Exhibit 10.34


 


NETWORK ENGINES, INC.


 


2009 INCENTIVE
PLAN


 


1.            Purpose


 


The purpose of this 2009
Incentive Plan (the “Plan”) of
Network Engines, Inc., a Delaware corporation (the “Company”),
is to advance the interests of the Company’s stockholders by enhancing the
Company’s ability to attract, retain and motivate persons who are expected to
make important contributions to the Company and by providing such persons with
equity ownership opportunities and performance-based incentives that are intended
to better align the interests of such persons with those of the Company’s
stockholders.  Except where the context
otherwise requires, the term “Company”
shall include any of the Company’s present or future parent or subsidiary
corporations as defined in Sections 424(e) or (f) of the Internal
Revenue Code of 1986, as amended, and any regulations thereunder (the “Code”) and any other business
venture (including, without limitation, joint venture or limited liability
company) in which the Company has a controlling interest, as determined by the
Board of Directors of the Company (the “Board”).


 


2.           
Eligibility


 


All of the Company’s employees,
officers, and directors are eligible to be granted options, stock appreciation
rights (“SARs”), restricted stock,
restricted stock units (“RSUs”) and
other stock- and cash-based awards (each, an “Award”)
under the Plan.  Consultants and advisors
to the Company (as such terms are defined and interpreted for purposes of Form S-8
(or any successor form)) are also eligible to be granted Awards. Each person
who is granted an Award under the Plan is deemed a “Participant.”


 


3.           
Administration and Delegation


 


(a)           Administration
by Board of Directors.  The Plan will
be administered by the Board.  The Board
shall have authority to grant Awards and to adopt, amend and repeal such
administrative rules, guidelines and practices relating to the Plan as it shall
deem advisable.  The Board may construe
and interpret the terms of the Plan and any Award agreements entered into under
the Plan.  The Board may correct any
defect, supply any omission or reconcile any inconsistency in the Plan or any
Award in the manner and to the extent it shall deem expedient to carry the Plan
into effect and it shall be the sole and final judge of such expediency.  All decisions by the Board shall be made in
the Board’s sole discretion and shall be final and binding on all persons
having or claiming any interest in the Plan or in any Award.


 


(b)           Appointment of
Committees.  To the extent permitted
by applicable law, the Board may delegate any or all of its powers under the
Plan to one or more committees or subcommittees of the Board (a “Committee”).  All references in the Plan to the “Board” shall mean the Board or a
Committee of the Board or the officers referred to in Section 3(c) to
the extent that the Board’s powers or authority under the Plan have been
delegated to such Committee or officers.


 

















 


(c)           Delegation
to Officers.  To the extent permitted
by applicable law, the Board may delegate to one or more officers of the
Company the power to grant Options and other Awards that constitute rights
under Delaware law (subject to any limitations under the Plan) to employees or
officers of the Company or any of its present or future subsidiary corporations
and to exercise such other powers under the Plan as the Board may determine,
provided that the Board shall fix the terms of the Awards to be granted by such
officers (including the exercise price of the Awards, which may include a
formula by which the exercise price will be determined) and the maximum number
of shares subject to such Awards that the officers may grant; provided further,
however, that no officer shall be authorized to grant Awards to any “executive
officer” of the Company (as defined by Rule 3b-7 under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”))
or to any “officer” of the Company (as defined by Rule 16a-1 under the
Exchange Act).  The Board may not
delegate authority under this Section 3(c) to grant restricted stock,
unless Delaware law then permits such delegation.


 


(d)           Awards
to Non-Employee Directors. 
Discretionary Awards to non-employee directors will only be granted and
administered by a Committee, all of the members of which are independent as
defined by Section 4200(a)(15) of the Nasdaq Marketplace Rules.


 


4.           
Stock Available for Awards


 


(a)           Number
of Shares; Share Counting.


 


(1)           Authorized Number of Shares.  Subject to adjustment under Section 10,
Awards may be made under the Plan for up to 750,000 shares of common stock,
$.01 par value per share, of the Company (the “Common
Stock”), any or all of which Awards may be in the form of
Incentive Stock Options.  Shares issued
under the Plan may consist in whole or in part of authorized but unissued
shares or treasury shares.


 


(2)           Share Counting. 
For purposes of counting the number of shares available for the grant of
Awards under the Plan and under the sublimits contained in Sections 4(b)(2) and
4(b)(3), (i) all shares of Common Stock covered by independent SARs shall
be counted against the number of shares available for the grant of Awards;
provided, however, that independent SARs that may be settled only in cash shall
not be so counted; (ii) if any Award (A) expires or is terminated,
surrendered or canceled without having been fully exercised or is forfeited in
whole or in part (including as the result of shares of Common Stock subject to
such Award being repurchased by the Company at the original issuance price
pursuant to a contractual repurchase right) or (B) results in any Common
Stock not being issued (including as a result of an independent SAR that was
settleable either in cash or in stock actually being settled in cash), the
unused Common Stock covered by such Award shall again be available for the
grant of Awards; provided, however, in the case of
Incentive Stock Options (as hereinafter defined), the foregoing shall be
subject to any limitations under the Code; and provided further, in the case of
independent SARs, that the full number of shares subject to any stock-settled
SAR shall be counted against the shares available under the Plan and against
the sublimits listed in the first clause of this Section in proportion to
the portion of the SAR actually exercised regardless of the number of shares
actually used to settle such SAR upon exercise; (iii) shares of Common
Stock delivered (either by actual delivery, attestation, or net exercise) to
the Company by a Participant to (A) purchase shares of Common Stock upon
the exercise of an Award or (B) satisfy tax 


 


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withholding obligations
(including shares retained from the Award creating the tax obligation) shall
not be added back to the number of shares available for the future grant of
Awards; and (iv) shares of Common Stock repurchased by the Company on the
open market using the proceeds from the exercise of an Award shall not increase
the number of shares available for future grant of Awards.


