercised in whole
or in part (including based on achievement of performance goals and/or future
service requirements), the time or times at which Stock Appreciation Rights
shall cease to be or become exercisable following termination of Continuous
Service or upon other conditions, the method of exercise, method of settlement,
form of consideration payable in settlement, method by or forms in which Stock
will be delivered or deemed to be delivered to Participants, whether or not a
Stock Appreciation Right shall be in tandem or in combination with any other
Award, and any other terms and conditions of any Stock Appreciation Right. Stock
Appreciation Rights may be either freestanding or in tandem with other Awards.

  

 
 

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            (d) Restricted Stock. The Plan Administrator is authorized to grant
Restricted Stock to Participants on the following terms and conditions:

 

                  (i) Grant and Restrictions. Restricted Stock shall be subject
to such restrictions on transferability, risk of forfeiture, and other
restrictions, if any, as the Plan Administrator may impose, or as otherwise
provided in this Plan. The restrictions may lapse separately or in combination
at such times, under such circumstances (including based on achievement of
performance goals and/or future service requirements), in such installments or
otherwise, as the Plan Administrator may determine at the date of grant or
thereafter. Except to the extent restricted under the terms of the Plan and any
Award agreement relating to the Restricted Stock, a Participant granted
Restricted Stock shall have all of the rights of a stockholder, including the
right to vote the Restricted Stock and the right to receive dividends thereon
(subject to any mandatory reinvestment or other requirement imposed by the Plan
Administrator). During the restricted period applicable to the Restricted Stock,
subject to Section 10(b) below, the Restricted Stock may not be sold,
transferred, pledged, hypothecated, margined, or otherwise encumbered by the
Participant.

 

                  (ii) Forfeiture. Except as otherwise determined by the Plan
Administrator at the time of the Award, upon termination of a Participant's
Continuous Service during the applicable restriction period, the Participant's
Restricted Stock that is at that time subject to restrictions shall be forfeited
and reacquired by the Company; provided that the Plan Administrator may provide,
by rule or regulation or in any Award agreement, or may determine in any
individual case, that restrictions or forfeiture conditions relating to
Restricted Stock shall be waived in whole or in part in the event of
terminations resulting from specified causes, and the Plan Administrator may in
other cases waive in whole or in part the forfeiture of Restricted Stock.

 

                  (iii) Certificates for Stock. Restricted Stock granted under
the Plan may be evidenced in such manner as the Plan Administrator shall
determine. If certificates representing Restricted Stock are registered in the
name of the Participant, the Plan Administrator may require that such
certificates bear an appropriate legend referring to the terms, conditions, and
restrictions applicable to such Restricted Stock, that the Company retain
physical possession of the certificates, that the certificates be kept with an
escrow agent and that the Participant deliver a stock power to the Company,
endorsed in blank, relating to the Restricted Stock.

 

                  (iv) Dividends and Splits. As a condition to the grant of an
Award of Restricted Stock, the Plan Administrator may require that any cash
dividends paid on a share of Restricted Stock be automatically reinvested in
additional shares of Restricted Stock or applied to the purchase of additional
Awards under the Plan. Unless otherwise determined by the Plan Administrator,
Stock distributed in connection with a Stock split or Stock dividend, and other
property distributed as a dividend, shall be subject to restrictions and a risk
of forfeiture to the same extent as the Restricted Stock with respect to which
such Stock or other property has been distributed.

 

            (e) Stock Units. The Plan Administrator is authorized to grant Stock
Units to Participants, which are rights to receive Stock, cash, or a combination
thereof at the end of a specified time period, subject to the following terms
and conditions:

 

                  (i) Award and Restrictions. Satisfaction of an Award of Stock
Units shall occur upon expiration of the time period specified for such Stock
Units by the Plan Administrator (or, if permitted by the Plan Administrator, as
elected by the Participant). In addition, Stock Units shall be subject to such
restrictions (which may include a risk of forfeiture) as the Plan Administrator
may impose, if any, which restrictions may lapse at the expiration of the time
period or at earlier specified times (including based on achievement of
performance goals and/or future service requirements), separately or in
combination, in installments or otherwise, as the Plan Administrator may
determine. Stock Units may be satisfied by delivery of Stock, cash equal to the
Fair Market Value of the specified number of Shares covered by the Stock Units,
or a combination thereof, as determined by the Plan Administrator at the date of
grant or thereafter. Prior to satisfaction of an Award of Stock Units, an Award
of Stock Units carries no voting or dividend or other rights associated with
share ownership.

