Signal Technology, Inc.
Exhibit 10.28

APPLIED SIGNAL TECHNOLOGY, INC.
2004 STOCK
INCENTIVE PLAN

APPLIED SIGNAL TECHNOLOGY, INC.

2004 STOCK INCENTIVE PLAN

 

    Establishment, Purpose and Term of Plan.
     1. Establishment. The Applied Signal Technology, Inc. 2004 Stock Incentive
        Plan (the "Plan") is hereby established effective as of March 10, 2004,
        the date of its approval by the shareholders of the Company (the
        "Effective Date").
     2. Purpose. The purpose of the Plan is to advance the interests of the
        Participating Company Group and its shareholders by providing an
        incentive to attract, retain and reward persons performing services for
        the Participating Company Group and by motivating such persons to
        contribute to the growth and profitability of the Participating Company
        Group. The Plan seeks to achieve this purpose by providing for Awards in
        the form of Options, Restricted Stock, and Restricted Stock Units.
     3. Term of Plan. The Plan shall continue in effect until the earlier of its
        termination by the Board or the date on which all of the shares of Stock
        available for issuance under the Plan have been issued and all
        restrictions on such shares under the terms of the Plan and the
        agreements evidencing Options granted under the Plan have lapsed.
        However, all Incentive Stock Options shall be granted, if at all, within
        eight (8) years from the Effective Date.

    Definitions and Construction.
     1. Definitions. Whenever used herein, the following terms shall have their
        respective meanings set forth below:
         a.  "Award" means any Option, Restricted Stock or Restricted Stock Unit
             granted under the Plan.
         b.  "Award Agreement" means a written agreement between the Company and
             a Participant setting forth the terms, conditions and restrictions
             of the Award granted to the Participant. An Award Agreement may be
             an "Option Agreement," a "Restricted Stock Agreement" or a
             "Restricted Stock Units Agreement."
         c.  "Board" means the Board of Directors of the Company. If one or more
             Committees have been appointed by the Board to administer the Plan,
             "Board" also means such Committee(s).
         d.  "Code" means the Internal Revenue Code of 1986, as amended, and any
             applicable regulations promulgated thereunder.
         e.  "Committee" means the compensation committee or other committee of
             the Board duly appointed to administer the Plan and having such
             powers as shall be specified by the Board. Unless the powers of the
             Committee have been specifically limited, the Committee shall have
             all of the powers of the Board granted herein, including, without
             limitation, the power to amend or terminate the Plan at any time,
             subject to the terms of the Plan and any applicable limitations
             imposed by law.
         f.  "Company" means Applied Signal Technology, Inc., a California
             corporation, or any successor corporation thereto.
         g.  "Consultant" means a person engaged to provide consulting or
             advisory services (other than as an Employee or a Director) to a
             Participating Company, provided that the identity of such person,
             the nature of such services or the entity to which such services
             are provided would not preclude the Company from offering or
             selling securities to such person pursuant to the Plan in reliance
             on registration on a Form S-8 Registration Statement under the
             Securities Act.
         h.  "Director" means a member of the Board or of the board of directors
             of any other Participating Company.
         i.  "Disability" means the permanent and total disability of the
             Participant within the meaning of Section 22(e)(3) of the Code.
             
         j.  "Dividend Equivalent" means a credit, made at the discretion of the
             Board or as otherwise provided by the Plan, to the account of a
             Participant in an amount equal to the cash dividends paid on one
             share of Stock for each share of Stock represented by an Award held
             by such Participant.
         k.  "Employee" means any person treated as an employee (including an
             officer of the Company or a Director who is also treated as an
             employee) in the records of a Participating Company and, with
             respect to any Incentive Stock Option granted to such person, who
             is an employee for purposes of Section 422 of the Code; provided,
             however, that neither service as a Director nor payment of a
             director’s fee shall be sufficient to constitute employment for
             purposes of the Plan. The Company shall determine in good faith and
             in the exercise of its discretion whether an individual has become
             or has ceased to be an Employee and the effective date of such
             individual’s employment or termination of employment, as the case
             may be. For purposes of an individual’s rights, if any, under the
             Plan as of the time of the Company’s determination, all such
             determinations by the Company shall be final, binding and
             conclusive, notwithstanding that the Company or any court of law or
             governmental agency subsequently makes a contrary determination.
         l.  "Exchange Act" means the Securities Exchange Act of 1934, as
             amended.
         m.  "Fair Market Value" means, as of any date, the value of a share of
             Stock or other property as determined by the Board, in its
             discretion, or by the Company, in its discretion, if such
             determination is expressly allocated to the Company herein, subject
             to the following:
              i.  If, on such date, the Stock is listed on a national or
                  regional securities exchange or market system, the Fair Market
                  Value of a share of Stock shall be the closing price of a
                  share of Stock (or the mean of the closing bid and asked
                  prices of a share of Stock if the Stock is so quoted instead)
                  as quoted on the Nasdaq National Market, The Nasdaq SmallCap
                  Market or such other national or regional securities exchange
                  or market system constituting the primary market for the
                  Stock, as reported in The Wall Street Journal or such other
                  source as the Company deems reliable. If the relevant date
                  does not fall on a day on which the Stock has traded on such
                  securities exchange or market system, the date on which the
                  Fair Market Value shall be established shall be the last day
                  on which the Stock was so traded prior to the relevant date,
                  or such other appropriate day as shall be determined by the
                  Board, in its discretion.
              ii. If, on such date, the Stock is not listed on a national or
                  regional securities exchange or market system, the Fair Market
                  Value of a share of Stock shall be as determined by the Board
                  in good faith without regard to any restriction other than a
                  restriction which, by its terms, will never lapse.
        