 


(b)           Sub-limits.  Subject to adjustment under Section 10,
the following sub-limits on the number of shares subject to Awards shall apply:


 


(1)           Section 162(m) Per-Participant Limit.  The maximum number of shares of Common Stock
with respect to which Awards may be granted to any Participant under the Plan shall
be 750,000 per fiscal year.  For purposes
of the foregoing limit, the combination of an Option in tandem with a SAR (as
each is hereafter defined) shall be treated as a single Award.  The per Participant limit described in this Section 4(b)(1) shall
be construed and applied consistently with Section 162(m) of the Code
or any successor provision thereto, and the regulations thereunder (“Section 162(m)”).


 


(2)           Limit on Awards other than Options and SARS.  The maximum number of shares with respect to
which Awards other than Options and SARs may be granted shall be 75% of the
maximum number of authorized shares set forth in Section 4(a)(1).


 


(3)           Limit on Awards to Directors.  The maximum number of shares with respect to
which Awards may be granted to directors who are not employees of the Company
at the time of grant shall be 20% of the maximum number of authorized shares
set forth in Section 4(a)(1).


 


(c)           Substitute
Awards.  In connection with a merger
or consolidation of an entity with the Company or the acquisition by the
Company of property or stock of an entity, the Board may grant Awards in
substitution for any options or other stock or stock-based awards granted by
such entity or an affiliate thereof. 
Substitute Awards may be granted on such terms as the Board deems
appropriate in the circumstances, notwithstanding any limitations on Awards
contained in the Plan.  Substitute Awards
shall not count against the overall share limit set forth in Section 4(a)(1) or
any sublimits contained in the Plan, except as may be required by reason of Section 422
and related provisions of the Code.


 


5.           
Stock Options


 


(a)           General.  The Board may grant options to purchase
Common Stock (each, an “Option”)
and determine the number of shares of Common Stock to be covered by each
Option, the exercise price of each Option and the conditions and limitations
applicable to the exercise of each Option, including conditions relating to
applicable federal or state securities laws, as it considers necessary or
advisable.  An Option that is not
intended to be an Incentive Stock Option (as hereinafter defined) shall be
designated a “Nonstatutory Stock Option.”


 


(b)           Incentive
Stock Options.  An Option that the
Board intends to be an “incentive stock option” as defined in Section 422
of the Code (an “Incentive Stock Option”)
shall only be granted to employees of Network Engines, Inc., any of
Network Engines, Inc.’s present or future parent or subsidiary
corporations as defined in Sections 424(e) or (f) of the Code, and
any other 


 


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entities the employees of which
are eligible to receive Incentive Stock Options under the Code, and shall be
subject to and shall be construed consistently with the requirements of Section 422
of the Code.  The Company shall have no
liability to a Participant, or any other party, if an Option (or any part
thereof) that is intended to be an Incentive Stock Option is not an Incentive
Stock Option or if the Company converts an Incentive Stock Option to a Nonstatutory
Stock Option.


 


(c)           Exercise
Price.  The Board shall establish the
exercise price of each Option and specify the exercise price in the applicable
option agreement.  The exercise price
shall be not less than 100% of the Fair Market Value (as defined below) on the
date the Option is granted; provided that if the Board approves the grant of an
Option with an exercise price to be determined on a future date, the exercise
price shall be not less than 100% of the Fair Market Value on such future date.


 


(d)           Duration
of Options.  Each Option shall be
exercisable at such times and subject to such terms and conditions as the Board
may specify in the applicable option agreement; provided,
however, that no Option will be granted with a term in excess of 10
years.


 


(e)           Exercise
of Option.  Options may be exercised
by delivery to the Company of a written notice of exercise signed by the proper
person or by any other form of notice (including electronic notice) approved by
the Company, together with payment in full as specified in Section 5(f) for
the number of shares for which the Option is exercised.  Shares of Common Stock subject to the Option
will be delivered by the Company as soon as practicable following exercise.


 


(f)            Payment
Upon Exercise.  Common Stock purchased
upon the exercise of an Option granted under the Plan shall be paid for as
follows:


 


(1)           in cash or by check, payable to the order of the Company;


 


(2)           except as may otherwise be provided in the applicable
option agreement, by (i) delivery of an irrevocable and unconditional
undertaking by a creditworthy broker to deliver promptly to the Company
sufficient funds to pay the exercise price and any required tax withholding or (ii) delivery
by the Participant to the Company of a copy of irrevocable and unconditional
instructions to a creditworthy broker to deliver promptly to the Company cash
or a check sufficient to pay the exercise price and any required tax
withholding;


 


(3)           to the extent provided for in the applicable option
agreement or approved by the Board, in its sole discretion, by delivery (either
by actual delivery or attestation) of shares of Common Stock owned by the
Participant valued at their fair market value, determined as provided below (“Fair Market Value”), provided (i) such
method of payment is then permitted under applicable law, (ii) such Common
Stock, if acquired directly from the Company, was owned by the Participant for
such minimum period of time, if any, as may be established by the Board in its
discretion and (iii) such Common Stock is not subject to any repurchase,
forfeiture, unfulfilled vesting or other similar requirements;


 


(4)           to the extent provided for in the applicable Nonstatutory
Stock Option agreement or approved by the Board in its sole discretion, by
delivery of a notice of “net 


 


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exercise” to the Company, as a
result of which the Participant would receive the number of shares of Common
Stock underlying the Option so exercised reduced by the number of shares of
Common Stock equal to the aggregate exercise price of the Option divided by the
Fair Market Value on the date of exercise;


 


(5)           to the extent permitted by applicable law and provided for
in the applicable Option agreement or approved by the Board, in its sole discretion,
by payment of such other lawful consideration as the Board may determine; or


 


(6)           by any combination of the above permitted forms of
payment.