  

 
 

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                  (ii) Forfeiture. Except as otherwise determined by the Plan
Administrator, upon termination of a Participant's Continuous Service during the
applicable time period thereof to which forfeiture conditions apply (as provided
in the Award agreement evidencing the Stock Units), the Participant's Stock
Units (other than those Stock Units subject to deferral at the election of the
Participant) shall be forfeited; provided that the Plan Administrator may
provide, by rule or regulation or in any Award agreement, or may determine in
any individual case, that restrictions or forfeiture conditions relating to
Stock Units shall be waived in whole or in part in the event of terminations
resulting from specified causes, and the Plan Administrator may in other cases
waive in whole or in part the forfeiture of Stock Units.

 

                  (iii) Dividend Equivalents. Unless otherwise determined by the
Plan Administrator at date of grant, any Dividend Equivalents that are granted
with respect to any Award of Stock Units shall be either (A) paid with respect
to such Stock Units at the dividend payment date in cash or in shares of
unrestricted Stock having a Fair Market Value equal to the amount of such
dividends, or (B) deferred with respect to such Stock Units and the amount or
value thereof automatically deemed reinvested in additional Stock Units, other
Awards or other investment vehicles, as the Plan Administrator shall determine
or permit the Participant to elect.

 

            (f) Bonus Stock and Awards in Lieu of Obligations. The Plan
Administrator is authorized to grant Stock as a bonus, or to grant Stock or
other Awards in lieu of Company obligations to pay cash or deliver other
property under the Plan or under other plans or compensatory arrangements,
provided that, in the case of Participants subject to Section 16 of the Exchange
Act, the amount of such grants remains within the discretion of the Committee to
the extent necessary to ensure that acquisitions of Stock or other Awards are
exempt from liability under Section 16(b) of the Exchange Act. Stock or Awards
granted hereunder shall be subject to such other terms as shall be determined by
the Plan Administrator.

 

            (g) Dividend Equivalents. The Plan Administrator is authorized to
grant Dividend Equivalents to a Participant entitling the Participant to receive
cash, Stock, other Awards, or other property equal in value to dividends paid
with respect to a specified number of Shares, or other periodic payments.
Dividend Equivalents may be awarded on a free-standing basis or in connection
with another Award. The Plan Administrator may provide that Dividend Equivalents
shall be paid or distributed when accrued or shall be deemed to have been
reinvested in additional Stock, Awards, or other investment vehicles, and
subject to such restrictions on transferability and risks of forfeiture, as the
Plan Administrator may specify.

 

            (h) Other Stock-Based Awards. The Plan Administrator is authorized,
subject to limitations under applicable law, to grant to Participants such other
Awards that may be denominated or payable in, valued in whole or in part by
reference to, or otherwise based on, or related to, Stock, as deemed by the Plan
Administrator to be consistent with the purposes of the Plan, including, without
limitation, convertible or exchangeable debt securities, other rights
convertible or exchangeable into Stock, purchase rights for Stock, Awards with
value and payment contingent upon performance of the Company or any other
factors designated by the Plan Administrator, and Awards valued by reference to
the book value of Stock or the value of securities of or the performance of
specified Related Entities or business units. The Plan Administrator shall
determine the terms and conditions of such Awards. Stock delivered pursuant to
an Award in the nature of a purchase right granted under this Section 6(h) shall
be purchased for such consideration (including without limitation loans from the
Company or a Related Entity), paid for at such times, by such methods, and in
such forms, including, without limitation, cash, Stock, other Awards or other
property, as the Plan Administrator shall determine. The Plan Administrator
shall have the discretion to grant such other Awards which are exercisable for
unvested shares of Common Stock. Should the Participant's Continuous Service
cease while holding such unvested shares, the Company shall have the right to
repurchase, at a price determined by the Administrator at the time of grant, any
or all of those unvested shares. The terms upon which such repurchase right
shall be exercisable (including the period and procedure for exercise and the
appropriate vesting schedule for the purchased shares) shall be established by
the Plan Administrator and set forth in the document evidencing such repurchase
right. Cash awards, as an element of or supplement to any other Award under the
Plan, may also be granted pursuant to this Section 6(h).