         n.  "Incentive Stock Option" means an Option intended to be (as set
             forth in the Option Agreement) and which qualifies as an incentive
             stock option within the meaning of Section 422(b) of the Code.
         o.  "Insider" means an officer or a Director of the Company or any
             other person whose transactions in Stock are subject to Section 16
             of the Exchange Act.
         p.  "Nonstatutory Stock Option" means an Option not intended to be (as
             set forth in the Option Agreement) or which does not qualify as an
             Incentive Stock Option.
         q.  "Officer" means any person designated by the Board as an officer of
             the Company.
         r.  "Option" means a right to purchase Stock (subject to adjustment as
             provided in Section 4.2) pursuant to the terms and conditions of
             the Plan, including an Outside Director Option. An Option may be
             either an Incentive Stock Option or a Nonstatutory Stock Option.
         s.  "Outside Director" means a Director of the Company who is not an
             Employee or a Consultant.
         t.  "Outside Director Option" means an Option granted to an Outside
             Director and designated by the Board as an "Outside Director
             Option."
         u.  "Parent Corporation" means any present or future "parent
             corporation" of the Company, as defined in Section 424(e) of the
             Code.
         v.  "Participant" means any eligible person who has been granted one or
             more Awards.
         w.  "Participating Company" means the Company or any Parent Corporation
             or Subsidiary Corporation.
         x.  "Participating Company Group" means, at any point in time, all
             corporations collectively which are then Participating Companies.
         y.  "Restricted Stock" means Stock granted to a Participant pursuant to
             Section 8 of the Plan.
         z.  "Restricted Stock Unit" means a bookkeeping entry representing a
             right granted to a Participant pursuant to Section 9 of the Plan to
             receive a share of Stock on a date determined in accordance with
             the provisions of Section 9 and the Participant’s Award Agreement.
         aa. "Restriction Period" means the period established in accordance
             with Section 8.2 of the Plan during which shares subject to a
             Restricted Stock Award are subject to Vesting Conditions.
         ab. "Rule 16b-3" means Rule 16b-3 under the Exchange Act, as amended
             from time to time, or any successor rule or regulation.
         ac. "Section 162(m)" means Section 162(m) of the Code.
         ad. "Securities Act" means the Securities Act of 1933, as amended.
         ae. "Service" means a Participant’s employment or service with the
             Participating Company Group, whether in the capacity of an
             Employee, a Director, or a Consultant. A Participant’s Service
             shall not be deemed to have terminated merely because of a change
             in the capacity in which the Participant renders such Service or a
             change in the Participating Company for which the Participant
             renders such Service, provided that there is no interruption or
             termination of the Participant’s Service. Furthermore, a
             Participant’s Service shall not be deemed to have terminated if the
             Participant takes any military leave, sick leave, or other bona
             fide leave of absence approved by the Company. However, if any such
             leave taken by a Participant exceeds ninety (90) days, then on the
             one hundred eighty-first (181st) day following the commencement of
             such leave any Incentive Stock Option held by the Participant shall
             cease to be treated as an Incentive Stock Option and instead shall
             be treated thereafter as a Nonstatutory Stock Option unless the
             Participant’s right to return to Service with the Participating
             Company Group is guaranteed by statute or contract. Notwithstanding
             the foregoing, unless otherwise designated by the Company or
             required by law, a leave of absence shall not be treated as Service
             for purposes of determining vesting under a Participant’s Award
             Agreement. A Participant’s Service shall be deemed to have
             terminated either upon an actual termination of Service or upon the
             corporation for which the Participant performs Service ceasing to
             be a Participating Company. Subject to the foregoing, the Company,
             in its discretion, shall determine whether a Participant’s Service
             has terminated and the effective date of such termination.
         af. "Stock" means the common stock of the Company, as adjusted from
             time to time in accordance with Section 4.2.
         ag. "Subsidiary Corporation" means any present or future "subsidiary
             corporation" of the Company, as defined in Section 424(f) of the
             Code.
         ah. "Ten Percent Shareholder" means a Participant who, at the time an
             Option is granted to the Participant, owns stock possessing more
             than ten percent (10%) of the total combined voting power of all
             classes of stock of a Participating Company within the meaning of
             Section 422(b)(6) of the Code.
         ai. "Vesting Conditions" mean those conditions established in
             accordance with Section 8.2 or Section 9.2 of the Plan prior to the
             satisfaction of which shares of Restricted Stock or Restricted
             Stock Units remain subject to forfeiture to the Company upon the
             Participant’s termination of Service.
    
     2. Construction. Captions and titles contained herein are for convenience
        only and shall not affect the meaning or interpretation of any provision
        of the Plan. Except when otherwise indicated by the context, the
        singular shall include the plural and the plural shall include the
        singular. Use of the term "or" is not intended to be exclusive, unless
        the context clearly requires otherwise.

    Administration.
     1. Administration by the Board. The Plan shall be administered by the
        Board. All questions of interpretation of the Plan or of any Award shall
        be determined by the Board, and such determinations shall be final and
        binding upon all persons having an interest in the Plan or such Award.
     2. Authority of Officers. Any Officer shall have the authority to act on
        behalf of the Company with respect to any matter, right, obligation,
        determination or election which is the responsibility of or which is
        allocated to the Company herein, provided the Officer has apparent
        authority with respect to such matter, right, obligation, determination
        or election.
     3. Powers of the Board. In addition to any other powers set forth in the
        Plan and subject to the provisions of the Plan, the Board shall have the
        full and final power and authority, in its discretion:
         a. to determine the persons to whom, and the time or times at which,
            Awards shall be granted and the number of shares of Stock or units
            to be subject to each Award;
         b. to determine the type of Award granted, including to designate
            Options as Incentive Stock Options or Nonstatutory Stock Options;
         c. to determine the Fair Market Value of shares of Stock or other
            property;
         d. to determine the terms, conditions and restrictions applicable to
            each Award (which need not be identical) and any shares acquired
            pursuant thereto, including, without limitation, (i) the exercise
            price of Options, (ii) the method of payment for shares purchased
            pursuant to any Award, (iii) the method for satisfaction of any tax
            withholding obligation arising in connection with the Award,
            including by the withholding or delivery of shares of stock,
            (iv) the timing, terms and conditions of the exercisability or
            vesting of any Award or any shares acquired pursuant thereto,
            (v) the time of the expiration of any Award, (vi) the effect of the
            Participant’s termination of Service with the Participating Company
            Group on any of the foregoing, and (vii) all other terms, conditions
            and restrictions applicable to any Award or such shares acquired
            pursuant thereto not inconsistent with the terms of the Plan;
         e. to approve one or more forms of Award Agreement;
         f. to amend, modify, extend or renew any Award or to waive any
            restrictions or conditions applicable to any Award or any shares
            acquired upon the exercise thereof;
         g. to accelerate, continue, extend or defer the exercisability or the
            vesting of any Award or any shares acquired pursuant thereto,
            including with respect to the period following a Participant’s
            termination of Service;
         h. to prescribe, amend or rescind rules, guidelines and policies
            relating to the Plan, or to adopt supplements to, or alternative
            versions of, the Plan, including, without limitation, as the Board
            deems necessary or desirable to comply with the laws of, or to
            accommodate the tax policy or custom of, foreign jurisdictions whose
            citizens may be granted Awards; and
         i. to correct any defect, supply any omission or reconcile any
            inconsistency in the Plan or any Award Agreement and to make all
            other determinations and take such other actions with respect to the
            Plan or any Award as the Board may deem advisable to the extent not
            inconsistent with the Plan or applicable law.
    