 


“Fair Market Value”
of a share of Common Stock for purposes of the Plan will be determined as
follows:


 


(A) if the Common Stock
trades on a national securities exchange, the closing sale price (for the
primary trading session) on the date of grant; or


 


(B) if the Common Stock
does not trade on any such exchange, the average of the closing bid and asked
prices as reported by an authorized OTCBB market data vendor as listed on the
OTCBB website (otcbb.com) on the date of grant; or


 


(C) if the Common Stock is
not publicly traded, the Board will determine the Fair Market Value for
purposes of the Plan using any measure of value it determines to be appropriate
(including, as it considers appropriate, relying on appraisals) in a manner
consistent with the valuation principles under Code Section 409A, except
as the Board or Committee may expressly determine otherwise.


 


For any date that is not a trading day, the
Fair Market Value of a share of Common Stock for such date will be determined
by using the closing sale price or average of the bid and asked prices, as
appropriate, for the immediately preceding trading day and with the timing in
the formulas above adjusted accordingly. 
The Board can substitute a particular time of day or other measure of “closing
sale price” or “bid and asked prices” if appropriate because of exchange or
market procedures or can, in its sole discretion, use weighted averages either
on a daily basis or such longer period as complies with Code Section 409A.


 


The Board has sole discretion to determine
the Fair Market Value for purposes of this Plan, and all Awards are conditioned
on the participants’ agreement that the Board’s determination is conclusive and
binding even though others might make a different determination.


 


(g)           Limitation
on Repricing.  Unless such action is
approved by the Company’s stockholders:  (1) no
outstanding Option granted under the Plan may be amended to provide an exercise
price per share that is lower than the then-current exercise price per share of
such outstanding Option (other than adjustments pursuant to Section 10)
and (2) the Board may not cancel any outstanding Option (whether or not
granted under the Plan) and grant in substitution therefor new Awards under the
Plan covering the same or a different number of shares of Common Stock and
having an exercise price per share lower than the then-current exercise price
per share of the cancelled option.


 


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6.           
Director Options


 


(a)           Initial
Grant.  Upon the commencement of
service on the Board by any individual who is not then an employee of the
Company or any subsidiary of the Company, the Company shall grant to such
person a Nonstatutory Stock Option to purchase 50,000 shares of Common Stock
(subject to adjustment under Section 10).


 


(b)           Annual
Grant.  On the date of each annual
meeting of stockholders of the Company, the Company shall grant to each member
of the Board of Directors of the Company who is both serving as a director of
the Company immediately prior to and immediately following such annual meeting
and who is not then an employee of the Company or any of its subsidiaries, a
Nonstatutory Stock Option to purchase 15,000 shares of Common Stock (subject to
adjustment under Section 10); provided, however,
that a director shall not be eligible to receive an option grant under this Section 6(b) until
such director has served on the Board for at least nine months.


 


(c)           Terms
of Director Options.  Options granted
under this Section 6 shall (i) have an exercise price equal to the
closing sale price (for the primary trading session) of the Common Stock on the
national securities exchange on which the Common Stock is then traded on the
day of grant (or if the date of grant is not a trading day on such exchange,
the trading day immediately prior to the date of grant) or if the Common Stock
is not then traded on a national securities exchange, the Fair Market Value of
the Common Stock on such date as determined by the Board, (ii) (A) in
the case of options granted under Section 6(a) shall vest in equal
25% increments on each anniversary of the date of grant and (B) in the
case of options granted under Section 6(b) shall vest in full on the
first anniversary of the date of grant, provided that in either such case the
individual is serving on the Board on such date (or in the case of an option
granted under Section 6(b), if earlier, on the date which is one business
day prior to date of the Company’s next annual meeting), provided that in
either such case no additional vesting shall take place after the Participant
ceases to serve as a director and further provided that in either such case the
Board may provide for accelerated vesting in the case of death, disability,
change in control, attainment of mandatory retirement age or retirement
following at least 10 years of service, (iii) expire on the earlier of 10
years from the date of grant or three months following cessation of service on
the Board and (iv) contain such other terms and conditions as the Board
shall determine.


 


7.           
Stock Appreciation Rights


 


(a)           General.  The Board may grant Awards consisting of SARs
entitling the holder, upon exercise, to receive an amount of Common Stock or
cash or a combination thereof (such form to be determined by the Board)
determined by reference to appreciation, from and after the date of grant, in
the Fair Market Value of a share of Common Stock over the measurement price
established pursuant to Section 7(c). 
The date as of which such appreciation is determined shall be the
exercise date.


 


(b)           Grants.  SARs may be granted in tandem with, or
independently of, Options granted under the Plan.