  

 
 

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      7. Performance Awards.

 

            (a) Performance Conditions. The right of a Participant to exercise
or receive a grant or settlement of any Award, and the timing thereof, may be
subject to such performance conditions as may be specified by the Plan
Administrator. The Plan Administrator may use such business criteria and other
measures of performance as it may deem appropriate in establishing any
performance conditions, and may exercise its discretion to reduce the amounts
payable under any Award subject to performance conditions, except as limited
under Section 7(b) hereof in the case of a Performance Award intended to qualify
under Code Section 162(m). If and to the extent required under Code Section
162(m), any power or authority relating to a Performance Award intended to
qualify under Code Section 162(m), shall be exercised by the Committee as the
Plan Administrator and not the Board.

 

            (b) Performance Awards Granted to Designated Covered Employees. If
and to the extent that the Committee determines that a Performance Award to be
granted to an Eligible Person who is designated by the Committee as likely to be
a Covered Employee should qualify as "performance-based compensation" for
purposes of Code Section 162(m), the grant, exercise, and/or settlement of such
Performance Award shall be contingent upon achievement of pre-established
performance goals and other terms set forth in this Section 7(b).

 

                  (i) Performance Goals Generally. The performance goals for
such Performance Awards shall consist of one or more business criteria and a
targeted level or levels of performance with respect to each of such criteria,
as specified by the Committee consistent with this Section 7(b). Performance
goals shall be objective and shall otherwise meet the requirements of Code
Section 162(m) and regulations thereunder including the requirement that the
level or levels of performance targeted by the Committee result in the
achievement of performance goals being "substantially uncertain." The Committee
may determine that such Performance Awards shall be granted, exercised, and/or
settled upon achievement of any one performance goal or that two or more of the
performance goals must be achieved as a condition to grant, exercise, and/or
settlement of such Performance Awards. Performance goals may differ for
Performance Awards granted to any one Participant or to different Participants.

 

                  (ii) Business Criteria. One or more of the following business
criteria for the Company, on a consolidated basis, and/or specified Related
Entities or business units of the Company, shall be used exclusively by the
Committee in establishing performance goals for such Performance Awards that are
intended to qualify as “performance-based” compensation within the meaning of
Section 162(m) of the Code: earnings per share, operating income or profit, net
income, gross or net sales, expenses, expenses as a percentage of net sales,
inventory turns, cash flow (including, but not limited to, operating cash flow,
free cash flow, cash flow return on equity, and cash flow return on investment),
gross profit, margins, working capital, earnings before interest and tax (EBIT),
earnings before interest, tax, depreciation and amortization (EBITDA), return
measures (including, but not limited to, return on assets, capital, invested
capital, equity, sales, or revenue), revenue growth, share price (including, but
not limited to, growth measures and total shareholder return), operating
efficiency, productivity ratios, market share, economic value added and safety
(or any of the above criteria as compared to the performance of a group of
comparator companies, or published or special index that the Plan Administrator,
in its sole discretion, deems appropriate, or the Committee may select criteria
based on the Company’s share price as compared to various stock market indices.
The Plan Administrator, in its sole discretion, may modify the performance goals
if it determines that circumstances have changed and modification is required to
reflect the original intent of the Performance Goals; provided, however, that no
such change or modification may be made to the extent it increases the amount of
compensation payable to any Participant who is a Covered Employee” within the
meaning of Code Section 162(m).

  

 
 

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                  (iii) Performance Period; Timing For Establishing Performance
Goals. Achievement of performance goals in respect of such Performance Awards
shall be measured over a performance period of up to ten (10) years, as
specified by the Committee. Performance goals shall be established not later
than ninety (90) days after the beginning of any performance period applicable
to such Performance Awards, or at such other date as may be required or
permitted for "performance-based compensation" under Code Section 162(m).