     4. Administration with Respect to Insiders. With respect to participation
        by Insiders in the Plan, at any time that any class of equity security
        of the Company is registered pursuant to Section 12 of the Exchange Act,
        the Plan shall be administered in compliance with the requirements, if
        any, of Rule 16b-3.
     5. Committee Complying with Section 162(m). If a Participating Company is a
        "publicly held corporation" within the meaning of Section 162(m), the
        Board may establish a Committee of "outside directors" within the
        meaning of Section 162(m) to approve the grant of any Option which might
        reasonably be anticipated to result in the payment of employee
        remuneration that would otherwise exceed the limit on employee
        remuneration deductible for income tax purposes pursuant to
        Section 162(m).
     6. Option Repricing. Without the affirmative vote of holders of a majority
        of the shares of Stock cast in person or by proxy at a meeting of the
        shareholders of the Company at which a quorum representing a majority of
        all outstanding shares of Stock is present or represented by proxy, the
        Board shall not approve a program providing for either (a) the
        cancellation of outstanding Options and the grant in substitution
        therefore of new Options having a lower exercise price or (b) the
        amendment of outstanding Options to reduce the exercise price thereof.
        This paragraph shall not be construed to apply to "issuing or assuming a
        stock option in a transaction to which section 424(a) applies," within
        the meaning of Section 424 of the Code.
     7. Indemnification. In addition to such other rights of indemnification as
        they may have as members of the Board or officers or employees of the
        Participating Company Group, members of the Board and any officers or
        employees of the Participating Company Group to whom authority to act
        for the Board or the Company is delegated shall be indemnified by the
        Company against all reasonable expenses, including attorneys’ fees,
        actually and necessarily incurred in connection with the defense of any
        action, suit or proceeding, or in connection with any appeal therein, to
        which they or any of them may be a party by reason of any action taken
        or failure to act under or in connection with the Plan, or any right
        granted hereunder, and against all amounts paid by them in settlement
        thereof (provided such settlement is approved by independent legal
        counsel selected by the Company) or paid by them in satisfaction of a
        judgment in any such action, suit or proceeding, except in relation to
        matters as to which it shall be adjudged in such action, suit or
        proceeding that such person is liable for gross negligence, bad faith or
        intentional misconduct in duties; provided, however, that within sixty
        (60) days after the institution of such action, suit or proceeding, such
        person shall offer to the Company, in writing, the opportunity at its
        own expense to handle and defend the same.

    Shares Subject to Plan.
     1. Maximum Number of Shares Issuable. Subject to adjustment as provided in
        Section 4.2, the maximum aggregate number of shares of Stock that may be
        issued under the Plan shall be six hundred thousand (600,000) and shall
        consist of authorized but unissued or reacquired shares of Stock or any
        combination thereof. If an outstanding Award for any reason expires or
        is terminated or canceled without having been exercised or settled in
        full, or if shares of Stock acquired pursuant to an Award subject to
        forfeiture or repurchase are forfeited or repurchased by the Company at
        the Participant’s purchase price, the shares of Stock allocable to the
        terminated portion of such Award or such forfeiture or repurchased
        shares of Stock shall again be available for issuance under the Plan.
        Shares of Stock shall not be deemed to have been issued pursuant to the
        Plan to the extent such shares are withheld in satisfaction of tax
        withholding obligations pursuant to Section 13. If the exercise price of
        an Option is paid by tender to the Company, or attestation to the
        ownership, of shares of Stock owned by the Participant, the number of
        shares available for issuance under the Plan shall be reduced by the net
        number of shares for which the Option is exercised.
     2. Adjustments for Changes in Capital Structure. Subject to any required
        action by the shareholders of the Company, in the event of any change in
        the Stock effected without receipt of consideration by the Company,
        whether through merger, consolidation, reorganization, reincorporation,
        recapitalization, reclassification, stock dividend, stock split, reverse
        stock split, split-up, split-off, spin-off, combination of shares,
        exchange of shares, or similar change in the capital structure of the
        Company, or in the event of payment of a dividend or distribution to the
        stockholders of the Company in a form other than Stock (excepting normal
        cash dividends) that has a material effect on the Fair Market Value of
        shares of Stock, appropriate adjustments shall be made in the number and
        class of shares subject to the Plan and to any outstanding Awards, and
        in the exercise price per share under any outstanding Award in order to
        prevent dilution or enlargement of Participants’ rights under the Plan.
        For purposes of the foregoing, conversion of any convertible securities
        of the Company shall not be treated as "effected without receipt of
        consideration by the Company." Any fractional share resulting from an
        adjustment pursuant to this Section 4.2 shall be rounded down to the
        nearest whole number, and in no event may the exercise price under any
        Award be decreased to an amount less than the par value, if any, of the
        stock subject to such Award. The adjustments determined by the Board
        pursuant to this Section 4.2 shall be final, binding and conclusive.

 1. Eligibility and Award Limitations.
     1. Eligibility. Awards may be granted only to Employees, Consultants, and
        Directors. For purposes of the foregoing sentence, "Employees,"
        "Consultants" and "Directors" shall include prospective Employees,
        prospective Consultants and prospective Directors to whom Awards are
        granted in connection with written offers of an employment or other
        service relationship with the Participating Company Group; provided,
        however, that no Stock subject to any such Award shall vest, become
        exercisable or be issued prior to the date on which such person
        commences Service. Awards are granted solely at the discretion of the
        Board. Eligible persons may be granted more than one (1) Award. However,
        eligibility in accordance with this Section shall not entitle any person
        to be granted an Award, or, having been granted an Award, to be granted
        an additional Award.
     2. Option Grant Restrictions. Any person who is not an Employee on the
        effective date of the grant of an Option to such person may be granted
        only a Nonstatutory Stock Option. An Incentive Stock Option granted to a
        prospective Employee upon the condition that such person become an
        Employee shall be deemed granted effective on the date such person
        commences Service with a Participating Company, with an exercise price
        determined as of such date in accordance with Section 6.1.
     3. Fair Market Value Limitation. To the extent that options designated as
        Incentive Stock Options (granted under all stock option plans of the
        Participating Company Group, including the Plan) become exercisable by a
        Participant for the first time during any calendar year for stock having
        a Fair Market Value greater than One Hundred Thousand Dollars
        ($100,000), the portions of such options which exceed such amount shall
        be treated as Nonstatutory Stock Options. For purposes of this
        Section 5.3, options designated as Incentive Stock Options shall be
        taken into account in the order in which they were granted, and the Fair
        Market Value of stock shall be determined as of the time the option with
        respect to such stock is granted. If the Code is amended to provide for
        a different limitation from that set forth in this Section 5.3, such
        different limitation shall be deemed incorporated herein effective as of
        the date and with respect to such Options as required or permitted by
        such amendment to the Code. If an Option is treated as an Incentive
        Stock Option in part and as a Nonstatutory Stock Option in part by
        reason of the limitation set forth in this Section 5.3, the Participant
        may designate which portion of such Option the Participant is
        exercising. In the absence of such designation, the Participant shall be
        deemed to have exercised the Incentive Stock Option portion of the
        Option first. Separate certificates representing each such portion shall
        be issued upon the exercise of the Option.
     4. Section 162(m) Grant Limit. Subject to adjustment as provided in
        Section 4.2, at any such time as a Participating Company is a "publicly
        held corporation" within the meaning of Section 162(m), no Employee or
        prospective Employee shall be granted one or more Options within any
        fiscal year of the Company which in the aggregate are for the purchase
        of more than four hundred thousand (400,000) shares. An Option which is
        canceled in the same fiscal year of the Company in which it was granted
        shall continue to be counted against the Section 162(m) Grant Limit for
        such period.