 


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(1)           Tandem Awards. 
When SARs are expressly granted in tandem with Options, (i) the SAR
will be exercisable only at such time or times, and to the extent, that the
related Option is exercisable (except to the extent designated by the Board in
connection with a Reorganization Event) and will be exercisable in accordance
with the procedure required for exercise of the related Option; (ii) the
SAR will terminate and no longer be exercisable upon the termination or
exercise of the related Option, except to the extent designated by the Board in
connection with a Reorganization Event and except that a SAR granted with
respect to less than the full number of shares covered by an Option will not be
reduced until the number of shares as to which the related Option has been
exercised or has terminated exceeds the number of shares not covered by the
SAR; (iii) the Option will terminate and no longer be exercisable upon the
exercise of the related SAR; and (iv) the SAR will be transferable only
with the related Option.


 


(2)           Independent SARs. 
A SAR not expressly granted in tandem with an Option will become
exercisable at such time or times, and on such conditions, as the Board may
specify in the SAR Award.


 


(c)           Measurement
Price.  The Board shall establish the
measurement price of each SAR and specify it in the applicable SAR
agreement.  The measurement price shall
not be less than 100% of the Fair Market Value on the date the SAR is granted;
provided that if the Board approves the grant of a SAR with a measurement price
to be determined on a future date, the measurement price shall be not less than
100% of the Fair Market Value on such future date.


 


(d)           Duration
of SARs.  Each SAR shall be
exercisable at such times and subject to such terms and conditions as the Board
may specify in the applicable SAR agreement; provided,
however, that no SAR will be granted with a term in excess of 10
years.


 


(e)           Exercise
of SARs.  SARs may be exercised by
delivery to the Company of a written notice of exercise signed by the proper
person or by any other form of notice (including electronic notice) approved by
the Company, together with any other documents required by the Board.


 


(f)            Limitation
on Repricing.  Unless such action is
approved by the Company’s stockholders: (1) no outstanding SAR granted
under the Plan may be amended to provide an exercise price per share that is
lower than the then-current exercise price per share of such outstanding SAR
(other than adjustments pursuant to Section 10) and (2) the Board may
not cancel any outstanding SAR (whether or not granted under the Plan) and
grant in substitution therefor new Awards under the Plan covering the same or a
different number of shares of Common Stock and having an exercise price per
share lower than the then-current exercise price per share of the cancelled
SAR.


 


8.           
Restricted Stock; Restricted Stock Units


 


(a)           General.  The Board may grant Awards entitling
recipients to acquire shares of Common Stock (“Restricted
Stock”), subject to the right of the Company to repurchase all
or part of such shares at their issue price or other stated or formula price
(or to require forfeiture of such shares if issued at no cost) from the
recipient in the event that conditions specified by the Board in the applicable
Award are not satisfied prior to the end of the applicable restriction 


 


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period or periods established by the Board
for such Award.  Instead of granting Awards
for Restricted Stock, the Board may grant Awards entitling the recipient to
receive shares of Common Stock or cash to be delivered at the time such Award
vests (“Restricted Stock Units”)
(Restricted Stock and Restricted Stock Units are each referred to herein as a “Restricted Stock Award”).


 


(b)           Terms
and Conditions for All Restricted Stock Awards.  The Board shall determine the terms and
conditions of a Restricted Stock Award, including the conditions for vesting
and repurchase (or forfeiture) and the issue price.


 


(c)           Additional
Provisions Relating to Restricted Stock.


 


(1)           Dividends. 
Participants holding shares of Restricted Stock will be entitled to all
ordinary cash dividends paid with respect to such shares, unless otherwise
provided by the Board.  Unless otherwise
provided by the Board, if any dividends or distributions are paid in shares, or
consist of a dividend or distribution to holders of Common Stock other than an
ordinary cash dividend, the shares, cash or other property will be subject to
the same restrictions on transferability and forfeitability as the shares of
Restricted Stock with respect to which they were paid.  Each dividend payment will be made no later
than the end of the calendar year in which the dividends are paid to shareholders
of that class of stock or, if later, the 15th day of the third month following the date the
dividends are paid to shareholders of that class of stock.


 


(2)           Stock Certificates. 
The Company may require that any stock certificates issued in respect of
shares of Restricted Stock shall be deposited in escrow by the Participant,
together with a stock power endorsed in blank, with the Company (or its
designee).  At the expiration of the
applicable restriction periods, the Company (or such designee) shall deliver
the certificates no longer subject to such restrictions to the Participant or
if the Participant has died, to the beneficiary designated, in a manner
determined by the Board, by a Participant to receive amounts due or exercise
rights of the Participant in the event of the Participant’s death (the “Designated Beneficiary”).  In the absence of an effective designation by
a Participant, “Designated Beneficiary” shall
mean the Participant’s estate.


 


(d)           Additional
Provisions Relating to Restricted Stock Units.


 


(1)           Settlement. 
Upon the vesting of and/or lapsing of any other restrictions (i.e.,
settlement) with respect to each Restricted Stock Unit, the Participant shall
be entitled to receive from the Company one share of Common Stock or an amount
of cash equal to the Fair Market Value of one share of Common Stock, as
provided in the applicable Award agreement. 
The Board may, in its discretion, provide that settlement of Restricted
Stock Units shall be deferred, on a mandatory basis or at the election of the
Participant in a manner that complies with Code Section 409A.


 


(2)           Voting Rights. 
A Participant shall have no voting rights with respect to any Restricted
Stock Units.