 

                  (iv) Performance Award Pool. The Committee may establish a
Performance Award pool, which shall be an unfunded pool, for purposes of
measuring Company performance in connection with Performance Awards. The amount
of such Performance Award pool shall be based upon the achievement of a
performance goal or goals based on one or more of the business criteria set
forth in Section 7(b)(ii) hereof during the given performance period, as
specified by the Committee in accordance with Section 7(b)(iii) hereof. The
Committee may specify the amount of the Performance Award pool as a percentage
of any of such business criteria, a percentage thereof in excess of a threshold
amount, or as another amount which need not bear a strictly mathematical
relationship to such business criteria.

 

                  (v) Settlement of Performance Awards; Other Terms. Settlement
of such Performance Awards shall be in cash, Stock, other Awards or other
property, in the discretion of the Committee. The Committee may, in its
discretion, reduce the amount of a settlement otherwise to be made in connection
with such Performance Awards. The Committee shall specify the circumstances in
which such Performance Awards shall be paid or forfeited in the event of
termination of Continuous Service by the Participant prior to the end of a
performance period or settlement of Performance Awards.

 

            (c) Written Determinations. All determinations by the Committee as
to the establishment of performance goals, the amount of any Performance Award
pool or potential individual Performance Awards and as to the achievement of
performance goals relating to Performance Awards under Section 7(b), shall be
made in writing in the case of any Award intended to qualify under Code Section
162(m). The Committee may not delegate any responsibility relating to such
Performance Awards if and to the extent required to comply with Code Section
162(m).

 

            (d) Status of Performance Awards Under Code Section 162(m). It is
the intent of the Company that Performance Awards under this Section 7 hereof
granted to persons who are designated by the Committee as likely to be Covered
Employees within the meaning of Code Section 162(m) and regulations thereunder
shall, if so designated by the Committee, constitute "qualified
performance-based compensation" within the meaning of Code Section 162(m) and
regulations thereunder. Accordingly, the terms of Sections 7(b), (c) and (d),
including the definitions of Covered Employee and other terms used therein,
shall be interpreted in a manner consistent with Code Section 162(m) and
regulations thereunder. The foregoing notwithstanding, because the Committee
cannot determine with certainty whether a given Participant will be a Covered
Employee with respect to a fiscal year that has not yet been completed, the term
Covered Employee as used herein shall mean only a person designated by the
Committee, at the time of grant of Performance Awards, as likely to be a Covered
Employee with respect to that fiscal year. If any provision of the Plan or any
agreement relating to such Performance Awards does not comply or is inconsistent
with the requirements of Code Section 162(m) or regulations thereunder, such
provision shall be construed or deemed amended to the extent necessary to
conform to such requirements.

  

 
 

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      8. Certain Provisions Applicable to Awards or Sales.

 

            (a) Stand-Alone, Additional, Tandem, and Substitute Awards. Awards
granted under the Plan may, in the discretion of the Plan Administrator, be
granted either alone or in addition to, in tandem with, or in substitution or
exchange for, any other Award or any award granted under another plan of the
Company, any Related Entity, or any business entity to be acquired by the
Company or a Related Entity, or any other right of a Participant to receive
payment from the Company or any Related Entity. Such additional, tandem, and
substitute or exchange Awards may be granted at any time. If an Award is granted
in substitution or exchange for another Award or award, the Plan Administrator
shall require the surrender of such other Award or award in consideration for
the grant of the new Award. In addition, Awards may be granted in lieu of cash
compensation, including in lieu of cash amounts payable under other plans of the
Company or any Related Entity.

 

            (b) Form and Timing of Payment Under Awards; Deferrals. Subject to
the terms of the Plan and any applicable Award agreement, payments to be made by
the Company or a Related Entity upon the exercise of an Option or other Award or
settlement of an Award may be made in such forms as the Plan Administrator shall
determine, including, without limitation, cash, other Awards or other property,
and may be made in a single payment or transfer, in installments, or on a
deferred basis. The settlement of any Award may be accelerated, and cash paid in
lieu of Stock in connection with such settlement, in the discretion of the Plan
Administrator or upon occurrence of one or more specified events (in addition to
a Change in Control). Installment or deferred payments may be required by the
Plan Administrator (subject to Section 10(g) of the Plan) or permitted at the
election of the Participant on terms and conditions established by the Plan
Administrator. Payments may include, without limitation, provisions for the
payment or crediting of a reasonable interest rate on installment or deferred
payments or the grant or crediting of Dividend Equivalents or other amounts in
respect of installment or deferred payments denominated in Stock.

