exv10w4



 





Exhibit 10.4




NANOSPHERE, INC.

2007 LONG-TERM INCENTIVE PLAN



 




PLAN DOCUMENT


 





1. Establishment, Purpose, and Types of Awards




     Nanosphere, Inc. (the “Company”) hereby establishes this equity-based incentive compensation
plan to be known as the “Nanosphere, Inc. 2007 Long-Term Incentive Plan” (hereinafter referred to
as the “Plan”), in order to provide incentives and awards to select employees, directors,
consultants and advisors of the Company and its Affiliates. The Plan permits grants of the
following types of awards (“Awards”), according to the referenced Sections of the Plan:



	 	 	 
	Section 6

	 	Options
	Section 7

	 	Share Appreciation Rights
	Section 8

	 	Restricted Shares, Restricted Share Units and Unrestricted
Shares
	Section 9

	 	Deferred Share Units
	Section 10

	 	Performance Awards






     The Plan is not intended to affect, and shall not affect, any stock option, equity-based
compensation or other benefit that the Company or its Affiliates may have provided pursuant to the
Nanosphere, Inc. 2000 Equity Incentive Plan (the “2000 Plan”), or may separately provide in the
future, pursuant to any agreement, plan or program that is independent of this Plan.



2. Defined Terms




     Terms herein that begin with an initial capital letter have the defined meaning set forth in
Appendix A, unless defined elsewhere in this Plan or the context of their use clearly indicates a
different meaning.



3. Shares Subject to the Plan




     Subject to the provisions of Section 13 hereof, the maximum number of Shares that the Company
may issue, pursuant to all Awards granted under this 2007 Plan (determined at the time each Award
is granted), shall be (i) 4,016,141 Shares, plus (ii) up to 1,181,128 Shares that will become
available for issuance under the Plan upon the expiration, forfeiture or cancellation of awards
made under the 2000 Plan which are outstanding as of May 30, 2007, plus (iii) on the first day of
each fiscal year of the Company that occurs in 2009 through 2012, during which the Plan is in
effect, the least of: (a) 900,000 Shares, (b) 4% of the outstanding Shares as of such date, or (c)
another number of Shares determined by the Board.



 









 





     Shares that are subject to an Award that for any reason expires, is forfeited, is cancelled or
becomes unexercisable, and Shares that are, for any other reason, not paid or delivered under the
Plan shall again, except to the extent prohibited by Applicable Law, be available for
subsequent Awards under the Plan. Notwithstanding the foregoing, but subject to adjustments
pursuant to Section 13 hereof, the number of Shares that are available for ISO Awards shall be
determined, to the extent required under applicable tax laws, by reducing the number of Shares
designated in the preceding paragraph by the number of Shares issued pursuant to Awards.



4. Administration




     (a) General. The Committee shall administer the Plan in accordance with its terms,
provided that the Board may act in lieu of the Committee on any matter. The Committee
shall hold meetings at such times and places as it may determine and shall make such rules and
regulations for the conduct of its business as it deems advisable. In the absence of a duly
appointed Committee, or if the Board otherwise chooses to act in lieu of the Committee, the Board
shall function as the Committee for all purposes of the Plan.



     (b) Committee Composition. The Board shall appoint the members of the Committee. To the
extent permitted by Applicable Law, the Committee may authorize one or more executive officers (or
Reporting Persons if the Shares are registered under the Exchange Act) to make Awards to Eligible
Persons who are not Reporting Persons (or other executive officers whom the Committee has
specifically authorized to make Awards). The Board may, at any time, appoint additional members to
the Committee, remove and replace members of the Committee with or without Cause, and fill
vacancies on the Committee however caused.



     (c) Powers of the Committee. Subject to the other provisions of the Plan, the Committee shall
have the authority, in its sole discretion:




     (i) to determine Eligible Persons to whom Awards shall be granted from time to time and
the number of Shares, units or SARs to be covered by each Award;




     (ii) to determine, from time to time, the Fair Market Value of Shares;




     (iii) to determine, and to set forth in Award Agreements, the terms and conditions of
all Awards, including, without limitation, any applicable exercise or purchase price, the
installments and conditions under which an Award shall become vested (which may be based on
performance), terminated, expired, cancelled or replaced, and the circumstances for vesting
acceleration or waiver of forfeiture restrictions, and other restrictions and limitations;




     (iv) to approve the forms of Award Agreements and all other documents, notices and
certificates in connection therewith which need not be identical either as to type of Award
or among Participants;




     (v) to construe and interpret the terms of the Plan and any Award Agreement, to
determine the meaning of their terms, and to prescribe, amend and rescind rules and
procedures relating to the Plan and its administration; and




     (vi) in order to fulfill the purposes of the Plan and without amending the Plan,
modify, cancel or waive the Company’s rights with respect to any Awards, to adjust or to
modify Award Agreements for changes in Applicable Law, and to recognize differences in
foreign law, tax policies or customs; and



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     (vii) to make all other interpretations and to take all other actions that the
Committee may consider necessary or advisable to administer the Plan or to effectuate its
purposes.



     Subject to Applicable Law and the restrictions set forth in the Plan, the Committee may
delegate administrative functions to individuals who are Reporting Persons, officers or Employees
of the Company or its Affiliates.



     (d) Deference to Committee Determinations. The Committee shall have the discretion to
interpret or construe ambiguous, unclear or implied (but omitted) terms in any fashion it deems to
be appropriate in its sole discretion, and to make any findings of fact needed in the
administration of the Plan or Award Agreements. The Committee’s prior exercise of its
discretionary authority shall not obligate it to exercise its authority in a like fashion
thereafter. The Committee’s interpretation and construction of any provision of the Plan, or of
any Award or Award Agreement, shall be final, binding and conclusive. The validity of any such
interpretation, construction, decision or finding of fact shall not be given de novo review if
challenged in court, by arbitration, or in any other forum, and shall be upheld unless clearly made
in bad faith or materially affected by fraud.



     (e) No Liability; Indemnification. Neither the Board nor any Committee member, nor any Person
acting at the direction of the Board or the Committee, shall be liable for any act, omission,
interpretation, construction or determination made in good faith with respect to the Plan, any
Award or any Award Agreement. The Company and its Affiliates shall pay or reimburse any member of
the Committee, as well as any Director, Employee or Consultant who takes action in connection with
the Plan, for all expenses incurred with respect to the Plan, and to the full extent allowable
under Applicable Law shall indemnify each and every one of them for any claims, liabilities and
costs (including reasonable attorney’s fees) arising out of their good-faith performance of duties
under the Plan. The Company and its Affiliates may obtain liability insurance for this purpose.



5. Eligibility




     (a) General Rule. The Committee may grant ISOs only to Employees (including officers who are
Employees) of the Company or an Affiliate that is a “parent corporation” or “subsidiary
corporation” within the meaning of Section 424 of the Code, and may grant all other Awards to any
Eligible Person. A Participant who has been granted an Award may be granted an additional Award or
Awards if the Committee shall so determine, if such person is otherwise an Eligible Person and if
otherwise in accordance with the terms of the Plan.



     (b) Grant of Awards. Subject to the express provisions of the Plan, the Committee shall
determine from the class of Eligible Persons those individuals to whom Awards under the Plan may be
granted, the number of Shares subject to each Award, the price (if any) to be paid for the Shares
or the Award and, in the case of Performance Awards, in addition to the matters addressed in
Section 10 below, the specific objectives, goals and performance criteria that further define the
Performance Award. Each Award shall be evidenced by an Award Agreement signed by the Company and,
if required by the Committee, by the Participant. The Award Agreement shall set
forth the material terms and conditions of the Award established by the Committee, and each
Award shall be subject to the terms and conditions set forth in Sections 23, 24 and 25, unless
otherwise specifically provided in an Award Agreement.



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     (c) Limits on Awards. No Participant may receive Options and SARs that relate to more than
1,000,000 Shares during any twelve month period. The Committee will adjust this limitation
pursuant to Section 13 hereof.



     (d) Replacement Awards. Subject to Applicable Law (including any associated Shareholder
approval requirements), the Committee may, in its sole discretion and upon such terms as it deems
appropriate, require as a condition of the grant of an Award to a Participant that the Participant
surrender for cancellation some or all of the Awards that have previously been granted to the
Participant under this Plan or under the 2000 Plan. An Award that is conditioned upon such
surrender may or may not be the same type of Award, may cover the same (or a lesser or greater)
number of Shares as such surrendered Award, may have other terms that are determined without regard
to the terms or conditions of such surrendered Award, and may contain any other terms that the
Committee deems appropriate.



6. Option Awards




     (a) Types; Documentation. Subject to Section 5(a), the Committee may in its discretion grant
Options pursuant to Award Agreements that are delivered to Participants. Each Option shall be
designated in the Award Agreement as an ISO or a Non-ISO, and the same Award Agreement may grant
both types of Options. At the sole discretion of the Committee, any Option may be exercisable, in
whole or in part, immediately upon the grant thereof, or only after the occurrence of a specified
event, or only in installments, which installments may vary. Options granted under the Plan may
contain such terms and provisions not inconsistent with the Plan that the Committee shall deem
advisable in its sole and absolute discretion.