 


(3)           Dividend Equivalents.  To the extent provided by the Board, in its
sole discretion, a grant of Restricted Stock Units may provide Participants
with the right to receive an amount equal to any dividends or other
distributions declared and paid on an equal number of 


 


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outstanding shares of Common Stock (“Dividend Equivalents”).  Dividend Equivalents may be paid currently or
credited to an account for the Participants, may be settled in cash and/or
shares of Common Stock and may be subject to the same restrictions on transfer
and forfeitability as the Restricted Stock Units with respect to which paid, as
determined by the Board in its sole discretion, subject in each case to such
terms and conditions as the Board shall establish, in each case to be set forth
in the applicable Award agreement.


 


9.           
Other Stock-Based Awards


 


(a)           General.  Other Awards of shares of Common Stock, and
other Awards that are valued in whole or in part by reference to, or are
otherwise based on, shares of Common Stock or other property, may be granted hereunder
to Participants (“Other Stock-Based-Awards”),
including without limitation Awards entitling recipients to receive shares of
Common Stock to be delivered in the future. 
Other Stock-Based Awards may be paid in shares of Common Stock or cash,
as the Board shall determine.  The
Company may also grant Performance Awards or other Awards denominated in cash
rather than shares of Common Stock (“Cash-Based Awards”).


 


(b)           Terms
and Conditions.  Subject to the
provisions of the Plan, the Board shall determine the terms and conditions of
each Other Stock-Based Award or Cash-Based Awards, including any purchase price
applicable thereto.


 


10.          Adjustments
for Changes in Common Stock and Certain Other Events


 


(a)           Changes
in Capitalization.  In the event of
any stock split, reverse stock split, stock dividend, recapitalization,
combination of shares, reclassification of shares, spin-off or other similar
change in capitalization or event, or any dividend or distribution to holders
of Common Stock other than an ordinary cash dividend, (i) the number and
class of securities available under the Plan, (ii) the sub-limits and
share counting rules set forth in Sections 4(a) and 4(b), (iii) the
number and class of securities and exercise price per share of each outstanding
Option and each Option issuable under Section 6, (iv) the share- and
per-share provisions and the measurement price of each SAR, (v) the number
of shares subject to and the repurchase price per share subject to each
outstanding Restricted Stock Award and (vi) the share- and
per-share-related provisions and the purchase price, if any, of each
outstanding Other Stock-Based Award, shall be equitably adjusted by the Company
(or substituted Awards may be made, if applicable) in the manner determined by
the Board.  Without limiting the
generality of the foregoing, in the event the Company effects a split of the
Common Stock by means of a stock dividend and the exercise price of and the
number of shares subject to an outstanding Option are adjusted as of the date
of the distribution of the dividend (rather than as of the record date for such
dividend), then an optionee who exercises an Option between the record date and
the distribution date for such stock dividend shall be entitled to receive, on
the distribution date, the stock dividend with respect to the shares of Common
Stock acquired upon such Option exercise, notwithstanding the fact that such
shares were not outstanding as of the close of business on the record date for
such stock dividend.


 


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(b)           Reorganization Events.


 


(1)           Definition. 
A “Reorganization Event” shall
mean:  (a) any merger or
consolidation of the Company with or into another entity as a result of which
all of the Common Stock of the Company is converted into or exchanged for the
right to receive cash, securities or other property or is cancelled, (b) any
transfer or disposition of all of the Common Stock of the Company for cash,
securities or other property pursuant to a share exchange or other transaction
or (c) any liquidation or dissolution of the Company.


 


(2)           Consequences of a Reorganization Event on Awards Other
than Restricted Stock Awards.  In
connection with a Reorganization Event, the Board may take any one or more of
the following actions as to all or any (or any portion of) outstanding Awards
other than Restricted Stock Awards on such terms as the Board determines:  (i) provide that Awards shall be
assumed, or substantially equivalent Awards shall be substituted, by the
acquiring or succeeding corporation (or an affiliate thereof), (ii) upon
written notice to a Participant, provide that the Participant’s unexercised
Awards will terminate immediately prior to the consummation of such
Reorganization Event unless exercised by the Participant within a specified
period following the date of such notice, (iii) provide that outstanding
Awards shall become exercisable, realizable, or deliverable, or restrictions
applicable to an Award shall lapse, in whole or in part prior to or upon such
Reorganization Event, (iv) in the event of a Reorganization Event under
the terms of which holders of Common Stock will receive upon consummation
thereof a cash payment for each share surrendered in the Reorganization Event
(the “Acquisition Price”), make or
provide for a cash payment to a Participant equal to the excess, if any,
of  (A) the Acquisition Price times
the number of shares of Common Stock subject to the Participant’s Awards (to
the extent the exercise price does not exceed the Acquisition Price) over (B) the
aggregate exercise price of all such outstanding Awards and any applicable tax
withholdings, in exchange for the termination of such Awards, (v) provide
that, in connection with a liquidation or dissolution of the Company, Awards
shall convert into the right to receive liquidation proceeds (if applicable,
net of the exercise price thereof and any applicable tax withholdings) and (vi) any
combination of the foregoing.  In taking
any of the actions permitted under this Section 10(b), the Board shall not
be obligated by the Plan to treat all Awards, all Awards held by a Participant,
or all Awards of the same type, identically.