 

            (c) Exemptions from Section 16(b) Liability. It is the intent of the
Company that this Plan comply in all respects with applicable provisions of Rule
16b-3 or Rule 16a-1(c)(3) to the extent necessary to ensure that neither the
grant of any Awards to nor other transaction by a Participant who is subject to
Section 16 of the Exchange Act is subject to liability under Section 16(b)
thereof (except for transactions acknowledged in writing to be non-exempt by
such Participant). Accordingly, if any provision of this Plan or any Award
agreement does not comply with the requirements of Rule 16b-3 or Rule
16a-1(c)(3) as then applicable to any such transaction, such provision will be
construed or deemed amended to the extent necessary to conform to the applicable
requirements of Rule 16b-3 or Rule 16a-1(c)(3) so that such Participant shall
avoid liability under Section 16(b).

 

(d) No Option Repricing. Other than for capitalization adjustment pursuant to
Section 10(c), without approval of the Company’s stockholders, the Plan
Administrator shall not be permitted to (A) lower the exercise price per Share
of an Option after it is granted, (B) cancel an Option when the exercise price
per Share exceeds the Fair Market Value of the underlying Shares in exchange for
another Award or cash, or (C) take any other action with respect to an Option
that may be treated as a repricing under the federal securities laws or
Generally Accepted Accounting Principles.

  

 
 

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      9. Change in Control; Corporate Transaction.

 

            (a) Change in Control.

 

                  (i) The Plan Administrator may, in its discretion, accelerate
the vesting, exercisability, lapsing of restrictions, or expiration of deferral
of any Award, including upon the occurrence of a Change in Control. In addition,
the Plan Administrator may provide in an Award agreement that the performance
goals relating to any Performance Award will be deemed to have been met upon the
occurrence of any Change in Control.

 

                  (ii) In addition to the terms of Section 9(a)(i) above, the
effect of a "Change in Control," may be provided (1) in an employment,
compensation, or severance agreement, if any, between the Company or any Related
Entity and the Participant, relating to the Participant's employment,
compensation, or severance with or from the Company or such Related Entity, or
(2) in the agreement evidencing the Award.

 

            (b) Corporate Transactions. In the event of a Corporate Transaction,
any surviving corporation or acquiring corporation may either (i) assume or
continue any or all Awards outstanding under the Plan, or (ii) substitute
similar stock awards for outstanding Awards (it being understood that similar
awards include, but are not limited to, awards to acquire the same consideration
paid to the stockholders or the Company, as the case may be, pursuant to the
Corporate Transaction). In the event that any surviving corporation or acquiring
corporation does not assume or continue any or all such outstanding Awards or
substitute similar stock awards for such outstanding Awards, then with respect
to Awards that have been not assumed, continued, or substituted, then such
Awards shall terminate if not exercised (if applicable) at or prior to such
effective time (contingent upon the effectiveness of the Corporate Transaction).
The Administrator, in its discretion and without the consent of any Participant,
may (but is not obligated to) either (i) accelerate the vesting of all Awards
(and, if applicable, the time at which such Awards may be exercised) in full or
as to some percentage of the Award to a date prior to the effective time of such
Corporate Transaction as the Administrator shall determine (contingent upon the
effectiveness of each Corporate Transaction) or (ii) provide for a cash payment
in exchange for the termination of an Award or any portion thereof where such
cash payment is equal to the Fair Market Value of the Shares that the
Participant would receive if the Award were fully vested and exercised (if
applicable) as of such date (less any applicable exercise price). The
Administrator, in its sole discretion, shall determine whether each Award is
assumed, continued, substituted, or terminated.

 

                  With respect to Restricted Stock and any other Award granted
under the Plan that the Company has any reacquisition or repurchase rights, the
reacquisition or repurchase rights for such Awards may be assigned by the
Company to the successor of the Company (or the successor's parent company) in
connection with such Corporate Transaction. In addition, the Administrator, in
its discretion, may (but is not obligated to) provide that any reacquisition or
repurchase rights held by the Company with respect to such Awards shall lapse in
whole or in part (contingent upon the effectiveness of the Corporate
Transaction).