     (b) ISO $100,000 Limitation. To the extent that the aggregate Fair Market Value of Shares
with respect to which Options designated as ISOs first become exercisable by a Participant in any
calendar year (under this Plan and any other plan of the Company or any Affiliate) exceeds
$100,000, such excess Options shall be treated as Non-ISOs. For purposes of determining whether
the $100,000 limit is exceeded, the Fair Market Value of the Shares subject to an ISO shall be
determined as of the Grant Date. In reducing the number of Options treated as ISOs to meet the
$100,000 limit, the most recently granted Options shall be reduced first. In the event that
Section 422 of the Code is amended to alter the limitation set forth therein, the limitation of
this Section 6(b) shall be automatically adjusted accordingly.



     (c) Term of Options. Each Award Agreement shall specify a term at the end of which the Option
automatically expires, subject to earlier termination provisions contained in Section 6(h) hereof;
provided, that, the term of any Option may in no event exceed ten (10) years from the Grant
Date. In the case of an ISO granted to an Employee who is a Ten Percent Holder on the Grant Date,
the term of the ISO shall in no event exceed five (5) years from the Grant Date.



     (d) Exercise Price. The exercise price of an Option shall be determined by the Committee in
its sole discretion and shall be set forth in the Award Agreement, provided that —



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	 	(i)	 	if an ISO is granted to an Employee who on the Grant Date is a
Ten Percent Holder, the per Share exercise price shall not be less than 110% of
the Fair Market Value per Share on the Grant Date, and
	 
	 	(ii)	 	for all other Options, such per Share exercise price shall not
be less than 100% of the Fair Market Value per Share on the Grant Date.





     (e) Exercise of Option. The times, circumstances and conditions under which an Option shall
be exercisable shall be determined by the Committee in its sole discretion and set forth in the
Award Agreement. The Committee shall have the discretion to determine whether and to what extent
the vesting of Options shall be tolled during any unpaid leave of absence; provided,
however, that in the absence of such determination, vesting of Options shall be tolled
during any such leave approved by the Company.



     (f) Minimum Exercise Requirements. An Option may not be exercised for a fraction of a Share.
The Committee may require in an Award Agreement that an Option be exercised as to a minimum number
of Shares, provided that such requirement shall not prevent a Participant from purchasing
the full number of Shares as to which the Option is then exercisable.



     (g) Methods of Exercise. Prior to its expiration pursuant to the terms of the applicable
Award Agreement, and subject to the times, circumstances and conditions for exercise contained in
the applicable Award Agreement, each Option may be exercised, in whole or in part (provided that
the Company shall not be required to issue fractional shares), by delivery of written notice of
exercise to the secretary of the Company accompanied by the full exercise price of the Shares being
purchased. In the case of an ISO, the Committee shall determine the acceptable methods of payment
on the Grant Date and it shall be included in the applicable Award Agreement. The methods of
payment that the Committee may in its discretion accept or commit to accept in an Award Agreement
include:




     (i) cash or check payable to the Company (in U.S. dollars);




     (ii) other Shares that (A) are owned by the Participant who is purchasing Shares
pursuant to an Option, (B) have a Fair Market Value on the date of surrender equal to the
aggregate exercise price of the Shares as to which the Option is being exercised, (C) were
not acquired by such Participant pursuant to the exercise of an Option, unless such Shares
have been owned by such Participant for at least six months or such other period as the
Committee may determine, (D) are all, at the time of such surrender, free and clear of any
and all claims, pledges, liens and encumbrances, or any restrictions which would in any
manner restrict the transfer of such shares to or by the Company (other than such
restrictions as may have existed prior to an issuance of such Shares by the Company to such
Participant), and (E) are duly endorsed for transfer to the Company;




     (iii) a cashless exercise program that the Committee may approve, from time to time in
its discretion, pursuant to which a Participant may concurrently provide irrevocable
instructions (A) to such Participant’s broker or dealer to effect the immediate sale of the
purchased Shares and remit to the Company, out of the sale proceeds available on the
settlement date, sufficient funds to cover the exercise price of the Option plus all
applicable taxes required to be withheld by the Company by reason of such exercise, and (B)
to the
Company to deliver the certificates for the purchased Shares directly to such broker or
dealer in order to complete the sale; or



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     (iv) any combination of the foregoing methods of payment.



     The Company shall not be required to deliver Shares pursuant to the exercise of an Option
until payment of the full exercise price therefore is received by the Company.



     (h) Termination of Continuous Service. The Committee may establish and set forth in the
applicable Award Agreement the terms and conditions on which an Option shall remain exercisable, if
at all, following termination of a Participant’s Continuous Service. The Committee may waive or
modify these provisions at any time. To the extent that a Participant is not entitled to exercise
an Option at the date of his or her termination of Continuous Service, or if the Participant (or
other person entitled to exercise the Option) does not exercise the Option to the extent so
entitled within the time specified in the Award Agreement or below (as applicable), the Option
shall terminate and the Shares underlying the unexercised portion of the Option shall revert to the
Plan and become available for future Awards. In no event may any Option be exercised after the
expiration of the Option term as set forth in the Award Agreement.



     The following provisions shall apply to the extent an Award Agreement does not specify the
terms and conditions upon which an Option shall terminate when there is a termination of a
Participant’s Continuous Service:




     (i) Termination other than Upon Disability or Death or for Cause. In the event
of termination of a Participant’s Continuous Service (other than as a result of
Participant’s death, disability, retirement or termination for Cause), the Participant shall
have the right to exercise an Option at any time within 90 days following such termination
to the extent the Participant was entitled to exercise such Option at the date of such
termination.




     (ii) Disability. In the event of termination of a Participant’s Continuous
Service as a result of his or her being Disabled, the Participant shall have the right to
exercise an Option at any time within one year following such termination to the extent the
Participant was entitled to exercise such Option at the date of such termination.




     (iii) Retirement. In the event of termination of a Participant’s Continuous
Service as a result of Participant’s retirement, the Participant shall have the right to
exercise the Option at any time within three months following such termination to the extent
the Participant was entitled to exercise such Option at the date of such termination.




     (iv) Death. In the event of the death of a Participant during the period of
Continuous Service since the Grant Date of an Option, or within thirty days following
termination of the Participant’s Continuous Service, the Option may be exercised, at any
time within one year following the date of the Participant’s death, by the Participant’s
estate or by a person who acquired the right to exercise the Option by bequest or
inheritance, but only to the extent the right to exercise the Option had vested at the date
of death or, if earlier, the date the Participant’s Continuous Service terminated.



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     (v) Cause. If the Committee determines that a Participant’s Continuous Service
terminated due to Cause, the Participant shall immediately forfeit the right to exercise any
Option, and it shall be considered immediately null and void.



     (i) Reverse Vesting. The Committee in its sole discretion may allow a Participant to exercise
unvested Options, in which case the Shares then issued shall be Restricted Shares having analogous
vesting restrictions to the unvested Options.



     (j) Buyout Provision. The Committee may at any time offer to buy out an Option, in exchange
for a payment in cash or Shares, based on such terms and conditions as the Committee shall
establish and communicate to the Participant at the time that such offer is made. In addition, if
the Fair Market Value for Shares subject to an Option is more than 33% below their exercise price
for more than 30 consecutive business days, the Committee may unilaterally terminate and cancel the
Option either (i) by paying the Participant, in cash or Shares, an amount not less than the
Black-Scholes or other value of the vested portion of the Option, or (ii) if approved by
Shareholders, by irrevocably committing to grant a new Option, on a designated date more than six
months after such termination and cancellation of such Option (but only if the Participant’s
Continuous Service has not terminated prior to such designated date), pursuant to terms and
conditions determined by the Committee.



7. Share Appreciation Rights (SARs)




     (a) Grants. The Committee may in its discretion grant Share Appreciation Rights to any
Eligible Person pursuant to Award Agreements, in any of the following forms:




     (i) SARs related to Options. The Committee may grant SARs either concurrently
with the grant of an Option or with respect to an outstanding Option, in which case the SAR
shall extend to all or a portion of the Shares covered by the related Option. A SAR shall
entitle the Participant who holds the related Option, upon exercise of the SAR and surrender
of the related Option, or portion thereof, to the extent the SAR and related Option each
were previously unexercised, to receive payment of an amount determined pursuant to Section
7(e) below. Any SAR granted in connection with an ISO will contain such terms as may be
required to comply with the provisions of Section 422 of the Code and the regulations
promulgated thereunder.




     (ii) SARs Independent of Options. The Committee may grant SARs which are
independent of any Option subject to such conditions as the Committee may in its discretion
determine, which conditions will be set forth in the applicable Award Agreement.