 


For purposes of clause (i) above,
an Option shall be considered assumed if, following consummation of the
Reorganization Event, the Option confers the right to purchase, for each share
of Common Stock subject to the Option immediately prior to the consummation of
the Reorganization Event, the consideration (whether cash, securities or other
property) received as a result of the Reorganization Event by holders of Common
Stock for each share of Common Stock held immediately prior to the consummation
of the Reorganization Event (and if holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority of
the outstanding shares of Common Stock); provided, however,
that if the consideration received as a result of the Reorganization Event is
not solely common stock of the acquiring or succeeding corporation (or an
affiliate thereof), the Company may, with the consent of the acquiring or
succeeding corporation, provide for the consideration to be received upon the
exercise of Options to consist solely of common stock of the acquiring or
succeeding corporation (or an affiliate thereof) equivalent in value (as
determined by the Board) to the per share consideration received by holders of
outstanding shares of Common Stock as a result of the Reorganization Event.


 


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(3)           Consequences of a Reorganization Event on Restricted
Stock Awards.  Upon the occurrence of
a Reorganization Event other than a liquidation or dissolution of the Company,
the repurchase and other rights of the Company under each outstanding
Restricted Stock Award shall inure to the benefit of the Company’s successor and
shall, unless the Board determines otherwise, apply to the cash, securities or
other property which the Common Stock was converted into or exchanged for
pursuant to such Reorganization Event in the same manner and to the same extent
as they applied to the Common Stock subject to such Restricted Stock Award; provided, however, that
the Board may provide for termination or deemed satisfaction of such repurchase
or other rights under the instrument evidencing any Restricted Stock Award or
any other agreement between a Participant and the Company, either initially or
by amendment.  Upon the occurrence of a
Reorganization Event involving the liquidation or dissolution of the Company,
except to the extent specifically provided to the contrary in the instrument
evidencing any Restricted Stock Award or any other agreement between a
Participant and the Company, all restrictions and conditions on all Restricted
Stock Awards then outstanding shall automatically be deemed terminated or
satisfied.


 


11.          General Provisions Applicable to
Awards


 


(a)           Transferability
of Awards.  Awards shall not be sold,
assigned, transferred, pledged or otherwise encumbered by the person to whom
they are granted, either voluntarily or by operation of law, except by will or
the laws of descent and distribution or, other than in the case of an Incentive
Stock Option, pursuant to a qualified domestic relations order, and, during the
life of the Participant, shall be exercisable only by the Participant; provided, however, that the Board may permit or provide in
an Award for the gratuitous transfer of the Award by the Participant to or for
the benefit of any immediate family member, family trust or other entity
established for the benefit of the Participant and/or an immediate family
member thereof if, with respect to such proposed transferee, the Company would
be eligible to use a Form S-8 for the registration of the sale of the
Common Stock subject to such Award under the Securities Act of 1933, as
amended; provided, further, that the Company shall not be required to recognize
any such transfer until such time as the Participant and such permitted
transferee shall, as a condition to such transfer, deliver to the Company a
written instrument in form and substance satisfactory to the Company confirming
that such transferee shall be bound by all of the terms and conditions of the
Award.  References to a Participant, to
the extent relevant in the context, shall include references to authorized
transferees.


 


(b)           Documentation.  Each Award shall be evidenced in such form
(written, electronic or otherwise) as the Board shall determine.  Each Award may contain terms and conditions
in addition to those set forth in the Plan.


 


(c)           Board
Discretion.  Except as otherwise
provided by the Plan, each Award may be made alone or in addition or in
relation to any other Award.  The terms
of each Award need not be identical, and the Board need not treat Participants
uniformly.


 


(d)           Termination
of Status.  The Board shall determine
the effect on an Award of the disability, death, termination or other cessation
of employment, authorized leave of absence or other change in the employment or
other status of a Participant and the extent to which, and the 


 


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period during which, the
Participant, or the Participant’s legal representative, conservator, guardian
or Designated Beneficiary, may exercise rights under the Award.


 


(e)           Withholding.  The Participant must satisfy all applicable
federal, state, and local or other income and employment tax withholding
obligations before the Company will deliver stock certificates or otherwise
recognize ownership of Common Stock under an Award.  The Company may decide to satisfy the
withholding obligations through additional withholding on salary or wages.  If the Company elects not to or cannot
withhold from other compensation, the Participant must pay the Company the full
amount, if any, required for withholding or have a broker tender to the Company
cash equal to the withholding obligations. 
Payment of withholding obligations is due before the Company will issue
any shares on exercise or release from forfeiture of an Award or, if the
Company so requires, at the same time as is payment of the exercise price
unless the Company determines otherwise. 
If provided for in an Award or approved by the Board in its sole
discretion, a Participant may satisfy such tax obligations in whole or in part
by delivery (either by actual delivery or attestation) of shares of Common
Stock, including shares retained from the Award creating the tax obligation,
valued at their Fair Market Value; provided, however,
except as otherwise provided by the Board, that the total tax withholding where
stock is being used to satisfy such tax obligations cannot exceed the Company’s
minimum statutory withholding obligations (based on minimum statutory
withholding rates for federal and state tax purposes, including payroll taxes,
that are applicable to such supplemental taxable income).  Shares used to satisfy tax withholding requirements
cannot be subject to any repurchase, forfeiture, unfulfilled vesting or other
similar requirements.