 

            (c) Dissolution or Liquidation. In the event of a dissolution or
liquidation of the Company, then all outstanding Awards shall terminate
immediately prior to the completion of such dissolution or liquidation, and
shares of Common Stock subject to the Company's repurchase option may be
repurchased by the Company notwithstanding the fact that the holder of such
stock is still in Continuous Service.

 

 
 

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      10. General Provisions.

 

            (a) Compliance With Legal and Other Requirements. The Company may,
to the extent deemed necessary or advisable by the Plan Administrator, postpone
the issuance or delivery of Stock or payment of other benefits under any Award
until completion of such registration or qualification of such Stock or other
required action under any federal or state law, rule, or regulation, listing or
other required action with respect to any stock exchange or automated quotation
system upon which the Stock or other Company securities are listed or quoted, or
compliance with any other obligation of the Company, as the Plan Administrator,
may consider appropriate, and may require any Participant to make such
representations, furnish such information, and comply with or be subject to such
other conditions as it may consider appropriate in connection with the issuance
or delivery of Stock or payment of other benefits in compliance with applicable
laws, rules, and regulations, listing requirements, or other obligations. The
foregoing notwithstanding, in connection with a Change in Control, the Company
shall take or cause to be taken no action, and shall undertake or permit to
arise no legal or contractual obligation, that results or would result in any
postponement of the issuance or delivery of Stock or payment of benefits under
any Award or the imposition of any other conditions on such issuance, delivery,
or payment, to the extent that such postponement or other condition would
represent a greater burden on a Participant than existed on the 90th day
preceding the Change in Control.

 

            (b) Limits on Transferability; Beneficiaries.

 

                  (i) General. Except as provided in the Award agreement, a
Participant may not assign, sell, transfer, or otherwise encumber or subject to
any lien any Award or other right or interest granted under this Plan, in whole
or in part, other than by will or by operation of the laws of descent and
distribution, and such Awards or rights that may be exercisable shall be
exercised during the lifetime of the Participant only by the Participant or his
or her guardian or legal representative.

 

                  (ii) Permitted Transfer of Option. The Plan Administrator, in
its sole discretion, may permit the transfer of an Option (but not an Incentive
Stock Option, or any other right to purchase Stock other than an Option) as
follows: (A) by gift to a member of the Participant's Immediate Family or (B) by
transfer by instrument to a trust providing that the Option is to be passed to
beneficiaries upon death of the Participant. For purposes of this Section
10(b)(ii), "Immediate Family" shall mean the Participant's spouse (including a
former spouse subject to terms of a domestic relations order); child, stepchild,
grandchild, child-in-law; parent, stepparent, grandparent, parent-in-law;
sibling and sibling-in-law, and shall include adoptive relationships. If a
determination is made by counsel for the Company that the restrictions contained
in this Section 10(b)(ii) are not required by applicable federal or state
securities laws under the circumstances, then the Committee or Board, in its
sole discretion, may permit the transfer of Awards (other than Incentive Stock
Options and Stock Appreciation Rights in tandem therewith) to one or more
Beneficiaries or other transferees during the lifetime of the Participant, which
may be exercised by such transferees in accordance with the terms of such Award,
but only if and to the extent permitted by the Plan Administrator pursuant to
the express terms of an Award agreement (subject to any terms and conditions
which the Plan Administrator may impose thereon, and further subject to any
prohibitions and restrictions on such transfers pursuant to Rule 16b-3). A
Beneficiary, transferee, or other person claiming any rights under the Plan from
or through any Participant shall be subject to all terms and conditions of the
Plan and any Award agreement applicable to such Participant, except as otherwise
determined by the Plan Administrator, and to any additional terms and conditions
deemed necessary or appropriate by the Plan Administrator.

 

             (c) Adjustments.

 

                  (i) Adjustments to Awards. In the event that any dividend or
other distribution (whether in the form of cash, Stock, or other property),
recapitalization, forward or reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase, share exchange, liquidation,
dissolution, or other similar corporate transaction or event affects the Stock
and/or such other securities of the Company or any other issuer such that a
substitution, exchange, or adjustment is determined by the Plan Administrator to
be appropriate, then the Plan Administrator shall, in such manner as it may deem
equitable, substitute, exchange, or adjust any or all of (A) the number and kind
of Shares which may be delivered in connection with Awards granted thereafter,
(B) the number and kind of Shares by which annual per-person Award limitations
are measured under Section 5 hereof, (C) the number and kind of Shares subject
to or deliverable in respect of outstanding Awards, (D) the exercise price,
grant price, or purchase price relating to any Award and/or make provision for
payment of cash or other property in respect of any outstanding Award, and (E)
any other aspect of any Award that the Plan Administrator determines to be
appropriate.