     (iii) Limited SARs. The Committee may grant SARs exercisable only upon or in
respect of a Change in Control or any other specified event, and such limited SARs may
relate to or operate in tandem or combination with or substitution for Options or other
SARs, or on a stand-alone basis, and may be payable in cash or Shares based on the spread
between the exercise price of the SAR, and (A) a price based upon or equal to the Fair
Market Value of the Shares during a specified period, at a specified time within a specified
period before, after or including the date of such event, or (B) a price related to
consideration payable to Company’s shareholders generally in connection with the event.



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     (b) Exercise Price. The per Share exercise price of a SAR shall be determined in the sole
discretion of the Committee, shall be set forth in the applicable Award Agreement, and shall be no
less than 100% of the Fair Market Value of one Share. The exercise price of a SAR related to an
Option shall be the same as the exercise price of the related Option. Neither the Company nor the
Committee shall, without shareholder approval, allow for a repricing within the meaning of federal
securities laws applicable to proxy statement disclosures.



     (c) Exercise of SARs. Unless the Award Agreement otherwise provides, a SAR related to an
Option will be exercisable at such time or times, and to the extent, that the related Option will
be exercisable; provided that the Award Agreement shall not, without the approval of the
shareholders of the Company, provide for a vesting period for the exercise of the SAR that is more
favorable to the Participant than the exercise period for the related Option. A SAR may not have a
term exceeding ten years from its Grant Date. A SAR granted independently of any other Award will
be exercisable pursuant to the terms of the Award Agreement. Whether a SAR is related to an Option
or is granted independently, the SAR may only be exercised when the Fair Market Value of the Shares
underlying the SAR exceeds the exercise price of the SAR.



     (d) Effect on Available Shares. All SARs that may be settled in shares of the Company’s stock
shall be counted in full against the number of shares available for award under the Plan,
regardless of the number of shares actually issued upon settlement of the SARs.



     (e) Payment. Upon exercise of a SAR related to an Option and the attendant surrender of an
exercisable portion of any related Award, the Participant will be entitled to receive payment of an
amount determined by multiplying —




     (i) the excess of the Fair Market Value of a Share on the date of exercise of the SAR
over the exercise price per Share of the SAR, by




     (ii) the number of Shares with respect to which the SAR has been exercised.



     Notwithstanding the foregoing, a SAR granted independently of an Option (i) may limit the
amount payable to the Participant to a percentage, specified in the Award Agreement but not
exceeding one-hundred percent (100%), of the amount determined pursuant to the preceding sentence,
and (ii) shall be subject to any payment or other restrictions that the Committee may at any time
impose in its discretion, including restrictions intended to conform the SARs with Section 409A of
the Code.



     (f) Form and Terms of Payment. Subject to Applicable Law, the Committee may, in its sole
discretion, settle the amount determined under Section 7(e) above solely in cash, solely in Shares
(valued at their Fair Market Value on the date of exercise of the SAR), or partly in cash and
partly in Shares, with cash paid in lieu of fractional shares. Unless otherwise provided in an
Award Agreement, all SARs shall be settled in Shares as soon as practicable after exercise.



     (g) Termination of Employment or Consulting Relationship. The Committee shall establish and
set forth in the applicable Award Agreement the terms and conditions on which a SAR shall remain
exercisable, if at all, following termination of a Participant’s Continuous Service. The
provisions of Section 6(h) above shall apply to the extent an Award Agreement does not specify the
terms and
conditions upon which a SAR shall terminate when there is a termination of a Participant’s
Continuous Service.



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     (h) Buy-out. The Committee has the same discretion to buy-out SARs as it has to take such
actions with respect to Options pursuant to Section 6(j) above.



8. Restricted Shares, Restricted Share Units and Unrestricted Shares




     (a) Grants. The Committee may in its sole discretion grant restricted shares (“Restricted
Shares”) to any Eligible Person and shall evidence such grant in an Award Agreement that is
delivered to the Participant and that sets forth the number of Restricted Shares, the purchase
price for such Restricted Shares (if any), and the terms upon which the Restricted Shares may
become vested. In addition, the Company may in its discretion grant to any Eligible Person the
right to receive Shares after certain vesting requirements are met (“Restricted Share Units”), and
shall evidence such grant in an Award Agreement that is delivered to the Participant and that sets
forth the number of Shares (or formula, that may be based on future performance or conditions, for
determining the number of Shares) that the Participant shall be entitled to receive upon vesting
and the terms upon which the Shares subject to a Restricted Share Unit may become vested. The
Committee may condition any Award of Restricted Shares or Restricted Share Units to a Participant
on receiving from the Participant such further assurances and documents as the Committee may
require to enforce the restrictions. In addition, the Committee may grant Awards hereunder in the
form of unrestricted shares (“Unrestricted Shares”), which shall vest in full upon the date of
grant or such other date as the Committee may determine or which the Committee may issue pursuant
to any program under which one or more Eligible Persons (selected by the Committee in its sole
discretion) elect to pay for such Shares or to receive Unrestricted Shares in lieu of cash bonuses
that would otherwise be paid.



     (b) Vesting and Forfeiture. The Committee shall set forth in an Award Agreement granting
Restricted Shares or Restricted Share Units, the terms and conditions under which the Participant’s
interest in the Restricted Shares or the Shares subject to Restricted Share Units will become
vested and non-forfeitable. Except as set forth in the applicable Award Agreement or the Committee
otherwise determines, upon termination of a Participant’s Continuous Service for any other reason,
the Participant shall forfeit his or her Restricted Shares and Restricted Share Units; provided
that if a Participant purchases the Restricted Shares and forfeits them for any reason, the Company
shall return the purchase price to the Participant only if and to the extent set forth in an Award
Agreement.



     (c) Issuance of Restricted Shares Prior to Vesting. The Company shall issue stock
certificates that evidence Restricted Shares pending the lapse of applicable restrictions, and that
bear a legend making appropriate reference to such restrictions. Except as set forth in the
applicable Award Agreement or the Committee otherwise determines, the Company or a third party that
the Company designates shall hold such Restricted Shares and any dividends that accrue with respect
to Restricted Shares pursuant to Section 8(e) below.



     (d) Issuance of Shares upon Vesting. As soon as practicable after vesting of a Participant’s
Restricted Shares (or Shares underlying Restricted Share Units) and the Participant’s satisfaction
of applicable tax withholding requirements, the Company shall release to the Participant, free from
the vesting restrictions, one Share for each vested Restricted Share (or issue one Share free of
the
vesting restriction for each vested Restricted Share Unit), unless an Award Agreement provides
otherwise. No fractional shares shall be distributed, and cash shall be paid in lieu thereof.



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     (e) Dividends Payable on Vesting. Unless otherwise provided in an Award Agreement, whenever
unrestricted Shares are issued to a Participant pursuant to Section 8(d) above, the Participant
shall also receive, with respect to each Share issued, (i) a number of Shares equal to the stock
dividends which were declared and paid to the holders of Shares between the Grant Date and the date
such Share is issued, and (ii) a number of Shares having a Fair Market Value equal to any cash
dividends that were paid to the holders of Shares based on a record date between the Grant Date and
the date such Share is issued.



     (f) Section 83(b) Elections. A Participant may make an election under Section 83(b) of the
Code (the “Section 83(b) Election”) with respect to Restricted Shares. If a Participant who has
received Restricted Share Units provides the Committee with written notice of his or her intention
to make a Section 83(b) Election with respect to the Shares subject to such Restricted Share Units,
the Committee may in its discretion convert the Participant’s Restricted Share Units into
Restricted Shares, on a one-for-one basis, in full satisfaction of the Participant’s Restricted
Share Unit Award. The Participant may then make a Section 83(b) Election with respect to those
Restricted Shares. Shares with respect to which a Participant makes a Section 83(b) Election shall
not be eligible for deferral pursuant to Section 9 below.



     (g) Deferral Elections. At any time within the thirty-day (30) period (or other shorter or
longer period that the Committee selects in its sole discretion) in which a Participant who is a
member of a select group of management or highly compensated employees (within the meaning of the
Code) receives an Award of either Restricted Shares or Restricted Share Units, the Committee may
permit the Participant to irrevocably elect, on a form provided by and acceptable to the Committee,
to defer the receipt of all or a percentage of the Shares that would otherwise be transferred to
the Participant upon the vesting of such Award. If the Participant makes this election, the Shares
subject to the election, and any associated dividends and interest, shall be credited to an account
established pursuant to Section 9 hereof on the date such Shares would otherwise have been released
or issued to the Participant pursuant to Section 8(d) above.