 2. Terms and Conditions of Options.

    Options shall be evidenced by Award Agreements specifying the number of
    shares of Stock covered thereby, in such form as the Board shall from time
    to time establish. No Option or purported Option shall be a valid and
    binding obligation of the Company unless evidenced by a fully executed Award
    Agreement. Award Agreements may incorporate all or any of the terms of the
    Plan by reference and, except as otherwise set forth in Section 7 with
    respect to Outside Director Options, shall comply with and be subject to the
    following terms and conditions:

     1. Exercise Price. The exercise price for each Option shall be established
        in the discretion of the Board; provided, however, that (a) the exercise
        price per share shall be not less than the Fair Market Value of a share
        of Stock on the effective date of grant of the Option and (b)  no
        Incentive Stock Option granted to a Ten Percent Shareholder shall have
        an exercise price per share less than one hundred ten percent (110%) of
        the Fair Market Value of a share of Stock on the effective date of grant
        of the Option. Notwithstanding the foregoing, an Option (whether an
        Incentive Stock Option or a Nonstatutory Stock Option) may be granted
        with an exercise price lower than the minimum exercise price set forth
        above if such Option is granted pursuant to an assumption or
        substitution for another option in a manner qualifying under the
        provisions of Section 424(a) of the Code.
     2. Exercisability and Term of Options. Options shall be exercisable at such
        time or times, or upon such event or events, and subject to such terms,
        conditions, performance criteria and restrictions as shall be determined
        by the Board and set forth in the Award Agreement evidencing such
        Option; provided, however, that (a) no Option shall be exercisable after
        the expiration of eight (8) years after the effective date of grant of
        such Option, (b) no Incentive Stock Option granted to a Ten Percent
        Shareholder shall be exercisable after the expiration of five (5) years
        after the effective date of grant of such Option, and (c) no Option
        granted to a prospective Employee, prospective Consultant or prospective
        Director may become exercisable prior to the date on which such person
        commences Service with a Participating Company. Subject to the
        foregoing, unless otherwise specified by the Board in the grant of an
        Option, any Option granted hereunder shall terminate eight (8) years
        after the effective date of grant of the Option, unless earlier
        terminated in accordance with its provisions.
        Payment of Exercise Price.
            
         a. Forms of Consideration Authorized. Except as otherwise provided
            below, payment of the exercise price for the number of shares of
            Stock being purchased pursuant to any Option shall be made (i) in
            cash, by check or cash equivalent, (ii) by tender to the Company, or
            attestation to the ownership, of shares of Stock owned by the
            Participant having a Fair Market Value (as determined by the Company
            without regard to any restrictions on transferability applicable to
            such stock by reason of federal or state securities laws or
            agreements with an underwriter for the Company) not less than the
            exercise price, (iii) by delivery of a properly executed notice of
            exercise together with irrevocable instructions to a broker
            providing for the assignment to the Company of the proceeds of a
            sale or loan with respect to some or all of the shares being
            acquired upon the exercise of the Option (including, without
            limitation, through an exercise complying with the provisions of
            Regulation T as promulgated from time to time by the Board of
            Governors of the Federal Reserve System) (a "Cashless Exercise"),
            (iv) by such other consideration as may be approved by the Board
            from time to time to the extent permitted by applicable law, or
            (v) by any combination thereof. The Board may at any time or from
            time to time, by approval of or by amendment to the standard forms
            of Award Agreement described in Section 8, or by other means, grant
            Options which do not permit all of the foregoing forms of
            consideration to be used in payment of the exercise price or which
            otherwise restrict one or more forms of consideration.
            Limitations on Forms of Consideration.
                 
             i.  Tender of Stock. Notwithstanding the foregoing, an Option may
                 not be exercised by tender to the Company, or attestation to
                 the ownership, of shares of Stock to the extent such tender or
                 attestation would constitute a violation of the provisions of
                 any law, regulation or agreement restricting the redemption of
                 the Company’s stock. Unless otherwise provided by the Board, an
                 Option may not be exercised by tender to the Company, or
                 attestation to the ownership, of shares of Stock unless such
                 shares either have been owned by the Participant for more than
                 six (6) months (and not used for another Option exercise by
                 attestation during such period) or were not acquired, directly
                 or indirectly, from the Company.
             ii. Cashless Exercise. The Company reserves, at any and all times,
                 the right, in the Company’s sole and absolute discretion, to
                 establish, decline to approve or terminate any program or
                 procedures for the exercise of Options by means of a Cashless
                 Exercise.
    
     3. Effect of Termination of Service.
         a. Option Exercisability. Subject to earlier termination of the Option
            as otherwise provided herein and unless otherwise provided by the
            Board in the grant of an Option and set forth in the Award
            Agreement, an Option shall be exercisable after a Participant’s
            termination of Service only during the applicable time period
            determined in accordance with this Section 6.4 and thereafter shall
            terminate:
        
             
        
             i.   Disability. If the Participant’s Service with the
                  Participating Company Group terminates because of the
                  Disability of the Participant, the Option, to the extent
                  unexercised and exercisable on the date on which the
                  Participant’s Service terminated, may be exercised by the
                  Participant (or the Participant’s guardian or legal
                  representative) at any time prior to the expiration of twelve
                  (12) months (or such longer period of time as determined by
                  the Board, in its discretion) after the date on which the
                  Participant’s Service terminated, but in any event no later
                  than the date of expiration of the Option’s term as set forth
                  in the Award Agreement evidencing such Option (the "Option
                  Expiration Date").
            
                   
            
             ii.  Death. If the Participant’s Service with the Participating
                  Company Group terminates because of the death of the
                  Participant, the Option, to the extent unexercised and
                  exercisable on the date on which the Participant’s Service
                  terminated, may be exercised by the Participant’s legal
                  representative or other person who acquired the right to
                  exercise the Option by reason of the Participant’s death at
                  any time prior to the expiration of twelve (12) months (or
                  such longer period of time as determined by the Board, in its
                  discretion) after the date on which the Participant’s Service
                  terminated, but in any event no later than the Option
                  Expiration Date. The Participant’s Service shall be deemed to
                  have terminated on account of death if the Participant dies
                  within three (3) months (or such longer period of time as
                  determined by the Board, in its discretion) after the
                  Participant’s termination of Service.
            