 


(f)            Amendment
of Award.  The Board may amend,
modify or terminate any outstanding Award, including but not limited to,
substituting therefor another Award of the same or a different type, changing
the date of exercise or realization, and converting an Incentive Stock Option
to a Nonstatutory Stock Option.  The
Participant’s consent to such action shall be required unless (i) the
Board determines that the action, taking into account any related action, would
not materially and adversely affect the Participant’s rights under the Plan or (ii) the
change is permitted under Section 10 hereof.


 


(g)           Conditions
on Delivery of Stock.  The Company
will not be obligated to deliver any shares of Common Stock pursuant to the
Plan or to remove restrictions from shares previously delivered under the Plan
until (i) all conditions of the Award have been met or removed to the
satisfaction of the Company, (ii) in the opinion of the Company’s counsel,
all other legal matters in connection with the issuance and delivery of such
shares have been satisfied, including any applicable securities laws and any
applicable stock exchange or stock market rules and regulations, and (iii) the
Participant has executed and delivered to the Company such representations or
agreements as the Company may consider appropriate to satisfy the requirements
of any applicable laws, rules or regulations.


 


(h)           Acceleration.  The Board may at any time provide that any
Award shall become immediately exercisable in full or in part, free of some or
all restrictions or conditions, or otherwise realizable in full or in part, as
the case may be.


 


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(i)            Performance
Awards.


 


(1)           Grants. 
Restricted Stock Awards and Other Stock-Based Awards under the Plan may
be made subject to the achievement of performance goals pursuant to this Section 11(i) (“Performance Awards”), subject to the
limit in Section 4(b)(1) on shares covered by such grants.


 


(2)           Committee. 
Grants of Performance Awards to any Covered Employee intended to qualify
as “performance-based compensation” under Section 162(m) (“Performance-Based Compensation”)
shall be made only by a Committee (or subcommittee of a Committee) comprised
solely of two or more directors eligible to serve on a committee making Awards
qualifying as “performance-based compensation” under Section 162(m).  In the case of such Awards granted to Covered
Employees, references to the Board or to a Committee shall be treated as
referring to such Committee or subcommittee. 
“Covered Employee” shall mean
any person who is, or whom the Committee, in its discretion, determines may be,
a “covered employee” under Section 162(m)(3) of the Code.


 


(3)           Performance Measures.  For any Award that is intended to qualify as
Performance-Based Compensation, the Committee shall specify that the degree of
granting, vesting and/or payout shall be subject to the achievement of one or
more objective performance measures established by the Committee, which shall
be based on the relative or absolute attainment of specified levels of one or
any combination of the following:  net
income, earnings before or after discontinued operations, stock compensation,
interest, taxes, depreciation and/or amortization, operating profit before or
after discontinued operations and/or taxes, sales, sales growth, earnings
growth, cash flow or cash position, gross margins, stock price, market share,
return on sales, assets, equity or investment, improvement of financial
ratings, achievement of balance sheet or income statement objectives or total
shareholder return. Such goals may reflect absolute entity or business unit
performance or a relative comparison to the performance of a peer group of
entities or other external measure of the selected performance criteria and may
be absolute in their terms or measured against or in relationship to other
companies comparably, similarly or otherwise situated.  The Committee may specify that such
performance measures shall be adjusted to exclude any one or more of (i) extraordinary
items, (ii) gains or losses on the dispositions of discontinued
operations, (iii) the cumulative effects of changes in accounting
principles, (iv) the writedown of any asset, and (v) charges for
restructuring and rationalization programs. 
Such performance measures:  (i) may
vary by Participant and may be different for different Awards; (ii) may be
particular to a Participant or the department, branch, line of business,
subsidiary or other unit in which the Participant works and may cover such
period as may be specified by the Committee; and (iii) shall be set by the
Committee within the time period prescribed by, and shall otherwise comply with
the requirements of, Section 162(m). 
Awards that are not intended to qualify as Performance-Based
Compensation may be based on these or such other performance measures as the
Board may determine.


 


(4)           Adjustments. 
Notwithstanding any provision of the Plan, with respect to any
Performance Award that is intended to qualify as Performance-Based
Compensation, the Committee may adjust downwards, but not upwards, the cash or
number of Shares payable pursuant to such Award, and the Committee may not
waive the achievement of the applicable performance measures except in the case
of the death or disability of the Participant or a change in control of the
Company.


 


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(5)           Other.  The
Committee shall have the power to impose such other restrictions on Performance
Awards as it may deem necessary or appropriate to ensure that such Awards
satisfy all requirements for Performance-Based Compensation.


 


12.          Miscellaneous


 


(a)           No
Right To Employment or Other Status. 
No person shall have any claim or right to be granted an Award, and the
grant of an Award shall not be construed as giving a Participant the right to
continued employment or any other relationship with the Company.  The Company expressly reserves the right at
any time to dismiss or otherwise terminate its relationship with a Participant
free from any liability or claim under the Plan, except as expressly provided
in the applicable Award.


 


(b)           No
Rights As Stockholder.  Subject to
the provisions of the applicable Award, no Participant or Designated
Beneficiary shall have any rights as a stockholder with respect to any shares
of Common Stock to be distributed with respect to an Award until becoming the
record holder of such shares.


 


(c)           Effective
Date and Term of Plan.  The Plan
shall become effective on the date the Plan is approved by the Company’s
stockholders (the “Effective Date”).  No Awards shall be granted under the Plan
after the expiration of 10 years from the Effective Date, but Awards previously
granted may extend beyond that date.