9. Deferred Share Units




     (a) Elections to Defer. The Committee may permit any Eligible Person who is a Director,
Consultant or member of a select group of management or highly compensated employees (within the
meaning of the Code) to irrevocably elect, on a form provided by and acceptable to the Committee
(the “Election Form”), to forego the receipt of cash or other compensation (including the Shares
deliverable pursuant to any Award other than Restricted Shares for which a Section 83(b) Election
has been made), and in lieu thereof to have the Company credit to an internal Plan account (the
“Account”) a number of deferred share units (“Deferred Share Units”) having a Fair Market Value
equal to the Shares and other compensation deferred. These credits will be made at the end of each
calendar month during which compensation is deferred. Each Election Form shall take effect on the
first day of the next calendar year (or on the first day of the next calendar month in the case of
an initial election by a Participant who first becomes eligible to defer hereunder) after its
delivery to the Company, subject to Section 8(g) regarding deferral of Restricted Shares and
Restricted Share Units and to Section 10(e) regarding deferral of Performance Awards, unless the
Company sends the Participant a written notice explaining why the Election Form is invalid within



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five (5) business days after the Company receives it. Notwithstanding the foregoing sentence:
(i) Election Forms shall be ineffective with respect to any compensation that a Participant earns
before the date on which the Company receives the Election Form, and (ii) the Committee may
unilaterally make awards in the form of Deferred Share Units, regardless of whether or not the
Participant foregoes other compensation.



     (b) Vesting. Unless an Award Agreement expressly provides otherwise, each Participant shall
be 100% vested at all times in any Shares subject to Deferred Share Units.



     (c) Issuances of Shares. The Company shall provide a Participant with one Share for each
Deferred Share Unit in five substantially equal annual installments that are issued before the last
day of each of the five calendar years that end after the date on which the Participant’s
Continuous Service terminates, unless:




     (i) the Participant has properly elected a different form of distribution, on a form
approved by the Committee, that permits the Participant to select any combination of a lump
sum and annual installments that are completed within ten years following termination of the
Participant’s Continuous Service; and




     (ii) the Company received the Participant’s distribution election form at the time the
Participant elects to defer the receipt of cash or other compensation pursuant to Section
9(a), provided that such election may be changed through any subsequent election that (i) is
delivered to the Company at least one year before the date on which distributions are
otherwise scheduled to commence pursuant to the Participant’s election, and (ii) defers the
commencement of distributions by at least five years from the originally scheduled
commencement date.



     Fractional shares shall not be issued, and instead shall be paid out in cash.



     (d) Crediting of Dividends. Unless otherwise provided in an Award Agreement, whenever Shares
are issued to a Participant pursuant to Section 9(c) above, the Participant shall also receive,
with respect to each Share issued, (i) a number of Shares equal to any stock dividends which were
declared and paid to the holders of Shares between the Grant Date and the date such Share is
issued, and (ii) a number of Shares having a Fair Market Value equal to any cash dividends that
were paid to the holders of Shares based on a record date between the Grant Date and the date such
Share is issued.



     (e) Emergency Withdrawals. In the event a Participant suffers an unforeseeable emergency
within the contemplation of this Section and Section 409A of the Code, the Participant may apply to
the Company for an immediate distribution of all or a portion of the Participant’s Deferred Share
Units. The unforeseeable emergency must result from a sudden and unexpected illness or accident of
the Participant, the Participant’s spouse, or a dependent (within the meaning of Section 152(a) of
the Code) of the Participant, casualty loss of the Participant’s property, or other similar
extraordinary and unforeseeable conditions beyond the control of the Participant. Examples of
purposes which are not considered unforeseeable emergencies include post-secondary school expenses
or the desire to purchase a residence. In no event will a distribution be made to the extent the
unforeseeable emergency could be relieved through reimbursement or compensation by insurance or
otherwise, or by liquidation of the Participant’s nonessential assets to the extent such
liquidation would not itself



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cause a severe financial hardship. The amount of any distribution hereunder shall be limited
to the amount necessary to relieve the Participant’s unforeseeable emergency plus amounts necessary
to pay taxes reasonably anticipated as a result of the distribution. The Committee shall determine
whether a Participant has a qualifying unforeseeable emergency and the amount which qualifies for
distribution, if any. The Committee may require evidence of the purpose and amount of the need,
and may establish such application or other procedures as it deems appropriate.



     (f) Unsecured Rights to Deferred Compensation. A Participant’s right to Deferred Share Units
shall at all times constitute an unsecured promise of the Company to pay benefits as they come due.
The right of the Participant or the Participant’s duly-authorized transferee to receive benefits
hereunder shall be solely an unsecured claim against the general assets of the Company. Neither
the Participant nor the Participant’s duly-authorized transferee shall have any claim against or
rights in any specific assets, shares, or other funds of the Company.



10. Performance Awards




     (a) Performance Units. Subject to the limitations set forth in paragraph (c) hereof, the
Committee may in its discretion grant Performance Units to any Eligible Person and shall evidence
such grant in an Award Agreement that is delivered to the Participant which sets forth the terms
and conditions of the Award.



     (b) Performance Compensation Awards. Subject to the limitations set forth in paragraph (c)
hereof, the Committee may, at the time of grant of a Performance Unit, designate such Award as a
“Performance Compensation Award” (payable in cash or Shares) in order that such Award constitutes
“qualified performance-based compensation” under Code Section 162(m), in which event the Committee
shall have the power to grant such Performance Compensation Award upon terms and conditions that
qualify it as “qualified performance-based compensation” within the meaning of Code Section 162(m).
With respect to each such Performance Compensation Award, the Committee shall establish, in
writing within the time required under Code Section 162(m), a “Performance Period,” “Performance
Measure(s)”, and “Performance Formula(e)” (each such term being hereinafter defined).



     A Participant shall be eligible to receive payment in respect of a Performance Compensation
Award only to the extent that the Performance Measure(s) for such Award is achieved and the
Performance Formula(e) as applied against such Performance Measure(s) determines that all or some
portion of such Participant’s Award has been earned for the Performance Period. As soon as
practicable after the close of each Performance Period, the Committee shall review and certify in
writing whether, and to what extent, the Performance Measure(s) for the Performance Period have
been achieved and, if so, determine and certify in writing the amount of the Performance
Compensation Award to be paid to the Participant and, in so doing, may use negative discretion to
decrease, but not increase, the amount of the Award otherwise payable to the Participant based upon
such performance.



     (c) Limitations on Awards. The maximum Performance Unit Award and the maximum Performance
Compensation Award that any one Participant may receive for any one Performance Period shall not
together exceed 1,000,000 Shares and $1,000,000 in cash. The Committee shall have the discretion
to provide in any Award Agreement that any amounts earned in excess of these limitations will
either be credited as Deferred Share Units, or as deferred cash compensation under a



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separate plan of the Company (provided in the latter case that such deferred compensation
either bears a reasonable rate of interest or has a value based on one or more predetermined actual
investments). Any amounts for which payment to the Participant is deferred pursuant to the
preceding sentence shall be paid to the Participant in a future year or years not earlier than, and
only to the extent that, the Participant is either not receiving compensation in excess of these
limits for a Performance Period, or is not subject to the restrictions set forth under Section
162(b) of the Code.



     (d) Definitions.




     (i) “Performance Formula” means, for a Performance Period, one or more objective
formulas or standards established by the Committee for purposes of determining whether or
the extent to which an Award has been earned based on the level of performance attained or
to be attained with respect to one or more Performance Measure(s). Performance Formulae may
vary from Performance Period to Performance Period and from Participant to Participant and
may be established on a stand-alone basis, in tandem or in the alternative.




     (ii) “Performance Measure” means one or more of the following selected by the Committee
to measure Company, Affiliate, and/or business unit performance for a Performance Period,
whether in absolute or relative terms (including, without limitation, terms relative to a
peer group or index): basic, diluted, or adjusted earnings per share; sales or revenue;
earnings before interest, taxes, and other adjustments (in total or on a per share basis);
basic or adjusted net income; returns on equity, assets, capital, revenue or similar
measure; economic value added; working capital; total shareholder return; and product
development, product market share, research, licensing, litigation, human resources,
information services, mergers, acquisitions, sales of assets of Affiliates or business
units. Each such measure shall be, to the extent applicable, determined in accordance with
generally accepted accounting principles as consistently applied by the Company (or such
other standard applied by the Committee) and, if so determined by the Committee, and in the
case of a Performance Compensation Award, to the extent permitted under Code Section 162(m),
adjusted to omit the effects of extraordinary items, gain or loss on the disposal of a
business segment, unusual or infrequently occurring events and transactions and cumulative
effects of changes in accounting principles. Performance Measures may vary from Performance
Period to Performance Period and from Participant to Participant, and may be established on
a stand-alone basis, in tandem or in the alternative.




     (iii) “Performance Period” means one or more periods of time (of not less than one
fiscal year of the Company), as the Committee may designate, over which the attainment of
one or more Performance Measure(s) will be measured for the purpose of determining a
Participant’s rights in respect of an Award.



     (e) Deferral Elections. At any time prior to the date that is at least six months before the
close of a Performance Period (or shorter or longer period that the Committee selects) with respect
to an Award of either Performance Units or Performance Compensation, the Committee may permit a
Participant who is a member of a select group of management or highly compensated employees (within
the meaning of the Code) to irrevocably elect, on a form provided by and acceptable to the
Committee, to defer the receipt of all or a percentage of the cash or Shares that would otherwise
be transferred to the Participant upon the vesting of such Award. If the Participant



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makes this election, the cash or Shares subject to the election, and any associated interest
and dividends, shall be credited to an account established pursuant to Section 9 hereof on the date
such cash or Shares would otherwise have been released or issued to the Participant pursuant to
Section 10(a) or Section 10(b) above.