                   
            
             iii. Other Termination of Service. If the Participant’s Service
                  with the Participating Company Group terminates for any
                  reason, except Disability or death, the Option, to the extent
                  unexercised and exercisable by the Participant on the date on
                  which the Participant’s Service terminated, may be exercised
                  by the Participant at any time prior to the expiration of
                  three (3) months (or such longer period of time as determined
                  by the Board, in its discretion) after the date on which the
                  Participant’s Service terminated, but in any event no later
                  than the Option Expiration Date.
        
         b. Extension if Exercise Prevented by Law. Notwithstanding the
            foregoing, if the exercise of an Option within the applicable time
            periods set forth in Section 6.4(a) is prevented by the provisions
            of Section 12 below, the Option shall remain exercisable until three
            (3) months (or such longer period of time as determined by the
            Board, in its discretion) after the date the Participant is notified
            by the Company that the Option is exercisable, but in any event no
            later than the Option Expiration Date.
         c. Extension if Participant Subject to Section 16(b). Notwithstanding
            the foregoing, if a sale within the applicable time periods set
            forth in Section 6.4(a) of shares acquired upon the exercise of the
            Option would subject the Participant to suit under Section 16(b) of
            the Exchange Act, the Option shall remain exercisable until the
            earliest to occur of (i) the tenth (10th) day following the date on
            which a sale of such shares by the Participant would no longer be
            subject to such suit, (ii) the one hundred and ninetieth (190th) day
            after the Participant’s termination of Service, or (iii) the Option
            Expiration Date.
    
     4. Transferability of Options. During the lifetime of the Participant, an
        Option shall be exercisable only by the Participant or the Participant’s
        guardian or legal representative. No Option shall be assignable or
        transferable by the Participant, except by will or by the laws of
        descent and distribution. Notwithstanding the foregoing, to the extent
        permitted by the Board, in its discretion, and set forth in the Award
        Agreement evidencing such Option, an Option shall be assignable or
        transferable subject to the applicable limitations, if any, described in
        the General Instructions to Form S-8 Registration Statement under the
        Securities Act.

 3. Terms and Conditions of Outside Director Options.

    Outside Director Options shall be evidenced by Award Agreements specifying
    the number of shares of Stock covered thereby, in such form as the Board
    shall from time to time establish. Such Award Agreements may incorporate all
    or any of the terms of the Plan by reference and shall comply with and be
    subject to the following terms and conditions and those terms and conditions
    set forth in Section 6 which are not inconsistent with the following:

     1. Exercise Price. The exercise price per share of Stock subject to an
        Outside Director Option shall be the Fair Market Value of a share of
        Stock on the date of grant of such Option.
     2. Exercise Period. Except as otherwise provided in the Plan or in the
        Award Agreement evidencing such Outside Director Option, each Outside
        Director Option shall vest and become exercisable in three (3)
        substantially equal installments on each of the first three (3)
        anniversaries of the date of grant of such Option, provided that the
        Participant’s Service has not terminated prior to the relevant date.
        Each Outside Director Option shall terminate and cease to be exercisable
        on the eighth (8th) anniversary of the date of grant of such Option,
        unless earlier terminated in accordance with the terms of the Plan or
        the Award Agreement evidencing such Option.
     3. Effect of Termination of Service on Outside Director Options. Subject to
        earlier termination of the Outside Director Option as otherwise provided
        herein, if the Participant’s Service with the Participating Company
        Group terminates for any reason, including the Disability or death of
        the Participant, the Outside Director Option, to the extent unexercised
        and exercisable on the date on which the Participant’s Service
        terminated, may be exercised by the Participant (or the Participant’s
        guardian, legal representative or other person who acquired the right to
        exercise the Outside Director Option by reason of the Participant’s
        death) at any time prior to the expiration of twelve (12) months after
        the date on which the Participant’s Service terminated, but in any event
        no later than the Option Expiration Date.

 4. Terms and Conditions of Restricted Stock Awards.

    Restricted Stock Awards shall be evidenced by Award Agreements specifying
    the number of shares of Stock subject to the Award, in such form as the
    Board shall from time to time establish. No Restricted Stock Award or
    purported Restricted Stock Award shall be a valid and binding obligation of
    the Company unless evidenced by a fully executed Award Agreement. Award
    Agreements evidencing Restricted Stock may incorporate all or any of the
    terms of the Plan by reference and shall comply with and be subject to the
    following terms and conditions:

     1. Purchase Price. No monetary payment (other than applicable tax
        withholding, if any) shall be required as a condition of receiving
        shares of Restricted Stock, the consideration for which shall be
        services actually rendered to a Participating Company or for its
        benefit. Notwithstanding the foregoing, if required by applicable law,
        the Participant shall furnish consideration in the form of cash or past
        services rendered to a Participating Company or for its benefit having a
        value not less than the par value of the shares of Restricted Stock
        subject to such Award.
     2. Vesting and Restrictions on Transfer. Shares issued pursuant to any
        Restricted Stock Award may or may not be made subject to Vesting
        Conditions based upon the satisfaction of such Service requirements,
        conditions, restrictions or performance criteria as shall be established
        by the Board and set forth in the Award Agreement evidencing such Award.
        During any Restriction Period in which shares acquired pursuant to a
        Restricted Stock Award remain subject to Vesting Conditions, such shares
        may not be sold, exchanged, transferred, pledged, assigned or otherwise
        disposed of other than pursuant to an Ownership Change Event, as defined
        in Section 11.1. Upon request by the Company, each Participant shall
        execute any agreement evidencing such transfer restrictions prior to the
        receipt of shares of Restricted Stock hereunder and shall promptly
        present to the Company any and all certificates representing shares of
        Restricted Stock acquired hereunder for the placement on such
        certificates of appropriate legends evidencing any such transfer
        restrictions.
     3. Voting Rights; Dividends and Distributions. Except as provided in this
        Section and Section 8.2, during the Restriction Period applicable to
        shares subject to a Restricted Stock Award, the Participant shall have
        all of the rights of a shareholder of the Company holding shares of
        Stock, including the right to vote such shares and to receive all
        dividends and other distributions paid with respect to such shares.
        However, in the event of a dividend or distribution paid in shares of
        Stock or any other adjustment made upon a change in the capital
        structure of the Company as described in Section 4.2, then any and all
        new, substituted or additional securities or other property (other than
        normal cash dividends) to which the Participant is entitled by reason of
        the Participant’s Restricted Stock Award shall be immediately subject to
        the same Vesting Conditions as the shares subject to the Restricted
        Stock Award with respect to which such dividends or distributions were
        paid or adjustments were made.
     4. Effect of Termination of Service. Unless otherwise provided by the Board
        in the grant of a Restricted Stock Award and set forth in the Award
        Agreement, if a Participant’s Service terminates for any reason, whether
        voluntary or involuntary (including the Participant’s death or
        disability), then the Participant shall forfeit to the Company any
        shares acquired by the Participant pursuant to a Restricted Stock Award
        which remain subject to Vesting Conditions as of the date of the
        Participant’s termination of Service.