 


(d)           Amendment
of Plan.  The Board may amend,
suspend or terminate the Plan or any portion thereof at any time provided that (i) to
the extent required by Section 162(m), no Award granted to a Participant
that is intended to comply with Section 162(m) after the date of such
amendment shall become exercisable, realizable or vested, as applicable to such
Award, unless and until the Company’s stockholders approve such amendment if
required by Section 162(m) (including the vote required under Section 162(m));
(ii) no amendment that would require stockholder approval under the rules of
the NASDAQ Stock Market (“NASDAQ”)
may be made effective unless and until the Company’s stockholders approve such
amendment; and (iii) if NASDAQ amends its corporate governance rules so
that such rules no longer require stockholder approval of material
amendments to equity compensation plans, then, from and after the effective
date of such amendment to the NASDAQ rules, no amendment to the Plan (A) materially
increasing the number of shares authorized under the Plan (other than pursuant
to Section 4(c) or 10), (B) expanding the types of Awards that
may be granted under the Plan, or (C) materially expanding the class of
participants eligible to participate in the Plan shall be effective unless and
until the Company’s stockholders approve such amendment.  In addition, if at any time the approval of
the Company’s stockholders is required as to any other modification or
amendment under Section 422 of the Code or any successor provision with
respect to Incentive Stock Options, the Board may not effect such modification
or amendment without such approval. 
Unless otherwise specified in the amendment, any amendment to the Plan
adopted in accordance with this Section 12(d) shall apply to, and be
binding on the holders of, all Awards outstanding under the Plan at the time
the amendment is adopted, provided the Board determines that such amendment
does not materially and adversely affect the rights of Participants under the
Plan.  An Award may be made that is
conditioned upon stockholder approval of an amendment to the Plan.


 


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(e)           Authorization
of Sub-Plans.  The Board may from
time to time establish one or more sub-plans under the Plan for purposes of
satisfying applicable securities or tax laws of various jurisdictions.  The Board shall establish such sub-plans by
adopting supplements to the Plan containing (i) such limitations on the
Board’s discretion under the Plan as the Board deems necessary or desirable or (ii) such
additional terms and conditions not otherwise inconsistent with the Plan as the
Board shall deem necessary or desirable. 
All supplements adopted by the Board shall be deemed to be part of the
Plan, but each supplement shall apply only to Participants within the affected
jurisdiction and the Company shall not be required to provide copies of any
supplement to Participants in any jurisdiction which is not the subject of such
supplement.


 


(f)            Non
U.S. Employees. Awards may be granted to Participants who are non-U.S.
citizens or residents employed outside the United States, or both, on such
terms and conditions different from those applicable to Awards to Participants
employed in the United States as may, in the judgment of the Board, be
necessary or desirable in order to recognize differences in local law or tax
policy. The Board also may impose conditions on the exercise or vesting of
Awards in order to minimize the Board’s obligation with respect to tax
equalization for Participants on assignments outside their home country. The
Board may approve such supplements to or amendments, restatements or
alternative versions of the Plan as it may consider necessary or appropriate
for such purposes, without thereby affecting the terms of this Plan as in
effect for any other purpose, and the Secretary or other appropriate officer of
the Company may certify any such document as having been approved and adopted
in the same manner as this Plan.


 


(g)           Compliance
with Section 409A of the Code. Except as provided in individual Award
agreements initially or by amendment, if and to the extent any portion of any
payment, compensation or other benefit provided to a Participant in connection
with his or her employment termination is determined to constitute “nonqualified
deferred compensation” within the meaning of Section 409A of the Code and
the Participant is a specified employee as defined in Section 409A(a)(2)(B)(i) of
the Code, as determined by the Company in accordance with its procedures, by
which determination the Participant (through accepting the Award) agrees that  he or she is bound, such portion of the
payment, compensation or other benefit shall not be paid before the day that is
six months plus one day after the date of “separation from service” (as
determined under Code Section 409A) (the “New
Payment Date”), except as Code Section 409A may then
permit.  The aggregate of any payments
that otherwise would have been paid to the Participant during the period
between the date of separation from service and the New Payment Date shall be
paid to the Participant in a lump sum on such New Payment Date, and any
remaining payments will be paid on their original schedule.


 


The Company makes no representations or
warranty and shall have no liability to the Participant or any other person if
any provisions of or payments, compensation or other benefits under the Plan
are determined to constitute nonqualified deferred compensation subject to Code
Section 409A but do not to satisfy the conditions of that section.


 


(h)           Limitations
on Liability.  Notwithstanding any other
provisions of the Plan, no individual  acting
as a director, officer, other employee, or agent of the Company will be liable
to any Participant, former Participant, spouse, beneficiary, or any other
person for any claim, loss, liability, or expense incurred in connection with
the Plan, nor will such individual be personally 


 


15

















 


liable with respect to the Plan
because of any contract or other instrument he or she executes in his or her
capacity as a director, officer, other employee,  or agent of the Company.  The Company will indemnify and hold harmless
each director, officer, other employee, or agent of the Company to whom any
duty or power relating to the administration or interpretation of the Plan has
been or will be delegated, against any cost or expense (including attorneys’
fees) or liability (including any sum paid in settlement of a claim with the
Board’s approval) arising out of any act or omission to act concerning this
Plan unless arising out of such person’s own fraud or bad faith.


 


(i)            Governing
Law.  The provisions of the Plan and
all Awards made hereunder shall be governed by and interpreted in accordance
with the laws of the State of Delaware, excluding choice-of-law principles of
the law of such state that would require the application of the laws of a
jurisdiction other than such state.


 


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