11. Taxes




     (a) General. As a condition to the issuance or distribution of Shares pursuant to the Plan,
the Participant (or in the case of the Participant’s death, the person who succeeds to the
Participant’s rights) shall make such arrangements as the Company may require for the satisfaction
of any applicable federal, state, local or foreign withholding tax obligations that may arise in
connection with the Award and the issuance of Shares. The Company shall not be required to issue
any Shares until such obligations are satisfied. If the Committee allows the withholding or
surrender of Shares to satisfy a Participant’s tax withholding obligations, the Committee shall not
allow Shares to be withheld in an amount that exceeds the minimum statutory withholding rates for
federal and state tax purposes, including payroll taxes.



     (b) Default Rule for Employees. In the absence of any other arrangement, an Employee shall be
deemed to have directed the Company to withhold or collect from his or her cash compensation an
amount sufficient to satisfy such tax obligations from the next payroll payment otherwise payable
after the date of the exercise of an Award.



     (c) Special Rules. In the case of a Participant other than an Employee (or in the case of an
Employee where the next payroll payment is not sufficient to satisfy such tax obligations, with
respect to any remaining tax obligations), in the absence of any other arrangement and to the
extent permitted under Applicable Law, the Participant shall be deemed to have elected to have the
Company withhold from the Shares or cash to be issued pursuant to an Award that number of Shares
having a Fair Market Value determined as of the applicable Tax Date (as defined below) or cash
equal to the amount required to be withheld. For purposes of this Section 11, the Fair Market
Value of the Shares to be withheld shall be determined on the date that the amount of tax to be
withheld is to be determined under the Applicable Law (the “Tax Date”).



     (d) Surrender of Shares. If permitted by the Committee, in its discretion, a Participant may
satisfy the minimum applicable tax withholding and employment tax obligations associated with an
Award by surrendering Shares to the Company (including Shares that would otherwise be issued
pursuant to the Award) that have a Fair Market Value determined as of the applicable Tax Date equal
to the amount required to be withheld. In the case of Shares previously acquired from the Company
that are surrendered under this Section 11, such Shares must have been owned by the Participant for
more than six months on the date of surrender (or such longer period of time the Company may in its
discretion require).



     (e) Income Taxes and Deferred Compensation. Participants are solely responsible and liable
for the satisfaction of all taxes and penalties that may arise in connection with Awards (including
any taxes arising under Section 409A of the Code), and the Company shall not have any obligation to
indemnify or otherwise hold any Participant harmless from any or all of such taxes. The Committee
shall have the discretion to organize any deferral program, to require deferral election forms, and
to grant or to unilaterally modify any Award in a manner that (i) conforms with the requirements of
Section 409A of the Code with respect to compensation that is deferred and that vests after



-14-









 







December 31, 2004, (ii) that voids any Participant election to the extent it would violate
Section 409A of the Code, and (iii) for any distribution election that would violate Section 409A
of the Code, to make distributions pursuant to the Award at the earliest to occur of a distribution
event that is allowable under Section 409A of the Code or any distribution event that is both
allowable under Section 409A of the Code and is elected by the Participant, subject to any valid
second election to defer, provided that the Committee permits second elections to defer in
accordance with Section 409A(a)(4)(C). The Committee shall have the sole discretion to interpret
the requirements of the Code, including Section 409A, for purposes of the Plan and all Awards.



12. Non-Transferability of Awards




     (a) General. Except as set forth in this Section 12, or as otherwise approved by the
Committee, Awards may not be sold, pledged, assigned, hypothecated, transferred or disposed of in
any manner other than by will or by the laws of descent or distribution, or in the case of an
option other than an ISO, pursuant to a domestic relations order as defined under Rule 16a-12 under
the Exchange Act. The designation of a beneficiary by a Participant will not constitute a
transfer. An Award may be exercised, during the lifetime of the holder of an Award, only by such
holder, the duly-authorized legal representative of a Participant who is Disabled, a transferee
permitted by this Section 12, or except as would cause an ISO to lose such status, by a bankruptcy
trustee.



     (b) Limited Transferability Rights. Notwithstanding anything else in this Section 12, the
Committee may in its discretion provide in an Award Agreement that an Award relating to non-ISOs,
SARs settled only in Shares, Restricted Shares, or Performance Shares may be transferred, on such
terms and conditions as the Committee deems appropriate, either (i) by instrument to the
Participant’s “Immediate Family” (as defined below), (ii) by instrument to an inter vivos or
testamentary trust (or other entity) in which the Award is to be passed to the Participant’s
designated beneficiaries, or (iii) by gift to charitable institutions. Restricted Shares shall be
non-transferable until such share becomes non-forfeitable. Any transferee of the Participant’s
rights shall succeed and be subject to all of the terms of the applicable Award Agreement and the
Plan. “Immediate Family” means any child, stepchild, grandchild, parent, stepparent, grandparent,
spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law,
daughter-in-law, brother-in-law, or sister-in-law, and shall include adoptive relationships.



13. Adjustments Upon Changes in Capitalization, Merger or Certain Other Transactions




     (a) Changes in Capitalization. The Committee shall equitably adjust the number of Shares
covered by each outstanding Award, and the number of Shares that have been authorized for issuance
under the Plan but as to which no Awards have yet been granted or that have been returned to the
Plan upon cancellation, forfeiture or expiration of an Award, as well as the price per Share
covered by each such outstanding Award, to reflect any increase or decrease in the number of issued
Shares resulting from a stock-split, reverse stock-split, stock dividend, combination,
recapitalization or reclassification of the Shares, or any other increase or decrease in the number
of issued Shares effected without receipt of consideration by the Company. In the event of any
such transaction or event, the Committee may provide in substitution for any or all outstanding
Options under the Plan such alternative consideration (including securities of any surviving
entity) as it may in good faith determine to be equitable under the circumstances and may require
in connection therewith the surrender of all Options so replaced. In any case, such substitution
of securities shall not require the consent of any person who is granted Options pursuant to the
Plan. Except as
expressly provided



-15-









 







herein, or in an Award Agreement, if the Company issues for consideration
shares of stock of any class or securities convertible into shares of stock of any class, the
issuance shall not affect, and no adjustment by reason thereof shall be required to be made with
respect to the number or price of Shares subject to any Award.



     (b) Dissolution or Liquidation. In the event of the dissolution or liquidation of the Company
other than as part of a Change of Control, each Award will terminate immediately prior to the
consummation of such action, subject to the ability of the Committee to exercise any discretion
authorized in the case of a Change in Control.



     (c) Change in Control. In the event of a Change in Control, the Committee may in its sole and
absolute discretion and authority, without obtaining the approval or consent of the Company’s
shareholders or any Participant with respect to his or her outstanding Awards, take one or more of
the following actions:




     (i) arrange for or otherwise provide that each outstanding Award shall be
assumed or a substantially similar award shall be substituted by a successor
corporation or a parent or subsidiary of such successor corporation (the “Successor
Corporation”);




     (ii) accelerate the vesting of Awards so that Awards shall vest (and, to the
extent applicable, become exercisable) as to the Shares that otherwise would have
been unvested and provide that repurchase rights of the Company with respect to
Shares issued upon exercise of an Award shall lapse as to the Shares subject to such
repurchase right;




     (iii) arrange or otherwise provide for the payment of cash or other
consideration to Participants in exchange for the satisfaction and cancellation of
outstanding Awards;




     (iv) terminate Awards upon the consummation of the Change in Control
transaction, provided that the Committee may, in its sole and absolute
discretion, provide for vesting of all or some outstanding Awards in full as of a
date immediately prior to consummation of the Change of Control. To the extent that
an Award is not exercised prior to consummation of a transaction in which the Award
is not being assumed or substituted, such Award shall terminate upon such
consummation; or




     (v) make such other modifications, adjustments or amendments to outstanding
Awards or this Plan as the Committee deems necessary or appropriate, subject however
to the terms of Section 15(a) below.



     Notwithstanding the above, in the event a Participant holding an Award assumed or substituted
by the Successor Corporation in a Change in Control is Involuntarily Terminated by the Successor
Corporation in connection with, or within 12 months following consummation of, the Change in
Control, then any assumed or substituted Award held by the terminated Participant at the time of
termination shall accelerate and become fully vested (and exercisable in full in the case of
Options and SARs), and any repurchase right applicable to any Shares shall lapse in full, unless an



-16-









 







Award Agreement provides for a more restrictive acceleration or vesting schedule or more
restrictive limitations on the lapse of repurchase rights or otherwise places additional
restrictions, limitations and conditions on an Award. The acceleration of vesting and lapse of
repurchase rights provided for in the previous sentence shall occur immediately prior to the
effective date of the Participant’s termination, unless an Award Agreement provides otherwise.