 5. Terms and Conditions of Restricted Stock Unit Awards.

    Restricted Stock Unit Awards shall be evidenced by Award Agreements
    specifying the number of Restricted Stock Units subject to the Award, in
    such form as the Board shall from time to time establish. No Restricted
    Stock Unit Award or purported Restricted Stock Unit Award shall be a valid
    and binding obligation of the Company unless evidenced by a fully executed
    Award Agreement. Award Agreements evidencing Restricted Stock Units may
    incorporate all or any of the terms of the Plan by reference and shall
    comply with and be subject to the following terms and conditions:

     1. Purchase Price. No monetary payment (other than applicable tax
        withholding, if any) shall be required as a condition of receiving a
        Restricted Stock Unit Award, the consideration for which shall be
        services actually rendered to a Participating Company or for its
        benefit.
     2. Vesting. Restricted Stock Units may or may not be made subject to
        Vesting Conditions based upon the satisfaction of such Service
        requirements, conditions, restrictions or performance criteria, as shall
        be established by the Board and set forth in the Award Agreement
        evidencing such Award.
     3. Voting, Dividend Equivalent Rights and Distributions. Participants shall
        have no voting rights with respect to shares of Stock represented by
        Restricted Stock Units until the date of the issuance of such shares (as
        evidenced by the appropriate entry on the books of the Company or of a
        duly authorized transfer agent of the Company). However, the Board, in
        its discretion, may provide in a Participant’s Award Agreement that the
        Participant shall be entitled to receive Dividend Equivalents with
        respect to the payment of cash dividends on Stock having a record date
        prior to date on which Restricted Stock Units held by such Participant
        are settled. Such Dividend Equivalents shall be paid by crediting the
        Participant with additional whole Restricted Stock Units as of the date
        of payment of such cash dividends on Stock. The number of additional
        Restricted Stock Units (rounded to the nearest whole number) to be so
        credited shall be determined by dividing (a) the amount of cash
        dividends paid on such date with respect to the number of shares of
        Stock represented by the Restricted Stock Units previously credited to
        the Participant by (b) the Fair Market Value per share of Stock on such
        date. Such additional Restricted Stock Units shall be subject to the
        same terms and conditions and shall be settled in the same manner and at
        the same time (or as soon thereafter as practicable) as the Restricted
        Stock Units originally subject to the Restricted Stock Unit Award. In
        the event of a dividend or distribution paid in shares of Stock or any
        other adjustment made upon a change in the capital structure of the
        Company as described in Section 4.2, appropriate adjustments shall be
        made in the Participant’s Restricted Stock Unit Award so that it
        represents the right to receive upon settlement any and all new,
        substituted or additional securities or other property (other than
        normal cash dividends) to which the Participant would be entitled by
        reason of the shares of Stock issuable upon settlement of the Award, and
        all such new, substituted or additional securities or other property
        shall be immediately subject to the same Vesting Conditions as are
        applicable to the Award.
     4. Effect of Termination of Service. Unless otherwise provided by the Board
        in the grant of a Restricted Stock Unit Award and set forth in the Award
        Agreement, if a Participant’s Service terminates for any reason, whether
        voluntary or involuntary (including the Participant’s death or
        disability), then the Participant shall forfeit to the Company any
        Restricted Stock Units pursuant to the Award which remain subject to
        Vesting Conditions as of the date of the Participant’s termination of
        Service.
     5. Settlement of Restricted Stock Unit Awards. The Company shall issue to a
        Participant on the date on which Restricted Stock Units subject to the
        Participant’s Restricted Stock Unit Award vest or on such other
        settlement date determined by the Board, in its discretion, and set
        forth in the Award Agreement one (1) share of Stock (and/or any other
        new, substituted or additional securities or other property pursuant to
        an adjustment described in Section 9.3) for each Restricted Stock Unit
        then becoming vested or otherwise to be settled on such date, subject to
        the withholding of applicable taxes. Notwithstanding the foregoing, if
        permitted by the Board and set forth in the Award Agreement, the
        Participant may elect in accordance with terms specified in the Award
        Agreement to defer receipt of all or any portion of the shares of Stock
        or other property otherwise issuable to the Participant pursuant to this
        Section 9.5.
     6. Nontransferability of Restricted Stock Unit Awards. Prior to the
        issuance of shares of Stock in settlement of a Restricted Stock Unit
        Award, the Award shall not be subject in any manner to anticipation,
        alienation, sale, exchange, transfer, assignment, pledge, encumbrance,
        or garnishment by creditors of the Participant or the Participant’s
        beneficiary, except by will or by the laws of descent and distribution.

    Standard Forms of Award Agreement.
     1. Award Agreement. Each Award shall comply with and be subject to the
        terms and conditions set forth in the appropriate form of Award
        Agreement approved by the Board and as amended from time to time. Any
        Award Agreement may consist of an appropriate form of Notice of Grant
        and a form of Agreement incorporated therein by reference, or such other
        form or forms as the Board may approve from time to time.
     2. Authority to Vary Terms. The Board shall have the authority from time to
        time to vary the terms of any standard form of Award Agreement either in
        connection with the grant or amendment of an individual Award or in
        connection with the authorization of a new standard form or forms;
        provided, however, that the terms and conditions of any such new,
        revised or amended standard form or forms of Award Agreement are not
        inconsistent with the terms of the Plan.

    Change in Control.
        
     1. Definitions.
            
         a. An "Ownership Change Event" shall be deemed to have occurred if any
            of the following occurs with respect to the Company: (i) the direct
            or indirect sale or exchange in a single or series of related
            transactions by the shareholders of the Company of more than fifty
            percent (50%) of the voting stock of the Company; (ii) a merger or
            consolidation in which the Company is a party; (iii) the sale,
            exchange, or transfer of all or substantially all of the assets of
            the Company; or (iv) a liquidation or dissolution of the Company.
         b. A "Change in Control" shall mean the occurrence of either of the
            following:
             i.  An Ownership Change Event or a series of related Ownership
                 Change Events (collectively, a "Transaction") wherein the
                 shareholders of the Company immediately before the Transaction
                 do not retain immediately after the Transaction, in
                 substantially the same proportions as their ownership of shares
                 of the Company’s voting stock immediately before the
                 Transaction, direct or indirect beneficial ownership of more
                 than fifty percent (50%) of the total combined voting power of
                 the outstanding voting securities of the Company or, in the
                 case of a Transaction described in Section 11.1(a)(iii), the
                 corporation or other business entity to which the assets of the
                 Company were transferred (the "Transferee"), as the case may
                 be. For purposes of the preceding sentence, indirect beneficial
                 ownership shall include, without limitation, an interest
                 resulting from ownership of the voting securities of one or
                 more corporations or other business entities which own the
                 Company or the Transferee, as the case may be, either directly
                 or through one or more subsidiary corporations or other
                 business entities. The Board shall have the right to determine
                 whether multiple sales or exchanges of the voting securities of
                 the Company or multiple Ownership Change Events are related,
                 and its determination shall be final, binding and conclusive.
             ii. A change in the composition of the Board within any consecutive
                 two-year period as a result of which fewer than a majority of
                 the directors are Incumbent Directors. For purposes of the
                 preceding sentence, an "Incumbent Director" means a Director of
                 the Company who either (1) is a member of the Board as of the
                 Effective Date, or (2) is elected, or nominated for election,
                 to the Board with the affirmative votes of at least a majority
                 of the Incumbent Directors at the time of such election or
                 nomination, but (3) was not elected or nominated in connection
                 with an actual or threatened proxy contest relating to the
                 election of Directors of the Company.
    