 

 
 

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                  (ii) Other Adjustments. The Committee (and the Board if and
only to the extent such authority is not required to be exercised by the
Committee to comply with Code Section 162(m)) is authorized to make adjustments
in the terms and conditions of, and the criteria included in, Awards (including
Performance Awards and performance goals and performance goals relating thereto)
in recognition of unusual or nonrecurring events (including, without limitation,
acquisitions and dispositions of businesses and assets) affecting the Company,
any Related Entity or any business unit, or the financial statements of the
Company or any Related Entity, or in response to changes in applicable laws,
regulations, accounting principles, tax rates, and regulations or business
conditions or in view of the Committee's assessment of the business strategy of
the Company, any Related Entity or business unit thereof, performance of
comparable organizations, economic and business conditions, personal performance
of a Participant, and any other circumstances deemed relevant; provided that no
such adjustment shall be authorized or made if and to the extent that such
authority or the making of such adjustment would cause Options, Stock
Appreciation Rights, Performance Awards granted under Section 7(b) hereof to
Participants designated by the Committee as Covered Employees and intended to
qualify as "performance-based compensation" under Code Section 162(m) and the
regulations thereunder to otherwise fail to qualify as "performance-based
compensation" under Code Section 162(m) and regulations thereunder.

 

            (d) Taxes. The Company and any Related Entity are authorized to
withhold from any Award granted, any payment relating to an Award under the
Plan, including from a distribution of Stock, or any payroll or other payment to
a Participant, amounts of withholding and other taxes due or potentially payable
in connection with any transaction involving an Award, and to take such other
action as the Plan Administrator may deem advisable to enable the Company and
Participants to satisfy obligations for the payment of withholding taxes and
other tax obligations relating to any Award. This authority shall include
authority to withhold or receive Stock or other property and to make cash
payments in respect thereof in satisfaction of a Participant's tax obligations,
either on a mandatory or elective basis in the discretion of the Committee.

 

            (e) Changes to the Plan and Awards. The Board may amend, alter,
suspend, discontinue, or terminate the Plan, or the Committee's authority to
grant Awards under the Plan, without the consent of stockholders or
Participants. Any amendment or alteration to the Plan shall be subject to the
approval of the Company's stockholders if such stockholder approval is deemed
necessary and advisable by the Board. However, without the consent of an
affected Participant, no such amendment, alteration, suspension, discontinuance,
or termination of the Plan may materially and adversely affect the rights of
such Participant under any previously granted and outstanding Award. The Plan
Administrator may waive any conditions or rights under, or amend, alter,
suspend, discontinue, or terminate any Award theretofore granted and any Award
agreement relating thereto, except as otherwise provided in the Plan; provided
that, without the consent of an affected Participant, no such action may
materially and adversely affect the rights of such Participant under such Award.

 

            (f) Limitation on Rights Conferred Under Plan. Neither the Plan nor
any action taken hereunder shall be construed as (i) giving any Eligible Person
or Participant the right to continue as an Eligible Person or Participant or in
the employ of the Company or a Related Entity; (ii) interfering in any way with
the right of the Company or a Related Entity to terminate any Eligible Person's
or Participant's Continuous Service at any time, (iii) giving an Eligible Person
or Participant any claim to be granted any Award under the Plan or to be treated
uniformly with other Participants and Employees, or (iv) conferring on a
Participant any of the rights of a stockholder of the Company unless and until
the Participant is duly issued or transferred Shares in accordance with the
terms of an Award.

  

 
 

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            (g) Unfunded Status of Awards; Creation of Trusts. The Plan is
intended to constitute an "unfunded" plan for incentive and deferred
compensation. With respect to any payments not yet made to a Participant or
obligations to deliver Stock pursuant to an Award, nothing contained in the Plan
or any Award shall give any such Participant any rights that are greater than
those of a general creditor of the Company; provided that the Committee may
authorize the creation of trusts and deposit therein cash, Stock, other Awards
or other property, or make other arrangements to meet the Company's obligations
under the Plan. Such trusts or other arrangements shall be consistent with the
"unfunded" status of the Plan unless the Committee otherwise determines with the
consent of each affected Participant. The trustee of such trusts may be
authorized to dispose of trust assets and reinvest the proceeds in alternative
investments, subject to such terms and conditions as the Plan Administrator may
specify and in accordance with applicable law.