     (d) Certain Distributions. In the event of any distribution to the Company’s shareholders of
securities of any other entity or other assets (other than dividends payable in cash or stock of
the Company) without receipt of consideration by the Company, the Committee may, in its discretion,
appropriately adjust the price per Share covered by each outstanding Award to reflect the effect of
such distribution.



14. Time of Granting Awards.




     The date of grant (“Grant Date”) of an Award shall be the date on which the Committee makes
the determination granting such Award or such other date as is determined by the Committee and set
forth in the Award Agreement, provided that in the case of an ISO, the Grant Date shall be the
later of the date on which the Committee makes the determination granting such ISO or the date of
commencement of the Participant’s employment relationship with the Company.



15. Modification of Awards and Substitution of Options.




     (a) Modification, Extension, and Renewal of Awards. Within the limitations of the Plan, the
Committee may modify an Award to accelerate the rate at which an Option or SAR may be exercised
(including without limitation permitting an Option or SAR to be exercised in full without regard to
the installment or vesting provisions of the applicable Award Agreement or whether the Option or
SAR is at the time exercisable, to the extent it has not previously been exercised), to accelerate
the vesting of any Award, to extend or renew outstanding Awards or to accept the cancellation of
outstanding Awards to the extent not previously exercised. However, the Committee may not cancel
an outstanding option that is “underwater” for the purpose of reissuing the option to the
participant at a lower exercise price or granting a replacement award of a different type .
Notwithstanding the foregoing provision, no modification of an outstanding Award shall
materially and adversely affect such Participant’s rights thereunder, unless either the Participant
provides written consent or there is an express Plan provision permitting the Committee to act
unilaterally to make the modification or the Committee reasonably concludes that the modification
is not materially adverse to the Participant.



     (b) Substitution of Options. Notwithstanding any inconsistent provisions or limits under the
Plan, in the event the Company or an Affiliate acquires (whether by purchase, merger or otherwise)
all or substantially all of outstanding capital stock or assets of another corporation or in the
event of any reorganization or other transaction qualifying under Section 424 of the Code, the
Committee may, in accordance with the provisions of that Section, substitute Options for options
under the plan of the acquired company provided (i) the excess of the aggregate fair market value
of the shares subject to an option immediately after the substitution over the aggregate option
price of such shares is not more than the similar excess immediately before such substitution and
(ii) the new option does not give persons additional benefits, including any extension of the
exercise period.



-17-









 





16. Term of Plan.




     The Plan shall continue in effect for a term of ten (10) years from its effective date as
determined under Section 20 below, unless the Plan is sooner terminated under Section 17 below.



17. Amendment and Termination of the Plan.




     (a) Authority to Amend or Terminate. Subject to Applicable Laws, the Board may from time to
time amend, alter, suspend, discontinue or terminate the Plan.



     (b) Effect of Amendment or Termination. No amendment, suspension, or termination of the Plan
shall materially and adversely affect Awards already granted unless either it relates to an
adjustment pursuant to Section 13 above, or it is otherwise mutually agreed between the Participant
and the Committee, which agreement must be in writing and signed by the Participant and the
Company. Notwithstanding the foregoing, the Committee may amend the Plan to eliminate provisions
which are no longer necessary as a result of changes in tax or securities laws or regulations, or
in the interpretation thereof.



18. Conditions Upon Issuance of Shares.




     Notwithstanding any other provision of the Plan or any agreement entered into by the Company
pursuant to the Plan, the Company shall not be obligated, and shall have no liability for failure,
to issue or deliver any Shares under the Plan unless such issuance or delivery would comply with
Applicable Law, with such compliance determined by the Company in consultation with its legal
counsel.



19. Reservation of Shares.




     The Company, during the term of this Plan, will at all times reserve and keep available such
number of Shares as shall be sufficient to satisfy the requirements of the Plan.



20. Effective Date.




     This Plan shall become effective on the date of its approval by the Board; provided
that this Plan shall be submitted to the Company’s shareholders for approval, and if not approved
by the shareholders in accordance with Applicable Laws (as determined by the Committee in its sole
discretion) within one (1) year from the date of approval by the Board, this Plan and any Awards
shall be null, void and of no force and effect. Awards granted under this Plan before approval of
this Plan by the shareholders shall be granted subject to such approval, and no Shares shall be
distributed before such approval.



21. Controlling Law.




     All disputes relating to or arising from the Plan shall be governed by the internal
substantive laws (and not the laws of conflicts of laws) of the State of Illinois, to the extent
not preempted by United States federal law. If any provision of this Plan is held by a court of
competent jurisdiction to be invalid and unenforceable, the remaining provisions shall continue to
be fully effective.



-18-









 





22. Laws And Regulations.




     (a) U.S. Securities Laws. This Plan, the grant of Awards, and the exercise of Options and
SARs under this Plan, and the obligation of the Company to sell or deliver any of its securities
(including, without limitation, Options, Restricted Shares, Restricted Share Units, Deferred Share
Units, and Shares) under this Plan shall be subject to all Applicable Law. In the event that the
Shares are not registered under the Securities Act of 1933, as amended (the “Act”), or any
applicable state securities laws prior to the delivery of such Shares, the Company may require, as
a condition to the issuance thereof, that the persons to whom Shares are to be issued represent and
warrant in writing to the Company that such Shares are being acquired by him or her for investment
for his or her own account and not with a view to, for resale in connection with, or with an intent
of participating directly or indirectly in, any distribution of such Shares within the meaning of
the Act, and a legend to that effect may be placed on the certificates representing the Shares.



     (b) Other Jurisdictions. To facilitate the making of any grant of an Award under this Plan,
the Committee may provide for such special terms for Awards to Participants who are foreign
nationals or who are employed by the Company or any Affiliate outside of the United States of
America as the Committee may consider necessary or appropriate to accommodate differences in local
law, tax policy or custom. The Company may adopt rules and procedures relating to the operation
and administration of this Plan to accommodate the specific requirements of local laws and
procedures of particular countries. Without limiting the foregoing, the Company is specifically
authorized to adopt rules and procedures regarding the conversion of local currency, taxes,
withholding procedures and handling of stock certificates which vary with the customs and
requirements of particular countries. The Company may adopt sub-plans and establish escrow
accounts and trusts as may be appropriate or applicable to particular locations and countries.


23. No Shareholder Rights. Neither a Participant nor any transferee of a Participant shall
have any rights as a shareholder of the Company with respect to any Shares underlying any Award
until the date of issuance of a share certificate to a Participant or a transferee of a Participant
for such Shares in accordance with the Company’s governing instruments and Applicable Law. Prior
to the issuance of Shares pursuant to an Award, a Participant shall not have the right to vote or
to receive dividends or any other rights as a shareholder with respect to the Shares underlying the
Award, notwithstanding its exercise in the case of Options and SARs. No adjustment will be made
for a dividend or other right that is determined based on a record date prior to the date the stock
certificate is issued, except as otherwise specifically provided for in this Plan.



24. No Employment Rights. The Plan shall not confer upon any Participant any right to
continue an employment, service or consulting relationship with the Company, nor shall it affect in
any way a Participant’s right or the Company’s right to terminate the Participant’s employment,
service, or consulting relationship at any time, with or without Cause.




25. Termination, Rescission and Recapture of Awards.




     (a) Each Award under the Plan is intended to align the Participant’s long-term interest with
those of the Company. If the Participant engages in certain activities discussed below, either
during employment or after employment with the Company terminates for any reason, the Participant
is acting contrary to the long-term interests of the Company. Accordingly, but only to the extent
as otherwise expressly provided in the Award Agreement, the Company may terminate any outstanding,
unexercised, unexpired, unpaid, or deferred Awards (“Termination”), rescind any exercise, payment
or delivery pursuant to the Award (“Rescission”), or recapture any Common



-19-









 







Stock (whether restricted or unrestricted) or proceeds from the Participant’s sale of Shares
issued pursuant to the Award (“Recapture”), if the Participant does not comply with the conditions
of subsections (b) and (c) hereof (collectively, the “Conditions”).



     (b) A Participant shall not, without the Company’s prior written authorization, disclose to
anyone outside the Company, or use in other than the Company’s business, any proprietary or
confidential information or material, as those or other similar terms are used in any applicable
patent, confidentiality, inventions, secrecy, or other agreement between the Participant and the
Company with regard to any such proprietary or confidential information or material.



     (c) Pursuant to any agreement between the Participant and the Company with regard to
intellectual property (including but not limited to patents, trademarks, copyrights, trade secrets,
inventions, developments, improvements, proprietary information, confidential business and
personnel information), a Participant shall promptly disclose and assign to the Company or its
designee all right, title, and interest in such intellectual property, and shall take all
reasonable steps necessary to enable the Company to secure all right, title and interest in such
intellectual property in the United States and in any foreign country.



     (d) Upon exercise, payment, or delivery of cash or Common Stock pursuant to an Award, the
Participant shall certify on a form acceptable to the Company that he or she is in compliance with
the terms and conditions of the Plan and, if a severance of Continuous Service has occurred for any
reason, shall state the name and address of the Participant’s then-current employer or any entity
for which the Participant performs business services and the Participant’s title, and shall
identify any organization or business in which the Participant owns a greater-than-five-percent
equity interest.