     2. Effect of Change in Control on Options. In the event of a Change in
        Control, the surviving, continuing, successor, or purchasing corporation
        or other business entity or parent thereof, as the case may be (the
        "Acquiror"), may, without the consent of any Participant, either assume
        the Company’s rights and obligations under outstanding Options or
        substitute for outstanding Options substantially equivalent options for
        the Acquiror’s stock. The Board may, in its sole discretion, provide in
        any Award Agreement that in the event the Acquiror elects not to assume
        or substitute for outstanding Options in connection with a Change in
        Control (or regardless of whether the Acquiror so elects), any
        unexercisable or unvested portion of the outstanding Options shall be
        immediately exercisable and vested in full as of the date ten (10) days
        prior to the date of the Change in Control. The exercise or vesting of
        any Option that was permissible solely by reason of this Section 11.2
        and the provisions of such Award Agreement shall be conditioned upon the
        consummation of the Change in Control. Any Options which are not assumed
        by the Acquiror in connection with the Change in Control nor exercised
        as of the time of consummation of the Change in Control shall terminate
        and cease to be outstanding effective as of the time of the Change in
        Control.
     3. Effect of Change in Control on Outside Director Options. In the event of
        a Change in Control, each outstanding Outside Director Option held by a
        Participant whose Service has not terminated prior to such date shall be
        immediately exercisable and vested in full as of the date ten (10) days
        prior to the Change in Control. The exercise or vesting of any Outside
        Director Option that was permissible solely by reason of this
        Section 11.3 shall be conditioned upon the consummation of the Change in
        Control. In addition, the provisions of Section 11.2 shall apply equally
        to Outside Director Options.
     4. Effect of Change in Control on Restricted Stock Awards. The Board may,
        in its discretion, provide in any Award Agreement evidencing a
        Restricted Stock Award that, in the event of a Change in Control, the
        lapsing of the Restriction Period applicable to the shares subject to
        the Restricted Stock Award held by a Participant whose Service has not
        terminated prior to such date shall be accelerated effective as of the
        date of the Change in Control to such extent as specified in such Award
        Agreement. Any acceleration of the lapsing of the Restriction Period
        that was permissible solely by reason of this Section 11.4 and the
        provisions of such Award Agreement shall be conditioned upon the
        consummation of the Change in Control.
     5. Effect of Change in Control on Restricted Stock Unit Awards. The Board
        may, in its discretion, provide in any Award Agreement evidencing a
        Restricted Stock Unit Award that, in the event of a Change in Control,
        the Restricted Stock Unit Award held by a Participant whose Service has
        not terminated prior to such date shall become payable effective as of
        the date of the Change in Control to such extent as specified in such
        Award Agreement.

 6. Compliance with Securities Law.

    The grant of Awards and the issuance of shares of Stock pursuant to any
    Award shall be subject to compliance with all applicable requirements of
    federal, state and foreign law with respect to such securities and the
    requirements of any stock exchange or market system upon which the Stock may
    then be listed. In addition, no Award may be exercised or shares issued
    pursuant to an Award unless (i) a registration statement under the
    Securities Act shall at the time of such exercise or issuance be in effect
    with respect to the shares issuable pursuant to the Award or (ii) in the
    opinion of legal counsel to the Company, the shares issuable pursuant to the
    Award may be issued in accordance with the terms of an applicable exemption
    from the registration requirements of the Securities Act. The inability of
    the Company to obtain from any regulatory body having jurisdiction the
    authority, if any, deemed by the Company’s legal counsel to be necessary to
    the lawful issuance and sale of any shares hereunder shall relieve the
    Company of any liability in respect of the failure to issue or sell such
    shares as to which such requisite authority shall not have been obtained. As
    a condition to issuance of any Stock, the Company may require the
    Participant to satisfy any qualifications that may be necessary or
    appropriate, to evidence compliance with any applicable law or regulation
    and to make any representation or warranty with respect thereto as may be
    requested by the Company.

 7. Tax Withholding.
     1. Tax Withholding in General. The Company shall have the right to deduct
        from any and all payments made under the Plan, or to require the
        Participant, through payroll withholding, cash payment or otherwise,
        including by means of a Cashless Exercise of an Option, to make adequate
        provision for, the federal, state, local and foreign taxes, if any,
        required by law to be withheld by the Participating Company Group with
        respect to an Award or the shares acquired pursuant thereto. The Company
        shall have no obligation to deliver shares of Stock, to release shares
        of Stock from an escrow established pursuant to an Award Agreement, or
        to make any payment in cash under the Plan until the Participating
        Company Group’s tax withholding obligations have been satisfied by the
        Participant.
     2. Withholding in Shares. The Company shall have the right, but not the
        obligation, to deduct from the shares of Stock issuable to a Participant
        upon the exercise or settlement of an Award, or to accept from the
        Participant the tender of, a number of whole shares of Stock having a
        Fair Market Value, as determined by the Company, equal to all or any
        part of the tax withholding obligations of the Participating Company
        Group. The Fair Market Value of any shares of Stock withheld or tendered
        to satisfy any such tax withholding obligations shall not exceed the
        amount determined by the applicable minimum statutory withholding rates.

    Termination or Amendment of Plan.

    The Board may terminate or amend the Plan at any time. However, subject to
    changes in applicable law, regulations or rules that would permit otherwise,
    without the approval of the Company’s shareholders, there shall be (a) no
    increase in the maximum aggregate number of shares of Stock that may be
    issued under the Plan (except by operation of the provisions of
    Section 4.2), (b) no change in the class of persons eligible to receive
    Incentive Stock Options, and (c) no other amendment of the Plan that would
    require approval of the Company’s shareholders under any applicable law,
    regulation or rule. No termination or amendment of the Plan shall affect any
    then outstanding Award unless expressly provided by the Board. In any event,
    no termination or amendment of the Plan may adversely affect any then
    outstanding Option without the consent of the Participant, unless such
    termination or amendment is necessary to comply with any applicable law,
    regulation or rule.