 

            (h) Nonexclusivity of the Plan. Neither the adoption of the Plan by
the Board nor its submission to the stockholders of the Company for approval
shall be construed as creating any limitations on the power of the Board or a
committee thereof to adopt such other incentive arrangements as it may deem
desirable including incentive arrangements and awards which do not qualify under
Code Section 162(m).

 

            (i) Fractional Shares. No fractional Shares shall be issued or
delivered pursuant to the Plan or any Award. The Plan Administrator shall
determine whether cash, other Awards, or other property shall be issued or paid
in lieu of such fractional shares or whether such fractional shares or any
rights thereto shall be forfeited or otherwise eliminated.

 

            (j) Governing Law. The validity, construction, and effect of the
Plan, any rules and regulations under the Plan, and any Award agreement shall be
determined in accordance with the laws of the state of Delaware without giving
effect to principles of conflicts of laws, and applicable federal law.

 

            (k) Plan Effective Date and Stockholder Approval; Termination of
Plan. The Plan shall become effective on the Effective Date, subject to
subsequent approval within twelve (12) months of its adoption by the Board by
stockholders of the Company eligible to vote in the election of directors, by a
vote sufficient to meet the requirements of Code Sections 162(m) (if applicable)
and 422, Rule 16b-3 under the Exchange Act (if applicable), applicable NASDAQ
requirements, and other laws, regulations, and obligations of the Company
applicable to the Plan. Awards may be granted subject to stockholder approval,
but may not be exercised or otherwise settled in the event stockholder approval
is not obtained. The Plan shall terminate no later than ten (10) years from the
date of the later of (x) the Effective Date and (y) the date an increase in the
number of shares reserved for issuance under the Plan is approved by the Board
(so long as such increase is also approved by the stockholders).

 

            (l) 2005 Plan. Notwithstanding the adoption of this Plan by the
Board and its approval by the stockholders, the 2005 Plan shall remain in
effect, and all grants and awards made under the 2005 Plan shall be governed by
the terms of the 2005 Plan. Upon approval of the Plan by the stockholders of the
Company, no further Awards will be granted under the 2005 Plan.

 

            (m) Code Section 409A Provisions; Deferred Compensation.

 

                  (i) Except to the extent such acceleration or deferral is
permitted or complies with the requirements of Code Section 409A and the
regulations promulgated thereunder, neither the Plan Administrator nor a
Participant may accelerate or defer the time or schedule of any payment of, or
the amount scheduled to be paid under, an Award that constitutes Deferred
Compensation; provided, however, that payment shall be permitted if it is in
accordance with a fixed date or schedule or on account of “separation from
service,” “disability,” death, “change in control” or “ unforeseeable emergency”
as those terms are defined under Code Section 409A and the regulations
promulgated thereunder.

  

 
 

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                  (ii) Notwithstanding anything in the Plan, unless the
agreement evidencing the Award specifically provides otherwise, the Company may
not make payment to a Specified Employee (as determined under Code Section 409A
by the Plan Administrator in good faith) of any Award that constitutes Deferred
Compensation, earlier than 6 months following the Participant’s “separation from
service” as defined for purposes of Code Section 409A (or if earlier, upon the
Specified Employee’s death), except as permitted under Code Section 409A and the
regulations promulgated thereunder. Any payments that otherwise would be payable
to the Specified Employee during the foregoing 6 month period will be
accumulated and payment delayed until the first date after the 6 month period.
The Plan Administrator may specify in the Award agreement, that the amount of
the Deferred Compensation delayed shall accumulate interest, earnings or
Dividend Equivalents (as applicable) during the period of such delay.

 

                  (iii) The Plan Administrator may, however, reform any
provision in an Award intended to comply with (or be exempt from) Code Section
409A to maintain to the maximum extent practicable the original intent of the
applicable provision without violating the provisions of Code Section 409A and
the regulations promulgated thereunder.