     (e) If the Company determines, in its sole and absolute discretion, that (i) a Participant has
violated any of the Conditions or (ii) during his or her Continuous Service, or within [two] years
after his or her termination for any reason, a Participant (a) has rendered services to, or
otherwise directly or indirectly engaged in or assisted, any organization or business that, in the
judgment of the Company, in its sole and absolute discretion, is or is working to become
competitive with the Company; (b) has solicited any non-administrative employee of the Company to
terminate employment with the Company; or (c) has engaged in activities which are materially
prejudicial to or in conflict with the interests of the Company, including any breaches of
fiduciary duty or the duty of loyalty, then the Company may, in its sole and absolute discretion,
impose a Termination, Rescission, and/or Recapture with respect to any or all of the Participant’s
relevant Awards, Shares and the proceeds thereof.



     (f) Within ten (10) days after receiving notice from the Company of any such activity, the
Participant shall deliver to the Company the Shares acquired pursuant to the Award, or, if
Participant has sold the Shares, the gain realized, or payment received as a result of the
rescinded exercise, payment, or delivery; provided, that if the Participant returns Shares
that the Participant purchased pursuant to the exercise of an Option (or the gains realized from
the sale of such Common Stock), the Company shall promptly refund the exercise price, without
earnings, that the Participant paid for the Shares. Any payment by the Participant to the Company
pursuant to this Section 21 shall be made either in cash or by returning to the Company the number
of Shares that the Participant received in connection with the rescinded exercise, payment, or
delivery. It shall not be a basis for Termination, Rescission or Recapture if after termination of
a Participant’s



-20-









 







Continuous Service, the Participant purchases, as an investment or otherwise, stock or other
securities of such an organization or business, so long as (i) such stock or other securities are
listed upon a recognized securities exchange or traded over-the-counter, and (ii) such investment
does not represent more than a five percent (5%) equity interest in the organization or business.



     (g) Notwithstanding the foregoing provisions of this Section, the Company has sole and
absolute discretion not to require Termination, Rescission and/or Recapture, and its determination
not to require Termination, Rescission and/or Recapture with respect to any particular act by a
particular Participant or Award shall not in any way reduce or eliminate the Company’s authority to
require Termination, Rescission and/or Recapture with respect to any other act or Participant or
Award. Nothing in this Section shall be construed to impose obligations on the Participant to
refrain from engaging in lawful competition with the Company after the termination of employment
that does not violate subsections (b) or (c) of this Section, other than any obligations that are
part of any separate agreement between the Company and the Participant or that arise under
applicable law.



     (h) All administrative and discretionary authority given to the Company under this Section
shall be exercised by the most senior human resources executive of the Company or such other person
or committee (including without limitation the Committee) as the Committee may designate from time
to time.



     (i) Notwithstanding any provision of this Section, if any provision of this Section is
determined to be unenforceable or invalid under any applicable law, such provision will be applied
to the maximum extent permitted by applicable law, and shall automatically be deemed amended in a
manner consistent with its objectives to the extent necessary to conform to any limitations
required under applicable law. Furthermore, if any provision of this Section is illegal under any
applicable law, such provision shall be null and void to the extent necessary to comply with
applicable law.



26. Pre-IPO Provisions. 




     Subject to any contrary terms set forth in any Award Agreement, for any period preceding the
date on which the Shares are listed for trading on the New York Stock Exchange, the American Stock
Exchange, NASDAQ, or a successor to one of them, this Section shall be applicable to any Shares
subject to or issued pursuant to Awards.



     (a) Shareholders’ Agreement. As a condition for the delivery of any Shares pursuant to any
Award, the Committee may require the Participant to execute and be bound by any agreement that
generally exists between the Company and similarly situated Shareholders.



     (b) Repurchase Rights. The Committee, in its sole and absolute discretion, may provide that
the Company may repurchase Shares issued pursuant to the Plan upon a Participant’s termination of
Continuous Service; provided, however that any such repurchase right shall be set
forth in the applicable Award Agreement or in another agreement referred to in such agreement and,
provided, further, any such repurchase right granted prior to the date on which the
Shares become publicly-traded to a person who is not an Officer, Director or Consultant shall be
upon the following terms: (i) if the repurchase option gives the Company the right to repurchase
the shares upon termination of Continuous Service at not less than the Fair Market Value of the
Shares to be purchased on the date of termination of Continuous Service, then (A) the right to
repurchase shall
be exercised for cash or cancellation of purchase money indebtedness for the shares within
ninety



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(90) days of termination of Continuous Service (or in the case of shares issued upon
exercise of Options or SARs after such date of termination, within ninety (90) days after the date
of the exercise) or such longer period as may be agreed to by the Committee and the Plan
participant, and (B) the right terminates when the shares become publicly traded; and (ii) if the
repurchase option gives the Company the right to repurchase the Shares upon termination of the
Participant’s Continuous Service at the original purchase price for such Shares, then (A) the right
to repurchase at the original purchase price shall lapse at the rate of at least twenty percent
(20%) of the Shares per year over five (5) years from the Grant Date (without respect to the date
the Option or SAR was exercised or became exercisable), and (B) the right to repurchase shall be
exercised for cash or cancellation of purchase money indebtedness for the Shares within ninety (90)
days of termination of Continuous Service (or, in the case of shares issued upon exercise of
Options or SARs, after such date of termination, within ninety (90) days after the date of the
exercise) or such longer period as may be agreed to by the Company and the Participant.



     (c) Market Stand-Off. In connection with any underwritten public offering by the Company of
its equity securities pursuant to an effective registration statement filed under the federal
securities laws, including the Company’s initial public offering, Participants shall not directly
or indirectly sell, make any short sale of, loan, hypothecate, pledge, offer, grant or sell any
option or other contract for the purchase of, purchase any option or other contract for the sale
of, or otherwise dispose or transfer, or agree to engage in any of the foregoing transactions with
respect to, any Shares acquired under this Agreement (including, without limitation, upon exercise
of an Award) without the prior written consent of the Company or its underwriters. Such
restriction (the “Market Stand-Off”) shall be in effect for such period of time, not exceeding one
hundred eighty (180) days, following the date of the final prospectus for the offering as may be
requested by the Company or such underwriters. The Market Stand-Off shall in any event terminate
two (2) years after the date of the Company’s initial public offering. In the event of the
declaration of a stock dividend, a spin-off, a stock split, an adjustment in conversion ratio, a
recapitalization or a similar transaction affecting the Company’s outstanding securities without
receipt of consideration, any new, substituted or additional securities which are by reason of such
transaction distributed with respect to any Shares subject to the Market Stand-Off, or into which
such Shares thereby become convertible, shall immediately be subject to such Market Stand-Off. In
order to enforce the Market Stand-Off, the Company may impose stop-transfer instructions with
respect to the Shares acquired under this Agreement until the end of the applicable stand-off
period. The Company and its underwriters shall be beneficiaries of the agreement set forth in this
paragraph. This paragraph shall not apply to Shares registered in a public offering under the
federal securities laws, and the Participant shall be subject to this paragraph only if the
directors and officers of the Company are subject to similar arrangements.




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NANOSPHERE, INC.

2007 EQUITY INCENTIVE PLAN







 




Appendix A: Definitions


 




As used in the Plan, the following definitions shall apply:




     “Affiliate” means, with respect to any Person (as defined below), any other Person that
directly or indirectly controls or is controlled by or under common control with such Person. For
the purposes of this definition, “control,” when used with respect to any Person, means the
possession, direct or indirect, of the power to direct or cause the direction of the management and
policies of such Person or the power to elect directors, whether through the ownership of voting
securities, by contract or otherwise; and the terms “affiliated,” “controlling” and “controlled”
have meanings correlative to the foregoing.



     “Applicable Law” means the legal requirements relating to the administration of options and
share-based plans under applicable U.S. federal and state laws, the Code, any applicable stock
exchange or automated quotation system rules or regulations, and the applicable laws of any other
country or jurisdiction where Awards are granted, as such laws, rules, regulations and requirements
shall be in place from time to time.



     “Award” means any award made pursuant to the Plan, including awards made in the form of an
Option, a SAR, a Restricted Share, a Restricted Share Unit, an Unrestricted Share, a Deferred Share
Unit, and a Performance Award, or any combination thereof, whether alternative or cumulative,
authorized by and granted under this Plan.



     “Award Agreement” means any written document setting forth the terms of an Award that has been
authorized by the Committee. The Committee shall determine the form or forms of documents to be
used, and may change them from time to time for any reason.