    Miscellaneous Provisions.
     1. Repurchase Rights. Shares issued under the Plan may be subject to one or
        more repurchase options, or other conditions and restrictions as
        determined by the Board in its discretion at the time the Award is
        granted. The Company shall have the right to assign at any time any
        repurchase right it may have, whether or not such right is then
        exercisable, to one or more persons as may be selected by the Company.
        Upon request by the Company, each Participant shall execute any
        agreement evidencing such transfer restrictions prior to the receipt of
        shares of Stock hereunder and shall promptly present to the Company any
        and all certificates representing shares of Stock acquired hereunder for
        the placement on such certificates of appropriate legends evidencing any
        such transfer restrictions.
     2. Provision of Information. Each Participant shall be given access to
        information concerning the Company equivalent to that information
        generally made available to the Company’s common shareholders.
     3. Rights as Employee, Director or Consultant. No person, even though
        eligible pursuant to Section 5, shall have a right to be selected as a
        Participant, or, having been so selected, to be selected again as a
        Participant. Nothing in the Plan or any Award granted under the Plan
        shall confer on any Participant a right to remain an Employee, Director
        or Consultant, or interfere with or limit in any way any right of a
        Participating Company to terminate the Participant’s Service at any
        time.
     4. Rights as a Shareholder. A Participant shall have no rights as a
        shareholder with respect to any shares covered by an Award until the
        date of the issuance of such shares (as evidenced by the appropriate
        entry on the books of the Company or of a duly authorized transfer agent
        of the Company). No adjustment shall be made for dividends,
        distributions or other rights for which the record date is prior to the
        date such shares are issued, except as provided in Section 4.2 or
        another provision of the Plan.
     5. Fractional Shares. The Company shall not be required to issue fractional
        shares upon the exercise or settlement of any Award.
     6. Unfunded Obligation. Participants shall have the status of general
        unsecured creditors of the Company. Any amounts payable to Participants
        pursuant to the Plan shall be unfunded and unsecured obligations for all
        purposes, including, without limitation, Title I of the Employee
        Retirement Income Security Act of 1974. No Participating Company shall
        be required to segregate any monies from its general funds, or to create
        any trusts, or establish any special accounts with respect to such
        obligations. The Company shall retain at all times beneficial ownership
        of any investments, including trust investments, which the Company may
        make to fulfill its payment obligations hereunder. Any investments or
        the creation or maintenance of any trust or any Participant account
        shall not create or constitute a trust or fiduciary relationship between
        the Board or any Participating Company and a Participant, or otherwise
        create any vested or beneficial interest in any Participant or the
        Participant’s creditors in any assets of any Participating Company. The
        Participants shall have no claim against any Participating Company for
        any changes in the value of any assets which may be invested or
        reinvested by the Company with respect to the Plan.

IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies that the
foregoing sets forth the Applied Signal Technology, Inc. 2004 Stock Incentive
Plan as duly adopted by the Board on November, 2003, effective as March 10,
2004, the date of approval by the stockholders of the Company.

 

____________________________________

Secretary

PLAN HISTORY

 

November 20, 2003

Board adopts Plan with an initial reserve of 600,000 shares, to be effective as
of March 10, 2004, the date of approval by the stockholders of the Company.

March 10, 2004

Stockholders approve Plan.

   

IMPORTANT NOTE: Implementation of Section 9.5–deferral of RSU settlement

Upon establishment of a program pursuant to Section 9.5 for deferral of
settlement of RSUs, determine whether such program will constitute a "top-hat"
pension plan under ERISA. If so, file notice with Dept. of Labor under ERISA
Reg. 2520.104-23 within 120 days of adoptions of resolutions by the Committee to
establish the program to obtain exemption from reporting and disclosure
requirements of ERISA.

               

 

 

 

1. Establishment, Purpose and Term of Plan 1

1.1 Establishment 1

1.2 Purpose 1

1.3 Term of Plan 1

2. Definitions and Construction 1

2.1 Definitions 1

2.2 Construction 5

3. Administration 5

3.1 Administration by the Board 5

3.2 Authority of Officers 5

3.3 Powers of the Board 5

3.4 Administration with Respect to Insiders 6

3.5 Committee Complying with Section 162(m) 6

3.6 Option Repricing 6

3.7 Indemnification 6

4. Shares Subject to Plan 7

4.1 Maximum Number of Shares Issuable 7

4.2 Adjustments for Changes in Capital Structure 7

5. Eligibility and Award Limitations 8

5.1 Eligibility 8

5.2 Option Grant Restrictions 8

5.3 Fair Market Value Limitation 8

5.4 Section 162(m) Grant Limit 8

6. Terms and Conditions of Options 9

6.1 Exercise Price 9

6.2 Exercisability and Term of Options 9

6.3 Payment of Exercise Price 9

6.4 Effect of Termination of Service 10

6.5 Transferability of Options 11

7. Terms and Conditions of Outside Director Options 11

7.1 Exercise Price 12

7.2 Exercise Period 12

7.3 Effect of Termination of Service on Outside Director Options 12

8. Terms and Conditions of Restricted Stock Awards 12

8.1 Purchase Price 12

8.2 Vesting and Restrictions on Transfer 12

8.3 Voting Rights; Dividends and Distributions 13

8.4 Effect of Termination of Service 13

9. Terms and Conditions of Restricted Stock Unit Awards. 13

9.1 Purchase Price 13

9.2 Vesting 13

9.3 Voting, Dividend Equivalent Rights and Distributions 14

9.4 Effect of Termination of Service 14

9.5 Settlement of Restricted Stock Unit Awards 14

9.6 Nontransferability of Restricted Stock Unit Awards 14

10. Standard Forms of Award Agreement 15

10.1 Award Agreement 15

10.2 Authority to Vary Terms 15

11. Change in Control 15

11.1 Definitions 15

11.2 Effect of Change in Control on Options 16

11.3 Effect of Change in Control on Outside Director Options 16

11.4 Effect of Change in Control on Restricted Stock Awards 16

11.5 Effect of Change in Control on Restricted Stock Unit Awards 16

12. Compliance with Securities Law 17

13. Tax Withholding 17

13.1 Tax Withholding in General 17

13.2 Withholding in Shares 17

14. Termination or Amendment of Plan 17

15. Miscellaneous Provisions 18

15.1 Repurchase Rights 18

15.2 Provision of Information 18

15.3 Rights as Employee, Director or Consultant 18

15.4 Rights as a Shareholder 18

15.5 Fractional Shares 18

15.6 Unfunded Obligation 18