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



     “Cause” for termination of a Participant’s Continuous Service will have the meaning set forth
in any unexpired employment agreement between the Company and the Participant. In the absence of
such an agreement, “Cause” will exist if the Participant is terminated from employment or other
service with the Company or an Affiliate for any of the following reasons: (i) the Participant’s
willful failure to substantially perform his or her duties and responsibilities to the Company or
deliberate violation of a material Company policy; (ii) the Participant’s commission of any
material act or acts of fraud, embezzlement, dishonesty, or other willful misconduct; (iii) the
Participant’s material unauthorized use or disclosure of any proprietary information or trade
secrets of the Company or any other party to whom the Participant owes an obligation of
nondisclosure as a result of his or her relationship with the Company; or (iv) Participant’s
willful and material breach of any of his or her obligations under any written agreement or
covenant with the Company.



 











 





     The Committee shall in its discretion determine whether or not a Participant is being
terminated for Cause. The Committee’s determination shall, unless arbitrary and capricious, be
final
and binding on the Participant, the Company, and all other affected persons. The foregoing
definition does not in any way limit the Company’s ability to terminate a Participant’s employment
or consulting relationship at any time, and the term “Company” will be interpreted herein to
include any Affiliate or successor thereto, if appropriate.



     “Change in Control” means any of the following: (i) a consolidation or merger of the Company
with or into another entity or entities (whether or not the Company is the surviving entity); (ii)
a sale or transfer by the Company of all or substantially all of its assets (determined either for
the Company alone or with its subsidiaries on a consolidated basis); or (iii) any sale, transfer or
issuance, or series of sales, transfer and/or issuances, of shares of the Company’s capital stock
by the Company, or the holders thereof, as a result of which the holders of the Company’s
outstanding capital stock possessing the voting power (under ordinary circumstances) to elect a
majority of the Board of Directors of the Company immediately prior to such sale, transfer or
issuance (or series thereof) cease to own the Company’s outstanding capital stock possessing the
voting power (under ordinary circumstances) to elect a majority of the Board of Directors of the
Company.



     Notwithstanding the foregoing, a “Change in Control” shall not be deemed to have occurred by
virtue of the consummation of any transaction or series of integrated transactions immediately
following which the record holders of the common stock of the Company immediately prior to such
transaction or series of transactions continue to have substantially the same proportionate
ownership in an entity which owns all or substantially all of the assets of the Company immediately
following such transaction or series of transactions.



     “Code” means the U.S. Internal Revenue Code of 1986, as amended.



     “Committee” means one or more committees or subcommittees of the Board appointed by the Board
to administer the Plan in accordance with Section 4 above. With respect to any decision involving
an Award intended to satisfy the requirements of Section 162(m) of the Code, the Committee shall
consist of two or more Directors of the Company who are “outside directors” within the meaning of
Section 162(m) of the Code. With respect to any decision relating to a Reporting Person, the
Committee shall consist of two or more Directors who are disinterested within the meaning of Rule
16b-3.



     “Common Stock” means the Common Stock of the Company, par value $0.01 per share.



     “Company” means Nanosphere, Inc., a Delaware corporation; provided, however,
that in the event the Company reincorporates to another jurisdiction, all references to the term
“Company” shall refer to the Company in such new jurisdiction.



     “Consultant” means any person, including an advisor, who is engaged by the Company or any
Affiliate to render services and is compensated for such services.



     “Continuous Service” means the absence of any interruption or termination of service as an
Employee, Director, or Consultant. Continuous Service shall not be considered interrupted in the
case of: (i) sick leave; (ii) military leave; (iii) any other leave of absence approved by the
Committee, provided that such leave is for a period of not more than 90 days, unless reemployment
upon the expiration of such leave is guaranteed by contract or statute, or unless provided
otherwise pursuant to Company policy adopted from time to time; (iv) changes in status from
Director to



-2-









 







advisory director or emeritus status; or (iv) in the case of transfers between locations of
the Company or between the Company, its Affiliates or their respective successors. Changes in
status between service as an Employee, Director, and a Consultant will not constitute an
interruption of Continuous Service.



     “Deferred Share Units” mean Awards pursuant to Section 9 of the Plan.



     “Director” means a member of the Board, or a member of the board of directors of an Affiliate.



     “Disabled” means a condition under which a Participant:



     (a) is unable to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in death or can be
expected to last for a continuous period of not less than 12 months, or



     (b) is, by reason of any medically determinable physical or mental impairment which can be
expected to result in death or can be expected to last for a continuous period of not less than 12
months, received income replacement benefits for a period of not less than 3 months under an
accident or health plan covering employees of the Company.



     “Eligible Person” means any Consultant, Director or Employee and includes non-Employees to
whom an offer of employment has been extended.



     “Employee” means any person whom the Company or any Affiliate classifies as an employee
(including an officer) for employment tax purposes, whether or not that classification is correct.
The payment by the Company of a director’s fee to a Director shall not be sufficient to constitute
“employment” of such Director by the Company.



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



     “Fair Market Value” means, as of any date (the “Determination Date”) means: (i) the closing
price of a Share on the New York Stock Exchange or the American Stock Exchange (collectively, the
“Exchange”), on the Determination Date, or, if shares were not traded on the Determination Date,
then on the nearest preceding trading day during which a sale occurred; or (ii) if such stock is
not traded on the Exchange but is quoted on NASDAQ or a successor quotation system, (A) the last
sales price (if the stock is then listed as a National Market Issue under The Nasdaq National
Market System) or (B) the mean between the closing representative bid and asked prices (in all
other cases) for the stock on the Determination Date as reported by NASDAQ or such successor
quotation system; or (iii) if such stock is not traded on the Exchange or quoted on NASDAQ but is
otherwise traded in the over-the-counter, the mean between the representative bid and asked prices
on the Determination Date; or (iv) if subsections (i)-(iii) do not apply, the fair market value
established in good faith by the Board.



     “Grant Date” has the meaning set forth in Section 14 of the Plan.



     “Incentive Share Option or ISO” hereinafter means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code, as designated in the
applicable Award Agreement.



-3-









 





     “Involuntary Termination” means termination of a Participant’s Continuous Service under the
following circumstances occurring on or after a Change in Control: (i) termination without Cause
by the Company or an Affiliate or successor thereto, as appropriate; or (ii) voluntary termination
by the Participant within 60 days following (A) a material reduction in the Participant’s job
responsibilities, provided that neither a mere change in title alone nor reassignment to a
substantially similar position shall constitute a material reduction in job responsibilities; (B)
an involuntary relocation of the Participant’s work site to a facility or location more than 50
miles from the Participant’s principal work site at the time of the Change in Control; or (C) a
material reduction in Participant’s total compensation other than as part of an reduction by the
same percentage amount in the compensation of all other similarly-situated Employees, Directors or
Consultants.



     “Non-ISO” means an Option not intended to qualify as an ISO, as designated in the applicable
Award Agreement.



     “Option” means any stock option granted pursuant to Section 6 of the Plan.



     “Participant” means any holder of one or more Awards, or the Shares issuable or issued upon
exercise of such Awards, under the Plan.



     “Performance Awards” mean Performance Units and Performance Compensation Awards granted
pursuant to Section 10.



     “Performance Compensation Awards” mean Awards granted pursuant to Section 10(b) of the Plan.



     “Performance Unit” means Awards granted pursuant to Section 10(a) of the Plan which may be
paid in cash, in Shares, or such combination of cash and Shares as the Committee in its sole
discretion shall determine.



     “Person” means any natural person, association, trust, business trust, cooperative,
corporation, general partnership, joint venture, joint-stock company, limited partnership, limited
liability company, real estate investment trust, regulatory body, governmental agency or
instrumentality, unincorporated organization or organizational entity.



     “Plan” means this Nanosphere, Inc. 2007 Equity Incentive Plan.



     “Reporting Person” means an officer, Director, or greater than ten percent (10%) shareholder
of the Company within the meaning of Rule 16a-2 under the Exchange Act, who is required to file
reports pursuant to Rule 16a-3 under the Exchange Act.



     “Restricted Shares” mean Shares subject to restrictions imposed pursuant to Section 8 of the
Plan.



     “Restricted Share Units” mean Awards pursuant to Section 8 of the Plan.



     “Rule 16b-3” means Rule 16b-3 promulgated under the Exchange Act, as amended from time to
time, or any successor provision.



-4-









 





     “SAR” or “Share Appreciation Right” means Awards granted pursuant to Section 7 of the Plan.



     “Share” means a share of Common Stock, as adjusted in accordance with Section 13 of the Plan.



     “Ten Percent Holder” means a person who owns stock representing more than ten percent (10%) of
the combined voting power of all classes of stock of the Company or any Affiliate.



     “Unrestricted Shares” mean Shares awarded pursuant to Section 8 of the Plan.




-5-









 








NANOSPHERE, INC.

2007 EQUITY INCENTIVE PLAN

AMENDED AND RESTATED EFFECTIVE OCTOBER 29, 2007

















As approved by the Board of
Directors and the Stockholders on
March 27, 2007, and amended by the
Board on June 4, 2007, with such
amendment approved by the Stockholders
as of July 10, 2007, and amended and
restated by the Board on October 29, 2007,
with such amendment and restatement
approved by the Stockholders as of
October 29, 2007.